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The advantage of leasing IBM Storwize V7000 Storage systems


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The Robert Frances Group believes IT executives should be employing the new generation of storage solutions like the IBM Storwize V7000 storage systems. To know more about the IBM Storwize V7000, visit:

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The advantage of leasing IBM Storwize V7000 Storage systems

  1. 1. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951 The Advantages ofLeasing IBM Storwize V7000 Storage Systems Cal Braunstein CEO and Executive Director of Research
  2. 2. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951Table of ContentsExecutive Summary .................................................................................................................................. 3Hyper-Efficient Storage ............................................................................................................................ 3The Value of Leasing ................................................................................................................................ 4The Methodology ...................................................................................................................................... 6Lease vs Purchase ..................................................................................................................................... 7TCO Findings............................................................................................................................................ 7Detailed Findings ...................................................................................................................................... 8Conclusions ............................................................................................................................................. 10© Robert Frances Group 2012 Storwize Leasing Advantages 2
  3. 3. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951Executive SummaryRFG believes IT executives should be employing the new generation of storage solutions that offeradvanced storage management capabilities – like the IBM Storwize V7000 storage systems – in theirtarget system environments. In that the total cost of ownership (TCO) differential between leasing andpurchasing is minimal although the first-year savings impact is substantial, IT executives shouldseriously consider leasing the storage. Finance and IT executives should understand the valueproposition of storage leasing and work with their storage vendor or third party lessor to structure apackage that best meets current business, financial, and IT objectives.Business Imperatives: The new generation of modular, highly automated storage systems is solving an age-old storage management problem. Storage systems of the past required an enormous amount of administrator interaction, which meant companies had to expand staffing continually to keep up with the rapid growth of storage capacity. The latest solutions like the midrange Storwize V7000, bundle in storage management features that enable capacity to expand without the constant need for personnel augmentation, manual optimization management, or reconfigurations. Additionally, Storwize V7000 Unified system supports both block and file storage, managed from a single console. IT executives should evaluate the advantages of the different storage technologies in the market today and select the ones that provide the most advantageous storage management features and best match the workload characteristics required for the data usage model. The traditional hardware purchase model results in storage remaining in operation for a lengthy five years or more. Keeping storage drives in a data center for more than three years may make good accounting sense but is a poor business practice. Storage arrays more than three years old may drive up operational costs, increase operational complexity, slow the adoption of new technology, consume excess power and space, and fail more frequently, which could cause revenue losses. IT executives should structure and gain buy-in for business plans that refresh technology every three years. Leasing should be given serious consideration in todays economic environment, as most companies IT investments are capital constrained and IT still has to address storage capacity demands that are increasing at a double digit rate. Finance and IT executives should work with their preferred storage vendors to evaluate what leasing program would best map to the enterprises business and financial requirements.Hyper-Efficient StorageA number of midsized companies and larger enterprises have come to realize the advantages ofmodular, high performance, highly automated storage systems such as the Storwize V7000. Unlike thestorage systems of previous generations, these systems enable IT organizations to significantly reducethe overall total cost of ownership (TCO) of their storage operations. For example, the Storwize V7000provides storage management capabilities such as automatic event management, auto disaster recoveryand fallback, automatic tiering between solid state and hard drives, local and remote mirroring,© Robert Frances Group 2012 Storwize Leasing Advantages 3
