Can Banks Afford IBM's Newest?

International Business Machines Corp. will find banks to be a tough sale for its new mainframe computers because they may opt for used machines instead, bankers and analysts said.

IBM is expected to announce several of the new mainframes, large-capacity disk drives, and new mainframe software on Wednesday. The new computers will consist of one-, two- and three-processor models.

They are part of a new family of mainframes that IBM first announced a year ago, called the ES/9000, and code-named "Summit" before their debut. It is IBM's first new line of mainframes in 10 years.

The one-processor system can operate 45 million instructions per second. It will start at around $4.5 million, according to analysts familiar with IBM's plans. Used mainframes with roughly the same performance - but without the enhancements of the new machines - cost around $2 million.

Glut of Used Machines

"The big question is how are they going to sell the thing," said one computer industry analyst who requested anonymity. "The market is awash with used machines. There are some features in the new machines that will be very attractive to bankers, such as cryptographics [a data security feature], but at what cost?"

An economy struggling to recover from a recession, and pressure to cut costs, will keep bank technology budgets lower this year than in previous years.

"The used market can offer you some of the same performance [as new hardware]," said Ronald Cybyske, senior vice president for information services at BancOne Corp., Columbus.

Banc One is preparing to acquire more mainframes to support a new strategic banking software system that it developed with EDS Corp. The new system will house eight times more information about customers than the bank currently stores, so Banc One will need more mainframes and more storage devices.

Analysts say IBM's new devices will store 50% more data than current storage systems.

Mr. Cybyske said Banc One is evaluating IBM computers and storage devices, as well as Japanese-made computers that can run IBM mainframe software. The bank already uses new communications software introduced by IBM last year that allows it to connect two data centers with high-speed links.

"We're looking not only for speed in accessing customer information, but getting the most reliable access to information," Mr. Cybyske said. "Reliability and the ability to build redundant information is going to be an important element of our strategy."

Banc One hopes to begin installing new machines between the first and third quarters of next year.

Other banks have already invested in new IBM mainframes because their new features - as well as price breaks - make them attractive.

First of America Bank Corp., Kalamazoo, Mich., purchased a ES/9000 computer.

"IBM will look to make an attractive offer to move bankers to their new computing architecture," says Peter J. Purcell, senior vice president of application development at First of America Computer Services.

"What IBM is trying to do with new machines is to create enterprise computing for banks and other customers that have far-flung networks of branches and large systems complexes that require delivering automated services across wide areas," Mr. Purcell said.

Software with Bank Appeal

One feature that may sell banks on the new computers is a software system that warehouses data from many other computer sources.

"It's IBM's answer to Teradata in a software version," said one analyst, referring to Los Angeles-based Teradata Corp.'s computers that manage large data bases by drawing specific sets of information from other host systems, such as IBM mainframes, minicomputers, and other computers.

The Teradata machines have been popular with banks that use them for managing customer, product, and marketing information.

"The question is, is [the IBM system] going to be a real product anytime soon?" the industry analyst said. "Don't hold your breath. I think it's more of a statement of direction."

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