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46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951
© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
The Advantages of
IBM Power™ Systems
In-Place Upgrades
Cal Braunstein
CEO and Executive Director of Research
46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951
© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
Table of Contents
Executive Summary .................................................................................................................................. 3
Growth is a Constant ................................................................................................................................. 4
In-Place System Upgrades: Same Server, New Engines .......................................................................... 5
The Value of Leasing ................................................................................................................................ 6
TCO Analysis Considerations ................................................................................................................... 7
TCO Findings .......................................................................................................................................... 10
Conclusions ............................................................................................................................................. 14
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© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
Executive Summary
RFG believes the conventional and accepted approach of building out Unix-based server farms by
provisioning additional purchased servers when needed proves to be a poor practice for server
management. When all factors are taken into account, RFG's total cost of ownership (TCO) analysis
shows that Fair Market Value (FMV) leasing, coupled with in-place upgrades is a more economical
approach to server management for Unix server farms with increasing workloads. This approach can
reduce both capital and operational expenditures over a five-year period, bypasses the need for 60
percent additional floor space, and eliminates the administrative overhead of added server
configurations. Moreover, by refreshing servers regularly, the data center sees gains in energy
efficiencies and maintains platform currency, thereby obtaining the advantages of the latest
technologies. IT executives currently leasing and upgrading their Unix servers should maintain the
course. IT executives currently purchasing their servers should work with their finance staff and
preferred server vendor should do a detailed analysis of their server needs to determine if leasing with
in-place system upgrades is desirable. If so, finance and IT executives should work with their server
vendor to structure a package that best meets current business, financial, and IT objectives.
Business Imperatives:
It is more economical to grow servers vertically through upgrades than it is horizontally with the
addition of new servers. This is especially true when the servers are leased. The piecemeal
acquisition model used by most enterprises consumes precious capital, drives up operational costs,
and is contrary to corporate environmental and data center consolidation objectives. IT executives
should work with their financial teams to determine which acquisition model is most appropriate
for their organization.
Using a holistic approach to provisioning server processing requirements enables enterprises to
utilize more rapid refresh periods and hardware leasing as a means of controlling cost increases.
This paper evaluates a real-world example that considers the total cost of ownership (TCO) for a
server farm of 100 IBM Corp. Power Systems servers wherein performance growth of 10 percent
every six months over a five-year period is experienced. The use case compares data centers
starting with eight-core IBM System P6 570 servers. The comparison pits servers leased over 40
months with some in-place upgrades after 20 months against those purchased and scaled out over
five years. RFG finds that upgrading servers every 20 months results in zero growth in the total
number of deployed servers, whereas using the traditional approach of horizontal expansion would
necessitate a 60 percent expansion in the number of servers. IT executives should understand how
an upgrade strategy would work within their environment and apply this data center management
and cost containment strategy to those business sectors where it is economically and operationally
possible.
Leasing should be given very serious consideration in today's economic environment, as most
companies' IT investments are capital constrained and IT still has to address increasing processing
demands. Regardless of the financing method used for the current set of Unix servers, enterprises
can take advantage of the in-place leasing model. Companies that have purchased or financed their
existing servers can take advantage of a sale/leaseback program that is available from most server
vendors and then leverage leasing to enable further growth. Finance and IT executives should work
with their preferred server vendors to evaluate what leasing program would best map to the
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© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
enterprise's business and financial requirements.
Growth is a Constant
The old adage "the only constant is change" is as applicable today to the ongoing need for data center
investments as it has always been. While the economic uncertainties are driving corporations to temper
capital and operational expenditures, data center expansion investments remain a business requirement
that needs to be addressed. The current regulatory requirements such as the Sarbanes-Oxley Act of
2002, the Federal Rules of Civil Procedure, and others help to explain some of the growth demands.
But many enterprises also cite aging equipment, new business analytics applications, business
application growth, business continuity and disaster recovery projects, consolidation efforts, and
outmoded architectures as the key intensifying instigators of demand. The need for architectural
improvements is both essential and unavoidable; however, the delivery of more computational capacity
to the data center does not necessarily require enterprises to increase their number of administrators,
energy consumption, floor space, and servers at the rates most are currently experiencing.
