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Another Perspective


In this case, Bulgaria and Romania were ahead of the United States.  On December 19, 2006, customers in those two countries were told that from December 31 of that year they could no longer get z890 processors; if they wanted mainframes in that class, their only option would be a z9 BC.  In the USA, and indeed the rest of the world, the end of the line for the z890 comes a year later.  When 2008 arrives, it will come without the z890, according to an announcement IBM made on June 26, which also states that by the middle of next year z890 users won't even be able to get model conversions.  If they need more (or fewer) MIPS, they will have to switch to a z9.

The sales life of the z890, which became available during the second quarter of 2004, has been ended after four years.  That might seem like a long time, but it really isn't in mainframe country, where users sometimes keep their systems for a decade, or at least like to believe they can.  The z890's bigger brother, the z990, is a year older, but it is still available, and so are model conversions and other changes in features like memory and channels.

Because software for the z9 BC is cheaper than software for a z890 with equivalent computing power, you might think the retirement of the older processor is a non-story.  But that's not the case for every potential user, because there are segments of the mainframe market where a z890 can provide better value than a z9.  In fact, to the extent there are used z890s available, and that is not a great extent, quite a few big iron shops are going to miss the older machine.  For these users, the possibility of getting a used z890 on the cheap not only provides an additional option, it also gives the customer a bit of bargaining power in negotiations that include the possibility of not only a used z890 but also a new z9.

Next year, a mainframe user who wants to change horsepower or boost memory might have to buy that computer from only one vendor, choosing only one product line, and, because IBM tightly manages the marketing of big iron, deal with only one business partner.  Some users might find a used z890 with the right configuration, but most will not.

In addition to commercial users, there is another group that has been thinking about the z890, and that's the software developers who are members of IBM's Partnerworld for Developers (PWD)program.  They get IBM systems software and middleware for free, so they don't worry about MSUs the way commercial users do, but if they want IBM to maintain their mainframe, the more MIPS they have the higher the cost.  For these shops, a used z890 can be a bargain, but only if it's the right size.  Among the constraints placed on PWD shops that want free software is that they must own their own eligible computer and not share it with others.  A group of two or more PWD outfits cannot share a mainframe and still get IBM software for the nominal price of a subscription to the PWD software service.

With z9 BC systems starting at more than a hundred grand and used z890 systems a lot cheaper (when a buyer can find one), the current tactic used by prospective buyers is to look for a z890 that's the right size and if not try to find out that's a bit faster.  The faster machine can be downgraded to one that has the right horsepower (and the right size bills for maintenance and, where applicable, IBM software) for $9,000 to $11,000.  The downgrade, which is basically a change in microcode, is offered by IBM to business partners for about $9,000; the business partners sell it to users for whatever the market will bear.  The result can be a two-step path to a more affordable system, or, in horse-trading terms, one more possibility that comes into play at a shop that can only afford a z9 if IBM or a reseller provides a substantial price break.

With a year to go before a z890 user will be locked out of upgrades or downgrades, you might think there's plenty of time for anyone who wants to stick with the older system to find a suitable used box, get it installed, and order any changes in MIPS and features the deal entails.  Well, that might not be the case.

The minute IBM issued its announcement letter the handful of outfits that trade in used mainframes examined their positions.  These companies will, at times, buy mainframes on speculation, believing that they will be able to sell them for a nice profit at some future date.  But only a fraction of z890s ever get put in play because IBM's financing arm owns.  It is not inclined to unload very many machines on the open market.  When IBM gets a machine back at the end of a lease, it might be better off using the equipment internally, as part of a services contract, or as a source of spare parts than it would be selling it outright.  After all, if there are no z890s on the used market, customers will have to take a new z9.  The other source of used z890s is the minority of customers that bought the machines outright, either because they planned to use them for a long time or because they are services organizations that don't want to be tied into IBM's lease deals.

Without a change in the posture of IBM Global Finance, which has not been a very prolific source of z890 systems so far, customers looking for a used z890 are going to need good luck and good timing if they want a machine in place and properly configured before the curtain drops.  Along the way, and almost certainly after June 30, 2008, those same customers will find that they will have to go to IBM for a new z9 system if they want to replace or add a mainframe.

Nevertheless, we believe that there is very little speculation on the part of remaining handful of used mainframe traders.  Yes, they figure it will be a seller's market for some z890 processors, particularly smaller ones.  But there are two or three possibilities on the horizon that could knock any upside off the value of a used z890 they buy today.

First, users with modest processing requirements might abandon the idea of owning a mainframe and instead turn to a hosting company.  These users might not love the idea of computing by wire, but when they look at the numbers love might not get much of a chance.

Second, IBM might yet announce a new, small mainframe that provides better price/performance than the z9 BC.  Right now, it doesn't look like IBM has any interest in selling a mainframe based on, for instance, a version of its Power chip.  But right now IBM has managed to cut off Flex-ES emulators that served the low end of the mainframe market, and it has also stymied Platform Solutions.  That brings us to the third possibility.

By the middle of next year, IBM could settle its differences with Platform Solutions.  That would not only bring a new vendor into the mainframe market but also raise users' appreciation of mainframes based on alternative processor chips.  Platform Solutions uses HP servers that have Itanium brains, and while they are not compatible with IBM's legal position they seem to be compatible with IBM software.  It's even possible that a settlement between IBM and Platform Solutions would lead to a revival of the Flex-ES product line, although it's very hard to predict how well IBM-compatible alternatives would actually sell, particularly if Big Blue offered its own Mainframe Jr.

Customers who want to play it safe should probably bet on IBM getting its way on all fronts, and that means accepting life with a z9 or starting right now to hunt for the z890 that makes the budget spreadsheets prettier.

— Hesh Wiener July 2007

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