IBM to CFOs: Server ROI trumps TCO

IBM is already the world's largest server vendor -- at least in dollars, if not units -- but Big Blue's current efforts to increase fourth quarter sales could get a nice shot in the arm as the result of a new study. According to the Robert Frances Group (RFG) study on IBM’s HS 21 XM and HS 22 BladeCenter servers, a return-on-investment approach to purchasing servers can deliver savings of almost 20 percent over five years, a positive ROI of almost 220 percent in the first year, and an overall ROI gain of 280 percent over a five-year period.

IDC reported server revenues dropped 30 percent year-over-year, and while IBM wasn't immune, with its revenues dropping 26.3 percent, it not only held on to top spot with 34.5 percent of the market, but even increased its market share by 1.8 percent. HP held down second place, but took top spot in the x86 market followed by Dell and then IBM.

As a result of the economy, chief financial officers are looking for an ROI of less than 12 months, and that's where the RFG study comes in says IBM. At the heart of the study is a new 'philosophy', a swapping concept, as opposed to the traditional buy-and-hold for five years that predominates. It also reflects an evolution from total cost of ownership to return on investment, states the company.

According to IBM, the 'swap-to-grow' methodology enables IT executives to upgrade technology and provide for added capacity requirements while cutting costs without cutting personnel or services. A piecemeal acquisition model consumes 'precious capital, drives up operational costs, and is contrary to corporate sustainability and data center consolidation objectives.'

The study considered a number of factors, but the key elements were products and technologies, and financing terms and conditions. It's the combination of the two that offer the compelling value proposition to IBM's customers and channel partners, says Tom Higgins, director of worldwide general business sales for IBM Global Financing.

RFG found that it is more economical to lease for three years than purchase for five years. At least that's what they found for IBM systems financed by IBM. According to IBM's Jack Berry, analyst relations, the company knows what it can sell the equipment for after it comes off lease and is therefore willing to assume a higher 'residual value' component that is included in every lease.

The results of the study are really significant to customers, says Higgins. "Customers are looking at ROI. If customers are going to move forward with projects and partners want to help them, then this is an important study."

The study is the first part of a three-stage initiative. He said it will be followed by a white paper in "excruciating detail", which will be followed by a tool that will enable partners and customers to plug in specific data to see exactly what the outcomes will be. Higgins believes this will be a powerful tool for both IBM's sales force as well as its channel partners.

One reason is that customers continue to be cautious in this environment, less willing to spend, and involving CFOs in IT decisions more than ever before. "That's why the study is so critical. It helps CFOs go forward with improved cost and return metrics."

Together with a number of financing initiatives IBM has rolled out for the fourth quarter, and Higgins believes customers can see paybacks by June 2010, a six-month ROI. "As many CFOs are looking for paybacks of less than 12 months for projects, this would help a lot."

Rolled out in October, the toolkit of financing offerings from IBM Global Financing includes deferred payments, zero percent financing and attractive prices on IBM-certified pre-owned equipment. For smaller customers, Big Blue is offering a specially configured set of cross-IBM solutions that can be acquired at a low monthly price per month, per user. Higgins adds there is also an opportunity to take advantage of the US Economic Stimulus Act of 2008 with rates as low as 1.5 percent.

"All of those fourth-quarter promotions are there. Combine them with the swap-to-grow leasing model and you can see paybacks by June 2010."


 

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