Both the problem and the solution lies in the conventional way IT executives tend manage their growth
requirements. Requirements for increased hardware capacity are commonly addressed with organic
growth via the addition of new servers. Older boxes are left in operation until the five-year mark is
reached, a time period that coincides with increasingly aggravating maintenance and management
costs. This approach is based on standard depreciation practices that acknowledge hardware as "fully
consumed" after five years, but has little to do with optimizing the cost model or recognizing data
center trends and constraints. Moreover, the organic rather than strategic acquisition leveraged in this
methodology prevents IT executives from taking strategic control over the number and types of
systems in operation, leaving an assortment of multiplying and disparate machine types. Although
depreciation schedules are well matched to long-term investments such as real estate and complex
machinery, they act as a disservice to corporations by encouraging a hardware-only rather than a
complete TCO perspective.
New technologies and business practices including cloud computing, consolidation and virtualization
efforts are making an impact by slowing down server sprawl, but implementations ignore the cost
implications of keeping older servers in place. Additionally, the impact of these efforts can be modest
as IT executives are rapidly learning that utilization rates on lower-end Microsoft Corp. Windows and
Unix-based systems are only able to achieve relatively low utilization levels. Vertically-integrated
hardware including IBM Power Systems servers allow for utilization levels of up to 80 percent or more
and can generally accomplish the same amount of work with a smaller comparative footprint than the
lower-end processors. The use of vertically-integrated instead of distributed servers will only eliminate
part of the problem as the rate of required computing expansion may still force corporations to expand
their data centers. Older boxes that remain online until functionality and performance levels become
overly burdensome is contrary to TCO optimization efforts, and the use of consolidation and
virtualization efforts masks some of the damage done by underutilizing data center space. The ideal
solution therefore allows for hardware to be regularly refreshed in a manner that minimizes the ongoing
costs associated with service delivery and puts the least amount of strain on scarce capital and data
center resources.
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© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
In-Place System Upgrades: Same Server, New Engines
Previous RFG research has demonstrated that a three-year refresh cycle is preferable to five-year model
for hardware including PCs, blade servers, and commodity x86 systems. The reasons for this are
primarily due to the rising costs of operating system and application patching, hardware failures, and
warranty costs. In an ideal environment, IT executives would be able to swap out older systems for
newer ones whenever ongoing maintenance costs and rising computing requirements outpaced the cost
of new hardware acquisitions minus the existing boxes' residual values. In practice, the task of system
upgrade and migration is a complex and costly activity that requires careful coordination and for
systems to run parallel for a period of time to ensure all facets occur properly and without service
degradation. A TCO analysis that incorporates the rising operational cost vs. new hardware acquisition
equation may suggest that enterprises refresh some types of hardware more frequently than every 36 or
40 months. The fact, however, remains that the problematic nature of these changeovers and resource
constraints makes this achievement impossible, irresponsible, undesirable, or some combination of the
above.
In the case of the IBM Power Systems architecture, the inhibitors preventing wholesale upgrades are
easy to overcome. Years ago IBM merged its System i and System p platforms into the IBM Power
Systems line and enhanced the Power architecture with technologies that previously existed only in its
System z mainframes. Examples of such capabilities include abilities to run multiple operating
systems, logical partitioning, micro-partitioning, migration of live applications, processor resource
management, concurrent service and virtualization of hardware, network, and storage. One additional
capability that used to only be available on the mainframe is the ability to perform serial number
preserving system upgrades. This serial number preservation ability enables enterprises to contain costs
through technology currency at a reasonable cost.
An in-place system upgrade is the ability for an older server to be upgraded to perform identically to a
new server by swapping out processing hardware components for the latest technology. A key point
here is that this type of upgrade maintains the server serial number whereas an upgrade by doing a side
by side exchange would not. Many system components including the frame, power supplies, and other
components that tend to remain constant among models are left in place. This process allows an older
box to become functionally equivalent to new hardware while providing investment protection without
financing penalties due to the residual value recognition of the hardware carried forward. Similar to
what has transpired with IBM mainframes for many years, the ability to carry forward the serial
numbers is now available on selected Power Systems servers.
The fundamental concept to using the in-place system upgrade methodology requires IT executives to
rethink how processor capacity demands are satisfied. The horizontal scale-out approach that is
prevalent in non-mainframe environments is based on the belief that the addition of new servers to
satisfy added computing demands is the most economical solution. This paper demonstrates that this
belief is false. When a holistic, all-inclusive TCO analysis is used, it is clear that it is more economical
to upgrade Unix servers with more powerful ones on an "as needed" basis. There are no economies of
scale achieved in the scale-out approach while significant energy, facilities, personnel, and software
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© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
costs are gained through the scale-up methodology, especially when combined with a leasing program.
