As IBM sales suffer, now's the time to buy a new mainframe

Mainframe customers haven't always had much leverage to negotiate with Big Blue, but now may be the perfect time to strike a new contract with IBM.

Mainframe customers haven't always had much leverage to negotiate with Big Blue, but now may be the perfect time to strike a new contract with IBM.

"Negotiating with IBM when they're the only game in town is kind of like playing poker with someone who always gets two aces dealt to them," says Gartner analyst Mike Chuba.

But the economy and other factors have cut into IBM mainframe hardware revenue, and IBM's sales team may be feeling some anxiety. IBM System z mainframe revenue decreased 26% year-over-year in the third quarter, and dropped 39% in the second quarter.

"2009 has not been a kind year for the folks who sell System z hardware," Chuba says. "Right now, chances are your typical IBM [salesperson] is in serious danger of not making quota. They're looking to make whatever revenue they can this year. You're in good shape for negotiation."

Chuba led a broad discussion on the mainframe market during a session titled "How to get the most from your IBM mainframe investment" at this week's Gartner Data Center Conference in Las Vegas.

Customers on the fence about bringing in new capacity could end up with a "too good to be true" offer, Chuba said.

Other strategies for saving money include purchasing IBM's mainframe specialty engines – the IFL for Linux, zIIP for database workloads and zAAP for Java and XML. The functionality of these specialty engines is limited but they are priced at a fraction of IBM's general purpose mainframe processors.

A vendor called Neon has released software designed to reduce mainframe costs by moving additional workloads to the specialty processors. The software essentially extends the capabilities of zIIP and zAAP beyond IBM's stated intent, letting customers move workloads off more expensive general purpose processors, Chuba said.

However, IBM has reportedly warned customers that using Neon's software may violate customer agreements. Chuba advised customers to carefully review all contracts with lawyers. So far, Gartner has not been able to find any customers who have saved money by using Neon, but Chuba says "It's potentially very damaging to IBM if this were to take hold because suddenly you might be able to run 3,000 MIPS worth of work on a 1,000 MIPS machine with a bunch of specialty engines."

Overall mainframe capacity in the marketplace, as measured in MIPS (millions of instructions per second), is continuing to grow in part because large IBM customers are adding to existing investments, Chuba said. But the total number of customers is drifting downward for IBM's mainframe business.

According to a poll of the Gartner audience, the cost of IBM and third-party software, management perceptions that the mainframe is outdated, and an aging of the mainframe workforce are among the top inhibitors of mainframe growth. Price-performance of the general purpose mainframe processors is not exactly skyrocketing, with improvements of only about 10% seen each year over the past decade, Chuba said. IBM has accelerated price-performance of its specialty engines faster than its general purpose mainframes, he added.

While the economy has played a role in poor sales, some customers may also be delaying mainframe purchases until IBM unveils more details about the next version of the mainframe, expected sometime in 2010. If sales continue to stall, IBM could be forced to hasten the release of a successor to System z10, the current version of the mainframe, Chuba said.

"IBM can't afford for this to continue on into 2010 without taking possibly stronger actions to generate demand," Chuba said. "That may include timing of z/11. If you listen to IBM's public pronouncements they're steering you toward later in 2010 for general availability. How this plays out may shape whether they are pressured to move that product forward [more quickly]."

Customer options are limited in some ways at the moment, however, because IBM recently said it will stop marketing System z9 mainframes effective June 30, 2010. At that point, System z10 will be the only option for customers looking to add capacity.

The best deals from IBM right now may be the "System z Solution Edition," a series of seven integrated hardware, software and services packages.

"If you're going to go into a negotiation with IBM right now and want to get the best price, the first two words out of your mouth should be 'solution edition,'" Chuba said.

Tags mainframeserversIBM

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Jon Brodkin

Network World

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