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December 6, 1987


By CBR Staff Writer

More than a dozen, and perhaps as many as 20 IBM 3090-200 mainframes are now in storage across America, Hesh Wiener writes from New York. These machines, less than two years old, are already orphans, sitting in warehouses alongside abandoned machines one, two, perhaps three generations old. The processors cost more than $4m each when they were first installed during the third quarter of 1985. They had been announced in February 1985, and were supplanted by the 3090-200E earlier this year. The development is exactly as forecast by Econocom International NV at the end of July (CI No 737). Last year at this time, IBM’s sales reps were hawking them as the latest and next to largest IBM computers available. Today, the owners of these machines would be lucky to get 60% of what they paid for them, and eventually they may have to settle for half. Users who have 3090s – there are about 1,000 model 200s and 350 model 400s in the US alone – have no idea that their machines are already white elephants. Nor do the companies installing new 3090s realise how much money they are wasting. These users could get second-hand computers cheaply and then have IBM upgrade them to E models for much less than a new machine costs. IBM appears unconcerned at the situation, which is largely a result of its all out effort to ensure good fourth quarter figures. It has encouraged users who want their 3090-200s upgraded (typically to 3090-400Es) to take a new machine instead, and sell or sublease their installed processor. Third parties have blithely taken the 3090-200s into their portfolios, some on the assumption that the machines were worth as much as 75% of IBM list, but more often at a lower price, 65% to 70% of the $4.1m IBM lists for a 3090-200E. Now the third parties are choking on the machines, and users looking for a buyer willing to pay more than 60% of list must find either a dealer with a standing order for that computer at a higher price – or a fool. IBM’s top priority is to show growth in profits over both the 1986 fourth quarter and full year, but its efforts have poisoned the market. Displacing installed machines can be difficult, and users who hesitate as IBM tries to get them to replace their nearly-new 3090s with newer, larger ones find themselves the recipients of unprecedented discounts. Companies that provide financing for IBM mainframes say that discounts on a single 3090-600E can run 12% to 15%, in addition to which IBM will throw in six months’ On-Site Test Allowance. The Allowance is IBM’s way to allow users to defer payment for a machines that is ostensibly being tested before final acceptance. The financial value of the Allowance is half a year’s interest on the full price of the machine. The user organisation getting a machine on those terms can put the cost of the box into next year’s budget – while IBM books the sale this year. Wall Street, already somewhat disillusioned with IBM’s prospects for the coming year, may soon catch on to the situation – particularly as some of the financial world’s formerly pro minent names – led by Shearson Leh man Brothers and E F Hutton – are about to consolidate and otherwise reduce their data processing dep artments, putting more nearly-new IBM iron out on the street. IBM shares were off another 75 cents at $105.75 by midday Friday; DEC was off $3.25 at $113.25 and the Dow Jones Index was off 17 points. But shortly after the Black Monday mar ket crash, the DEC shares price was just below that of IBM; since then, the prices have diverged again and IBM has been the poorer performer.

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