The addition of the leasing model also has radical impacts on warranty costs, which can drop from 50
percent of hardware cost when systems are kept for five years to 15 percent on servers that are
refreshed on a three-year basis. Finance and IT executives should understand the flaws with their
current model and the value proposition of a leased, in-place upgrade model and should alter their
approach where appropriate.
The Value of Leasing
RFG has identified 10 advantages that can be realized by leasing.
1. No up-front capital expenditures and credit line preservation. One of the primary concerns
facing enterprises today is the need to delay server and other capital purchases due to the large
upfront capital expenditures. Leasing evenly allocates payments over the period of the lease,
allowing corporations to realize the value of the new servers in concert with the payments.
Moreover, equipment leasing typically has no impact on corporate credit lines, thus allowing the
company to preserve the credit lines for revenue-generating business activities.
2. Operational expenses versus capital expenses. With capital a scarce commodity in enterprises
now and for at least the next 12 to 18 months, financial staffs are looking at ways to satisfy
expenditure demands that do not impair the cash reserves or the balance sheets. Leasing allows for
acquisition of equipment without a cash payment and operating leases remain off the balance sheet
for the entirety of the lease period whereas financing could alleviate the upfront cash payment but it
impacts the balance sheet. (Note: Implementation of the new International Financial Reporting
Standards (IFRS) guidelines may negate the off balance sheet statements. Executives should confer
with their accountants on how the rules should be applied.) Credit qualified companies can easily
obtain asset-based operating leases, as lenders remain in control of the asset and the risk of loss is
limited.
3. Technical currency through short refresh cycles. Server technology is undergoing a major shift in
architectural designs to support performance requirements through multi-core processors as well as
to address the new environmental demands. The advances being made impact the cost of software
and energy consumption. Companies that can remain on current technologies and use the scale-up
approach versus scale-out can take costs out of the system with each upgrade. Thus, contrary to
current perceptions, the use of short refresh cycles saves money.
4. Ability to circumvent budget limitations. Server leasing is a "pay-as-you-go" option that allows
enterprises to spread the system cost over the optimized useful life of the equipment. Moreover,
most leasing vendors will structure lease payment streams to accommodate short-term or long-term
budget challenges whereas purchasing requires a lump sum payment in year one or financing that
increases the cost of the purchase. It is also important to note the time value of money, which
exacerbates the costs of upfront payments. Finally, in today's environment, obtaining approval for a
large non-revenue generating equipment purchase could prove to be an extremely high hurdle that
could be overcome through leasing.
5. Licensing and Taxes. Through the use of proper asset management and the elimination of the
practice of keeping servers beyond their desirable retirement date, corporations can eliminate the
taxation and software licensing costs associated with systems that provide limited value. Licensing
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fees are based upon the number of servers or cores and not on the processor performance
capabilities (except for mainframes). Thus keeping the number of servers to a minimum helps to
contain these costs.
6. Potential for added services. Vendors view leasing relationships very favorably, as they are seen as
a more sustainable, profitable annuity. To advance leasing deals, vendors usually offer extremely
attractive interest rates to make the products more desirable and encourage an ongoing relationship.
All of the major hardware vendors have funding arms that are highly motivated to achieve good
rates of return on their monies and are eager to engage enterprises in long-term, mutually beneficial
relationships. Thus, vendors are willing to provide enterprises with low-cost or no additional cost
added services such as asset management tools and/or services. Which services companies choose
to obtain are largely based on the size of the deal and the IT executives' negotiation skills.
7. The end of End-of-Life Worries. End-of-life costs can be expensive, especially those that relate to
regulatory requirements for safe disposal. Leasing can assist with the management of end-of-life
services and can protect corporations from lawsuits and fines associated with improper disposal, as
the lessor maintains ownership throughout the lease. Additionally, enterprises may be provided with
greater "buyback" pricing as an asset's residual value – which is factored into the lease – can be
larger than the salvage value a vendor will purchase used equipment for by up to a factor of three.
8. To generate cash. Companies that currently own their servers might be able to convert these
declining assets into cash through the use of a "sale/leaseback" program. This will enable a
company to improve their cash position while positioning the firm for a leased system upgrade
program.
