About two years ago, when IBM Corp first started delivering 9672 mainframes, it also gave customers a new and very attractive financing option. The Entry Server Offering, or ESO, was a unified financing deal that brought together hardware, software, maintenance and services. It also included a provision called the Technology Upgrade Option, or TUO. Basically, the TUO allows the lessee of a 9672 to move to a machine with twice the MIPS in return for a 10% increase in monthly charges and an extension of the term of an established Entry Server Offering deal by 36 months. The option may be exercised 18 months after the inception of an ESO agreement and the upgrade must be installed by the 24th month of the ESO. The duration of a standard Entry Server Offering is 36 to 48 months, so if a lessee exercised the Technology Upgrade Option, the length of the term would be increased to 54 to 60 months. IBM got most of its 9672 customers to go for the Entry Server Offering deal. The 9672 users who are now eligible for the upgrade option include all R-1 customers who got delivery from the fourth quarter of 1994 through the first quarter of 1995. The rest of the base (except for the handful of users who got their machines in the third quar ter of 1994) will soon be in its six-month window for a decision. What will they do? And how will the brief history of the 9672 influence the plans of new customers? While there are only a relative handful of 9672s in the used mainframe market, they are very inexpensive.
By Hesh Wiener
A customer interested in one of these machines can expect to pay $6,000 to $7,000 per MIPS, or about a third of the original price of the hardware. Today, a three-year full payout lease on a used R41 would run about $11,000 a month. Although IBM sold the ESO as a unified package, we reckon that the hardware portion of a R41 user’s ESO deal covered about $500,000 in machine value for about $11,000 a month. Exercising the Technology Upgrade Option would boost the total cost by 10%, but as mainte nance and software charges for a 9672 don’t double when a machine is upgraded from a R21 to an R41, the associated hardware cost would go to $12,500 or $13,000 a month. In other words, a customer who had signed a deal on a 9121-440 a couple of years ago and today started moving to CMOS might have come out slightly better than one who went the 9672 route in the first place, depending on the configuration, plus maintenance and software license fees. Because the routes have similar costs, and becaus e 9121s have come down in price at least as quickly as new CMOS processors, a third-party lease on a 9121 is still a viable choice. IBM’s 9672 ESO deal is not the best option for everyone. To be sure, the IBM plan has allure, but so does the added f lexibility of third party arrangements. That is why the minority of mainframe deals not cut by IBM’s credit subsidiaries are concentrated among the largest enterprises. Big money isn’t always smart money, but in this case it warrants some respect.
( C) 1996 Technology News of America Co. All rights reserved
