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February 1, 1989

LEASING COMPANIES AND USERS TO TAKE A BATH ON THEIR IBM 3480 TAPE SUBSYSTEMS

By CBR Staff Writer

The market for used IBM 3480 tape subsystems is crashing – as we reported yesterday (CI No 1,106). Equipment dealers say the market will continue to fall. The reason is that large numbers of installed 3480s, both leased systems and those owned by users, are being displaced by Storage Technology Corp’s automated tape library and 3480-equivalent controllers and transports. Three large users – rumoured to be Boeing, Kemperer Insurance, and American Airlines – plan to dump an estimated 400 IBM 3480s on the market during the next few weeks. Even more used equipment will be orphaned through the spring, they add. For now, the used 3480 market seems to have no bottom. IBM’s 3480 cartridge tape subsystems consist of two units: an A model, containing a controller, and a corresponding B model, which contains the actual transports. Nearly all the installed machines are models 3480-A22 and 3480-B22, which have two transports per B unit and matching electronics in the control unit. They were first delivered to users in the late spring of 1986. The A22 lists for $56,930; the B22 for $39,840. IBM also makes a somewhat less expensive single-transport-per-box subsystem – the A11/B11 which has sold so poorly that industry wags suggest IBM hasn’t even recovered the cost of making nameplates for the cabinets. The 3480 crash was unexpected, despite StorageTek’s repeated claims that its equipment was selling briskly. At the start of the year, used 3480-A22s were routinely sold to users for $44,000 a unit, or 77% of IBM list, while B22s were going for $23,000, or 58% of IBM list. By the end of January, used 3480-A22s were available on the spot market from used equipment dealers for $36,000 apiece, or 61% of IBM list and 3480-B22s were available at $17,000 each, or 43% of IBM list. Systems ordered for delivery in the future – in May or June, for instance – are being quoted as low as $33,000 for an A22 and $14,500 for a B22. This indicates that dealers are going short, selling promises of equipment today in the belief that they can readily obtain the units for less in time to deliver them. Such speculation is common in the used IBM equipment business, but it is not always a reliable indicator of future prices. IBM has said it will substantially increase the recording density of its 3480s later this year. This has had no impact on users, however, for StorageTek has apparently assured its customers that it will match anything IBM offers. Nor has the 3480-compatible business been a one-vendor game. Memorex offers 3480-like tape units, too, as well as a Hitachi-made automated tape library. Third parties say that the Hitachi tape drives have been well received, but that the Japanese robotic tape library is not as attractive to customers as StorageTek’s. Among those affected by the unwinding of the tape market, in addition to end users that have invested in the machines, are lease investors. Prior generations of IBM large system tapes have held value for a long time; lessors had been able to profit on IBM 3420s even if they charged low monthly rents. US three-year lease rates on 3480s have been so low that lessors can only make money after six or more years of steady rentals. Unless the used 3480 market makes a startling reversal, leasing firms and their investors will take a bath, losing as much as half the money invested in 3480s during the past year. Even ones that funded 3480s during 1986, their first year of shipment, stand to lose a quarter of their investment as used 3480s pile up, off rent, in warehouses around the US.

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