9. Better financial management. Financing and leasing structures can affect corporate financial
statements. Measurements such as debt-to-equity ratios, return on assets, EBDITA, etc. can be
effectively managed through judicious use of operating leases. These ratios are important to banks,
capital markets, investors, and executive management where compensation could be based on how
effectively these metrics are managed. Leasing is a tool that can assist in financial management.
10. Avoidance of asset ownership. There are conditions under which added asset ownership is a
disadvantage for an enterprise. The reasons can vary from compliance and legal issues to liability
exposures to debt covenants to disposal risks. Leasing eliminates this exposure.
TCO Analysis Considerations
The RFG models used for the TCO analysis assumed that an enterprise acquired 100 IBM Power
Systems eight-core servers in the initial year. These servers are performing a variety of tasks but each
server goes operational with a utilization of 60 percent. It is also hypothesized that the workload
demand is growing at 10 percent every six months uniformly for all servers. The servers are able to
increase in utilization until they reach 80 percent, at which point it becomes necessary to upgrade or
offload workload to a newly acquired servers.
RFG ran a use case that started with a data center populated with eight-core IBM System P6 570
servers. This scenario seeks to determine if a shift from purchasing to leasing still makes sense under
IBM's new pricing structure – i.e., where the vendor decreased the POWER7 processor prices by more
than 40 percent. RFG used IBM pricing and performance ratings for all processors currently in
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existence and extrapolated the numbers for all future generations.
Using the above assumptions, the model showed that upgrades or new purchases should be made every
20 months. RFG constructed a model that had new equipment installed at the end of months 20, 40,
and 60. (The upgrade at the end of the sixtieth month falls outside the scope of the analysis.) The model
assumes that in the purchase option none of the servers are refreshed; only new ones are purchased to
handle the added performance demands. For the leased equipment the model assumes that upon lease
end the hardware is not upgraded but retired and replaced with new servers. For the outlying years of
the model, RFG assumed that IBM would use its traditional approach whereby it delivers a
price/performance boost of 20 percent per annum. This occurs through price drops or performance
gains or a mix of both. Based on this hypothesis, RFG constructed what it believed to be the pricing
and performance characteristics of future IBM Power Systems servers – that being an improvement of
20 percent per year in price/performance. For simplicity RFG also assumed that IBM Global Finance
(IGF) would use its current pricing model for the future systems and that its financing or leasing rate1 is
a constant over time. RFG recognizes that financing leasing rates vary over time and by lessee, and that
in today's uncertain market there could be significant variability in rates which could greatly impact the
TCO results. Similarly for the purchased servers, RFG assumed there was no major upfront capital
expenditure, rather all units were financed at six percent and the payouts were over a five year period.
This assumption has a major impact on the investment (ROI) analysis. Thus, finance and IT executives
need to create their own models similar to these to determine the actual savings they would attain by
use of this methodology and incorporating their own variables.
Model Cost Components
Hardware: Server costs are an important component of the TCO but it is not the largest
contributing factor. Typically, the hardware runs between 25 and 35 percent of the overall costs
over the five-year cycle when financed. In these case studies, RFG has assumed that IBM would
not make any additional quantum price changes to its servers but follow its standard approach to
pricing and performance growth – that being a targeted improvement of 20 percent per year
improvement. RFG has also extrapolated the pricing for future systems based on IBM's past
methodology for pricing Power Systems servers. Actual results may vary but the variances should
not result in a change in the outcomes of the analysis. IT executives should employ negotiation
strategies to reduce costs through volume purchase agreements and other tactics, as well as pressure
vendors to provide low-cost or free services. Moreover, hardware consolidation and virtualization
strategies can be used to further lower hardware costs.
Deployment: This component incorporates the cost of building system images, installing the new
hardware, migrating system loads, and decommissioning the old hardware. In the study there is no
difference in the deployment costs amongst the options. RFG believes this understates the purchase
option slightly in that network and domain reconfigurations as well as application rebalancing may
need to be done, which can add to the overall deployment costs. Deployment costs for added
1 The leasing scenarios are for illustrative purposes only and are based on a 40 month FMV lease, best credit customer.
Actual financing rates are based on client's credit rating, financing terms, offering type, equipment type and options. Other
restrictions may apply as well.
