A Publication of iSeries 400 Experts Total Information Service

Power 5 anticipation reduces iSeries residual values

      Ever-increasing price/performance ratios gained with Power 4 and soon-to-be-announced Power 5 processors will drive down the values of 8xx iSeries hardware on the secondary market, significantly decreasing used hardware purchase prices.

      “The biggest impact on the iSeries market value is the new processor technology. With the upcoming announcement of Power 5, which will require a box swap upgrade (as opposed to a board upgrade), we expect to see a higher volume of used hardware entering the market. As this supply increases, prices for these used boxes will decrease,” says Jennifer Koppy, senior research analyst in leasing evaluation service, IDC, Framingham, MA.

      According to IDC’s IBM iSeries and AS/400 Life Cycle Report, March/April 2004, some Power 4 machines are on the secondary market today, but because these Power 4 boxes are so few and far between, resellers can demand a higher price point. However, IDC expects that the advent of Power 5 hardware in the second half of 2004 will flush more of these Power 4 boxes into the secondary market.

Contributors to the iSeries’ decline in residual value

      Beyond the introduction of Power 5 hardware, IDC identifies several key factors driving hardware to the secondary market, thus reducing the residual values of iSeries hardware in 2004. Primary drivers include:

      New rackmount option with next-generation iSeries. According to IDC, IBM will likely announce a rackmount option with the new iSeries hardware, expected to help the sale of lower-end systems. “With the economy being down, customers are more willing to spend money incrementally rather than to buy one big system. This new form factor may motivate smaller shops to upgrade to a rackmount option, pushing their older systems and form factors into the secondary market,” says Koppy.

      Lack of upgradability from 7xx. Because there is no easy upgrade path out of 7xx, the residual values of these older boxes have declined sharply. “The Power 5 announcement will be the nail in 7xx’s coffin. It will be tough to find a 7xx buyer, so the value of these boxes is quickly reaching salvage status,” says Koppy.

      SPD to HSL. While shops can still use the older SPD-based peripherals with Power 4 systems through a migration tower, IBM has been pushing iSeries customers to upgrade to High-Speed Link (HSL) I/O for some time. “When these shops upgrade, everything that wouldn’t work with HSL gets pushed to the secondary market, lowering the cost of SPD,” says Koppy.

      AIX support on iSeries. IDC also expects support for AIX in an iSeries partition, slated for V5R3, to generate demand for the newer iSeries servers and to weaken the demand (and the price) for older ones. “If [AIX on the iSeries] takes off, there will be a greater demand for supporting iSeries hardware, driving older hardware to the secondary market. Conversely, if IBM offers OS/400 support on the pSeries, iSeries sales will suffer because the pSeries is cheaper. After iSeries sales are hurt, the pain will trickle down to residual values,” says Koppy.

      See box below for a partial listing of iSeries hardware and its projected residual value through 2007. For IDC’s IBM iSeries and AS/400 Life Cycle Report, March/April 2004 (document #31081), see www.idc.com.