Customers buying 9021 mainframes can expect deeper discounts for the remainder of the year, writes Hesh Wiener in this month’s Infoperspectives International. In July, IBM bid a three-processor deal in the US at about half list price. In addition, IBM allowed the customer to defer a significant portion of its payment and, as is common, hold onto its old computers for a few months after the new machines come in. The machines being bought are two 9021-820s and a 9021-860, all moderately loaded with memory and channels; the machines to be traded in are believed to be two 3090-600Js and a 3090-500J. One 820 lists for $19.3m. IBM bid the machine at $9.4m and it’s offering $2.8m for the installed 600J. The customer gets paid on closing and IBM gets some of its money at installation of the new machine and the balance of $2.7m on December 31. The deal on the second 820 is identical, as is the trade-in, but the customer is supposed to pay for the machine all at once on installation. The third processor, the 860, lists for $22.2m. IBM has bid it at $9.6m and is in addition buying the customer’s 500J for $2.35m. Payment is due on installation. Nor are deals like this restricted to the handful of giant companies that buy mainframes three at a time. During the same period, sales of single systems reportedly have been made at 40% off list. The lower prices are necessary because customers believe that IBM’s current machines will be replaced by improved versions early next year. If IBM couples the expected enhancements with new functionality and associated software, users who must stay at the leading edge will be obligated to invest substantial additional sums in their large systems. Thus IBM’s discounts may be viewed as a way to make the imminence of midlife kickers more palatable. But that is not their only impact. IBM’s charges for new machines put a cap on the value of installed equipment. Any customer forced to sell a 9021 today cannot get half of list or even half of list minus a year’s maintenance. And, because IBM’s prices can only get lower, future takeouts will be even less lucrative. Finally, with a kicker due in early 1993, the resale value of an installed 9021 is likely to fall to a third of IBM list by the middle of next year. The probable decline in value is not of great concern to lessors that own the machines. They expect customers to want upgrades to midlife kicker versions of the mainframes when they become available. The upgrades will bring the equipment in their portfolios up to date and up in value. End users that own the machines and also plan to buy upgrades are in the same position: when they resell their 9021s they will get what the market pays for their upgraded systems, not the residual value of an untouched and ageing original. Customers that have paid a lot more than IBM’s lowest prices for their machines will have to face the grim realities of an unforgiving market when they dispose of their computers. Similarly, lessors that acquired systems at high prices or assumed excessive residual values will have to work very hard to squeeze sufficient rentals from their assets to cover costs, let alone turn a profit. The lessor with the safest portfolio is IBM Credit Corp. But that organisation’s comfort comes in part at the expense of its lessees, whose deals make it more difficult and more costly to manoeuvre as mainframe technology changes.