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purchased servers could also increase if the new processors were a different server type.
Deployment of additional servers, which means reconfiguring networks and domains and manual
movement of cables, frequently causes outages that can result in revenue losses. Downtime losses
were not included in the analysis.
Provisioning: RFG viewed the provisioning costs the same for all options; however, companies
that would chose to use the RFP route for the acquisition of additional servers would find that the
expenses for added purchases through this path would be greater. Platform standardization and
volume purchase agreements can lower these costs.
Warranty: Standard warrantees are typically one or three years in duration, but they usually are for
peak hour service only and non-critical response times. This research analysis assumes enterprises
will want to upgrade their warrantees to include same-day, on-site turnaround for parts replacement.
The standard included warranty for low-end and mid-range servers typically provides coverage for
eight hours a day with a four hour on-site response while high-end servers typically offer 7x24
coverage with a four hour on-site response. Although warranty costs for year one are sometimes
included in the acquisition price, vendors frequently look for the full three- or five-year support
purchase to be paid up front. Many companies initially purchase the standard one- or three-year
warranty and then opt to extend it with additional two or more years of maintenance. RFG's TCO
analysis uses a five-year maintenance and warranty support fee for purchased equipment and
assumes that the first year's maintenance and warranty costs for leased equipment is included in the
lease but year's two and three are paid for separately.
Administrator costs: Administrator salaries are spread over the number of systems a single
administrator can support. There are application, database, and system administrators assumed in
the analysis. The more widely varied the number of operating environments, the fewer the number
of servers an administrator can support. Wage increases are assumed to occur annually. The number
of servers supported per administrator is kept constant throughout the time period.
Administrator training: Administrators must keep their skills fresh to expedite application
installation, general administration, backup, patching, system builds, and upgrades. These costs rise
exponentially in accordance with the number of authorized operating environment variations.
Software: The software costs include the upfront license fees for all the software that may reside
on the servers. There can be tremendous variability on these charges, as there are multiple
applications that tend to running on a large Unix server farm with a variety of different databases.
For the sake of simplicity, RFG has conservatively estimated that the annual software fees on a
processor when aggregated equal the annual cost of the hardware. This is at the very low end of the
range for Unix servers. For the purpose of the study these fees are spread over the five year TCO
term and are not lumped into the first year of the server's service. Because software vendors charge
by the number of servers or cores, use of system upgrades keeps the fees constant over the period
while the addition of new servers drives up the software costs. IT executives should include their
actual software costs when doing their own evaluation, as this is the biggest factor affecting the
TCO results.
Software Maintenance: This charge covers the software maintenance, support, and upgrade fees.
Vendors typically charge 15 to 22 percent for their support fees, with the higher fees being assessed
to certain business or mission critical applications or premium support services. The analysis
assumed the user was paying 15 percent for their maintenance and support fees. Vendor fees are
normally based on the number of servers or cores in use and not the power of the Unix server.
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© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
Economies of scale here are tied to growing servers vertically with higher performance engines and
not through addition of added servers or cores.
Power and Cooling: Power and cooling costs at one time were not included in most TCO analyses.
However these costs are a concern today and need to be incorporated in the analysis. RFG's
analysis accounts for the total costs associated with a server, and not just the server itself. That is,
the processors consume only a fraction of the power and cooling needed to be delivered into the
data center in order to support the processing workload. Each new generation of equipment today is
consuming less power than its predecessor on a per workload basis. While there are monitoring
tools available that can reduce the power consumption further by quiescing devices when not in
use, these savings are not factored into the analysis. It is assumed that all servers are on all the time.
The cost of electricity varies significantly. RFG assumed a $0.107/kwh cost.
Facilities: The facilities costs are those for the server only and the necessary open floor space that
must surround it. The square footage costs for facilities vary considerably by location. RFG
assumed a fully loaded cost of $1000/rack.
TCO Findings
RFG determined that enterprises that used the conventional wisdom of scaling out to meet capacity
demands ended up growing the number of servers over the five year period by 60 percent. A 100 server
farm grew to become 160 servers at the end of 60 months while companies that used the system
upgrade methodology were able to satisfy the growth in workload without adding any additional
servers on the data center floor. Moreover, when in-place upgrades are combined with equipment
leasing, RFG finds that the standard approach which cost $105 million over five years is more than 16
percent more expensive than leasing which ran less than $91 million for the same period. When net
present value (NPV) calculations are taken into account, the standard approach proves to be more than
15 percent more expensive than leasing ($87.9 million versus $76.2 million). The non-leasing and
warranty costs are responsible for virtually all of the increase in expenses.
