MAINFRAME PRICES CONTINUE TO IMPLODE.

In its talk with Wall Street in the aftermath of announcing its year-end financial results, IBM admitted that even though it increased mainframe MIPS shipments by 60%, prices had plummeted by 40% during 1998. IBM is increasingly having to sell mainframes based on price, not on their scalability and reliability, and the signs are that prices are falling even faster than IBM and its resellers probably expected. In late December, dealers were offering a G4 series 9672-RA5 for about $255,000 or $5,200 per MIPS; as of late January, prices had dropped to $170,000 or $3,500 per MIPS. A used G3 9672-R14, which has about the same power, was being rebranded by IBM Credit as new and had an almost identical asking price, which has now dropped to $110,000 or $2,300 per MIPS. As the year ended, G5 asking prices at the high end of the line were somewhere around $4,000 per MIPS at the high end of the line, and were between $4,500 and $5,000 per MIPS at the low-end of the line, where the high cost of a basic frame tends to drive up prices. But that doesn't mean customers have to pay those higher prices. There are, according to the Infoperspectives newsletter that tracks mainframe prices (www.tech-news.com), plenty of G3 series 9672 CMOS mainframes in the open market after coming off three-year leases, and prices are much lower and falling fast. These machines only have a 48 MIPS engine, compared to the 125 MIPS of a G5, but not many small mainframe shops need that fast an engine anyway. The low-end G3s are right now selling to end users for $2,500 or less per MIPS, and by the end of the first quarter, as IBM and resellers scramble to make their numbers, prices will very likely dip below $2,000. Multiprise woes The low-end G3 machines are taking a bite out of the alternative Multiprise 2000 line, which was supposed to offer a low-cost alternative to the 9672 line for 9221, 9370 and 4380 customers but IBM has only sold about 1,000 machines worldwide as far as anyone can tell. And customers who are really strapped for cash and don't need big MIPS can get by with first generation 9672s, which sell for between $700 and $750 per MIPS (with capacity ranging from 15 to 63 MIPS in a box), or second-generation 9672s, which are available secondhand for between $1,000 and $1,100 per MIPS (with capacity ranging from 15 to 170 MIPS in a single server). Software and maintenance fees are slightly higher for these boxes compared to newer gear, but in the end customers who buy older merchandise come out ahead, at least for the moment. Those who need the 150 MIPS power of IBM's G5 engines to crank through their big batch jobs (and who do not want to go with more expensive Skyline gear from Hitachi) have little choice but pay higher prices than this and get a new G5 machine from IBM or equivalent machinery from Amdahl or Hitachi. But even here, prices are not all that high. According to people familiar to one big deal for a G5, Amdahl and IBM were fighting it out to get the sale and Amdahl bid its biggest CMOS mainframe, the Millennium 8Z8, which has 1075 MIPS of capacity and a list price of $3,600 per MIPS, for a low-ball $3,000 per MIPS - and lost the deal to IBM, which big a G5 series 9672-YX6 for $3,500 per MIPS (and presumably threw in all kinds of services and probably software breaks to make the deal). There are, apparently, lots of high-end G5 deals with prices well below $4,000 per MIPS, and as the year unwinds prices are likely to erode quickly if IBM finds that demand has diminished because customers bought lots of extra capacity in 1997 and 1998 to cover their Y2K projects. Word on the street is that lots of big firms bought an extra 50% of processing capacity to let them test their code on the same machine that they use in production, and when testing is done, all that capacity will be available for real work. That makes it difficult for any mainframe vendor to peddle new equipment. None of this bodes well for the G6 series of mainframes, which are expected sometime in May or June but which could be slipping, or Hitachi's Skyline IIs, which will be announced sometime in the first quarter for deliveries sometime in the third quarter. If high-end mainframe prices have to drop to $2,500, it is hard to believe that anyone can make any money selling them. And IBM, which at least has software sales to fall back on, is increasingly under pressure to cut mainframe operating system and middleware prices, but is frozen from doing so as its mainframe hardware business shrinks.