IBM Targets Oracle-Sun, HP With Buy-Back Program

IBM is using its financial muscle to take a shot at Oracle-Sun and HP.

The $95 billion computer behemoth has announced a new IBM Global Financing (IGF) program aimed at buying back old Oracle-Sun and HP systems. At the same time, the program will provide attractive financing terms in a bid to get enterprise customers to upgrade to new IBM Power Servers.

The IBM terms for qualified customers include no payments until 2011 and financing for a complete multivendor solution, including hardware, software and services related to the IBM Power upgrade.

The launch of the program coincides with the shipment next week of IBM's mid-range Power 770 and high-end 780 and 795 systems which have received rave reviews for dramatic improvements in computing speed and database performance.

The finance program also comes amidst what can only be described as tabloid-like theatrics surrounding Oracle Sun and HP regarding Oracle's decision to hire as president former HP CEO Mark Hurd, who left his post as HP's top executive last month amid a sexual harassment investigation that was ultimately unfounded.

Joe Mertens, president of Sirius Computer Solutions, San Antonio, Tex., IBM's largest and one of its most respected partners, predicted the IBM program is going to accelerate a trend of customers jumping from Oracle-Sun to IBM.

"IBM's strategy of structuring a financing/trade-in program around Oracle Sun is dead-on," said Mertens. "IBM already has a 30-60 percent performance benefit (with the new Power systems) and they have a more open-strategy (than Oracle Sun) that clients want. The question is how do you lower the intitial cost of acquisition and spread it out? That's what IBM has done here. They are allowing customers to trade in old iron and structure the payment stream so it doesn't impact the current (tight IT budget) period. It's a winning combination!"

Customers are already migrating off of Sun hardware at a rapid clip in the wake of Oracle's $7.4 billion acquisition of Sun earlier this year, said Mertens. Sirius, for its part, has migrated 10 customers off Sun systems to IBM Power based systems.

Next: Customers Don't Like Oracle-Sun Lock-In

Many customers don't like Oracle's strategy of locking in customers to a vertically integrated Sun-Oracle technology stack, said Mertens. "We are seeing lots of customers interested in switching from Sun mostly because they have doubts relative to Oracle's strategy," he said. "They don't want to be locked into an Oracle only strategy in term of software and hardware."

The uncertainty surrounding Sun comes with IBM riding one of the biggest system performance gains in many years for its Power based line. "Power 7 has dramatic performance gains over Sun," said Mertens. "It's driving a lot of traction and conversion. The biggest problem for most clients is biting the bullet on a big capital (expenditure)-based IT acquisition." That's why the financing program that IBM is bringing to the table is so critical, said Mertens.

The IBM financing program marks one of the first times the company has combined buy-back, leasing and payment deferral terms at a specific set of competitive accounts, said Dan Ransdell, GM, IBM Global Financing, North America. He said the ability to bundle up-front software and services into the financing program is going to be critical in helping IBM solution providers win big deals in the current economic environment.

IBM has seen a trend over the last couple of years of enterprise customers looking at "conserving cash for core lines of business" rather than IT expenditures, said Ransdell. "Our rallying cry (to customers) is save your core lines of credit for your core business needs and use IGF (IBM Global Financing) as an IT financier to finance your IT needs whether it be software, services or hardware."

Many customers are finding the IBM Global Financing programs attractive because they "accelerate positive return on investment" by spreading out the cash outlay for IT equipment over time to better align with return on investment (ROI) cost benefits, said Ransdell.

The popularity of leasing and financing programs comes with customers grappling with reduced capital expenditure IT budgets. Many of those customers are looking to move toward more monthly recurring operating expense based IT models. That favors lease and cloud computing models which provide computing capacity as a monthly per usage service.

The IBM offer comes with a "screaming" Power 7 product line refresh and a lot of "noise" "emotion" and "uncertainty" surrounding competitor's product offerings, said Ransdell.

"We are very clear on our product plans and stand behind what we have to offer in terms of price performance and financing," he said. "There is no uncertainty with what you are getting from IBM versus the competition."