RFG also noted with the use of a 40 month lease plan the annual total cost of ownership of leasing was
always less than the annual costs from the purchase model each year. Moreover, the first year's savings
is derived from the reduced external expenditures associated with leasing versus purchase. Thus, for
companies concerned about cash flow in the current-year period, leasing offers some decided
advantages without sacrificing total costs over the five year period.
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Figure 1. TCO Summary year 1 year 2 year 3 year 4 year 5
Purchase option
systems at yearend 100 124 144 144 160
hardware - financed $ 5,286,504 $ 5,524,061 $ 5,999,175 $ 6,440,485 $ 6,661,140 $ 29,911,365
warranty $ 2,277,880 $ 2,380,240 $ 2,584,960 $ 2,775,114 $ 2,870,191 $ 12,888,385
h/w - financing + warranty $ 7,564,384 $ 7,904,301 $ 8,584,135 $ 9,215,599 $ 9,531,331 $ 42,799,750
all else $10,696,547 $11,245,703 $12,470,638 $13,669,782 $14,310,613
totals $18,260,931 $19,150,004 $21,054,774 $22,885,381 $23,841,944 $105,193,034
NPV $87,892,176 160 systems
Lease option
systems at yearend 100 100 100 100 100
lease fees $ 6,595,829 $ 6,746,681 $ 7,048,385 $ 5,922,150 $ 5,359,032 $ 31,672,078
warranty $ - $ 1,496,254 $ 1,071,943 $ 1,040,328 $ 1,024,520 $ 4,633,045
h/w - financing + warranty $ 6,595,829 $ 8,242,935 $ 8,120,328 $ 6,962,478 $ 6,383,553 $ 36,305,123
all else $10,696,547 $10,788,194 $10,733,288 $10,972,272 $10,934,347
totals $17,292,376 $19,031,130 $18,853,616 $17,934,750 $17,317,899 $ 90,429,771
NPV
$76,228,003 100 systems
annual differences $ 968,555 $ 118,875 $ 2,201,158 $ 4,950,631 $ 6,524,045 $ 14,763,263
total NPV difference $11,664,173
Figure 2. Cumulative Savings
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TCO Detail Findings
An examination of the onetime charges shows that the out of pocket charges to purchase and install the
60 new servers costs almost $6.3 million more than the same costs for the in-place system upgrades of
the 100 existing servers. A major cause of these fees is the purchase of a five-year warranty, which is
significantly more costly than the shorter-term leasing warranties. The overall combined savings gives
leasing the advantage when considering one time costs.
However, 58 percent of the TCO difference is related to the ongoing charges. In the leasing example,
the company did not need to add servers. Therefore, there was no requirement for additional software
licenses or maintenance fees, no added administrative personnel expenses, no expanded floor space,
and minimal growth in energy consumption. The annual software expenditures in the lease model
remained at less than $4.6 million a year while in the purchase model it grew to more than $5.7 million.
Similarly, the software maintenance fees held at $3.4 million a year in the leasing model while it
increased from $3.4 million to $4.3 million when new systems were purchased. Administrative costs
for purchased systems increased by almost 70 percent over the period, growing from $1.7 million to
$2.9 million while they only grew 4 percent per year (salary increases) when the servers were leased. In
a comparable fashion, power and cooling charges advanced 62 percent over the five years as the server
farm grew while they only increased 13 percent as the systems were refreshed with faster processors.
Figure 3. Chart of Detailed TCO Savings
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Figure 4. Detailed TCO Summary
year 1 year 2 year 3 year 4 year 5
Purchase option
One Time 100 124 144 144 160
Hardware Yearly Cost $ 5,286,504 $ 5,524,061 $ 5,999,175 $ 6,440,485 $ 6,661,140
Deployment $ 100,000 $ 24,000 $ - $ 20,000 $ -
Provisioning $ 50,000 $ 12,000 $ - $ 10,000 $ -
Warranty $ 2,277,880 $ 2,380,240 $ 2,584,960 $ 2,775,114 $ 2,870,191
$ 7,714,384 $ 7,940,301 $ 8,584,135 $ 9,245,599 $ 9,531,331
Ongoing
Administrator Costs $ 1,714,286 $ 1,925,486 $ 2,299,173 $ 2,648,251 $ 2,887,879
Administrator Training $ 28,571 $ 32,091 $ 38,320 $ 44,138 $ 48,131
Software $ 4,555,760 $ 4,760,480 $ 5,169,920 $ 5,550,228 $ 5,740,382
Maintenance $ 3,416,820 $ 3,570,360 $ 3,877,440 $ 4,162,671 $ 4,305,287
Power And Cooling $ 731,110 $ 813,286 $ 961,786 $ 1,097,160 $ 1,184,933
Facilities $ 100,000 $ 108,000 $ 124,000 $ 137,333 $ 144,000
Total Per Year $ 18,260,931 $ 19,150,004 $ 21,054,774 $22,885,381 $ 23,841,944
TOTAL ACCUMULATIVE
COST $ 18,260,931 $ 37,410,935 $ 58,465,709 $81,351,090 $105,193,034
AVG COST Per Year 18,260,931 18,705,468 19,488,570 20,337,772 21,038,607
NPV for the 5 years $ 87,892,176
year 1 year 2 year 3 year 4 year 5
Lease option
One Time 100 100 100 100 100
Hardware Yearly Cost $ 6,595,829 $ 6,746,681 $ 7,048,385 $ 5,922,150 $ 5,359,032
Deployment $ 100,000 $ 100,000 $ - $ 100,000 $ -
Provisioning $ 50,000 $ 50,000 $ - $ 50,000 $ -
Warranty $ - $ 1,496,254 $ 1,071,943 $ 1,040,328 $ 1,024,520
$ 6,745,829 $ 8,392,935 $ 8,120,328 $ 7,112,478 $ 6,383,553
Ongoing
Administrator Costs $ 1,714,286 $ 1,782,857 $ 1,854,171 $ 1,921,064 $ 2,005,472
Administrator Training $ 28,571 $ 29,714 $ 30,903 $ 32,018 $ 33,425
Software $ 4,555,760 $ 4,555,760 $ 4,555,760 $ 4,555,760 $ 4,555,760
Maintenance $ 3,416,820 $ 3,416,820 $ 3,416,820 $ 3,416,820 $ 3,416,820
Power And Cooling $ 731,110 $ 753,043 $ 775,634 $ 796,610 $ 822,870
Facilities $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
Total Per Year $ 17,292,376 $ 19,031,130 $ 18,853,616 $17,934,750 $ 17,317,899
TOTAL ACCUMULATIVE
COST $ 17,292,376 $ 36,323,506 $ 55,177,122 $66,804,131 $ 84,122,030
AVG COST Per Year 17,292,376 18,161,753 18,392,374 16,701,033 16,824,406
NPV for the 5 years $ 76,228,003
46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951
© Robert Frances Group 2011 Advantages of IBM Power Systems In-place Upgrades
Conclusions
RFG believes the conventional wisdom for capacity growth of Unix servers is expensive and can
deplete enterprises of treasured cash reserves or credit lines. The TCO model proves that an in-house
upgrade of Unix server farms combined with a well structured leasing program could save an enterprise
15 percent or more over five years. In fact, the cost of leasing in the first year and over the five year
period helps conserve expenses. Additionally, by containing the server footprint, the upgrade strategy
could prevent the expansion of floor space whereby a new multi-million dollar data center could be
needed to meet the added demands. Finance and IT executives working with their preferred hardware
leasing vendor should construct their own lease versus purchase models and evaluate if and where the
in-place upgrade/lease model works for them. In enterprises where the servers are purchased,
executives should also combine this exercise with an analysis of a sale/leaseback program to determine
what financial package and structure best meet the company's business, financial, and IT needs.
IBM Corp. sponsored this study and analysis. This document exclusively reflects the analysis and opinions of
Robert Frances Group (RFG), who has final control of its content.
All rights reserved. The Robert Frances Group, 46 Kent Hills Lane, Wilton, CT 06897. Telephone 203-429-8951
www.rfgonline.com. This publication may not be reproduced in any form or by any electronic or mechanical
means without prior written permission. The information and materials presented herein represent to the best of
our knowledge true and accurate information as of date of publication. It nevertheless is being provided on an
"as is" basis.
GFL03076-USEN-00