  4. 4. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951snapshots, non-disruptive data migration, thin provisioning, and external virtualization ofheterogeneous disk systems. These features greatly reduce the amount of administrator intervention andlost or wasted capacity, and therefore improve productivity. In previous generations of storage, nearlyall of these management tasks required human intervention. Thus, it was not unusual for anadministrator to be responsible for less than one terabyte (TB) of storage. With a Storwize V7000, anadministrator can easily handle 50 TBs or more of storage.The modularity of the Storwize V7000 enables it to provide a large amount of storage in a small,environmentally friendly footprint. In a single compact rack, a Storwize V7000 storage system cansupport a control enclosure and up to nine expansion enclosures, with each enclosure housing either 12or 24 drive bays. Thus, a fully populated Storwize V7000 can contain up to 240 drives with amaximum of 360 TB of raw physical storage capacity.While a Storwize V7000 is economical, financing any hardware acquisition can be a challenge fororganizations in todays tough business and economic environment. With leasing rates as low as zeropercent and the ability to bundle hardware, software and services into the monthly payments, ITexecutives should consider leasing as a viable alternative.The Value of LeasingRFG has identified 14 advantages that can be realized by leasing. As all companies will not be able toutilize these, IT executives should understand the options and determine which ones are applicable andmost relevant to their equipment purchases.No down payment required - 100 percent financing. One of the primary concerns facing enterprisestoday is the funding needed to acquire storage and other capital purchases due to the large up-frontcapital expenditures. Leasing eliminates the down payment expenses – which for a purchase deal couldbe up as much as 20 percent of the overall cost – thereby protecting budgets from a big first yearfinancial hit.Bundling and deferrals. Many lessors are willing to structure the leasing payments to cover softwareand services as well as any "soft" items that one may desire to bundle into the financing. Thus, lesseesare not burdened with undesired or unexpected up-front fees or down payments. Moreover, in somecases, initial payments can be deferred for a period of months, which could mean deferral of paymentsinto the next fiscal year.Credit line or capital preservation. Equipment leasing (unlike a financed purchase) has no impact oncorporate credit lines or capital. Thus, leasing allows the company to preserve cash or the credit linesfor revenue-generating business activities or new business opportunities.Cost of capital. The cost of capital is high with the exception of a few large corporations, ranginganywhere from six to 12 percent in the U.S. This can add significant costs to the total cost of theacquisition. Whereas, vendors that have their own leasing arms view leasing relationships very© Robert Frances Group 2012 Storwize Leasing Advantages 4
  5. 5. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951favorably, as they are seen as a more sustainable, profitable annuity. To advance leasing deals, vendorsusually offer extremely attractive interest rates to make the products more desirable and encourage anongoing relationship. Additionally, independent equipment financing companies are competing just asaggressively for this business as well. Thus, IT organizations can get financing and leasing rates thatcan approximate a zero percent lease.Pay per use. Leasing is a pay-per-use model. Companies can write a single leasing contract but takedelivery of equipment as needed and only pay for the equipment once it is on board. Moreover, asstated earlier, software and services can be bundled into the price so that fixed payments are preservedand the added costs are included in the pay-for-use model. Thus, IT executives can view leasing as amethod of allowing the company to realize the value of the new hardware in concert with thepayments.Fixed or flexible payments. Leasing payments normally are fixed over the life of the lease while manyother financial arrangements may have floating interest rates. In some instances, it may be desirable tohave stepped payments to support budgetary needs. Lessors can respond to these types of budgetaryrequests, if needed.Technical currency through short refresh cycles. Storage technology is undergoing a major shift inarchitectural designs to support capacity and performance requirements as well as to address the newenvironmental demands. The advances in the hardware and supporting software impact the overallTCO, energy consumption, and footprint. Companies need to remain as current as possible to enjoythese gains.Fewer failures and outages. Current generation storage arrays are projected to have extended meantime to failure (MTBF) rates – greater than 500,000 hours with some rated over one million hours – butthat is not a guarantee. The annualized failure rate (AFR) is a better operational metric. It is defined asthe relation between MTBF and the hours that a number of devices are run per year, expressed inpercent. AFR focuses on the total population of like storage components. A Google, Inc. studyobserved there was an average AFR of 1.7 percent for drives in the first year of operation and that itincreased to six to eight percent in years three through five. The greater probability of failures meansthe higher chances of an outage, which could result in lost revenues.The ability to circumvent budget limitations. Hardware leasing is a pay-per-use option that allowsenterprises to spread the system cost over the optimized useful life of the equipment. Moreover, mostleasing vendors will structure lease payment streams to accommodate short-term or long-term budgetchallenges, whereas purchasing requires a lump sum payment in year one or financing that increasesthe cost of the purchase. It is also important to note the time value of money, which exacerbates thecosts of up-front payments. Finally, obtaining approval for a large non-revenue generating equipmentpurchase could prove to be an extremely high hurdle that can be overcome through leasing.Licensing and maintenance fees. Through the use of technology currency and proper assetmanagement software licensing costs are minimized and maintenance fees are eliminated. Licensingfees are based upon the number of enclosures and the storage capacity; thus, there is an advantage to© Robert Frances Group 2012 Storwize Leasing Advantages 5
  6. 6. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951remaining current and using the latest, denser drives.The end of End-of-Life Worries. End-of-life costs can be expensive, especially those that relate toregulatory requirements for safe disposal. Leasing can assist with the management of end-of-lifeservices and can protect corporations from lawsuits and fines associated with improper disposal, as thelessor maintains ownership throughout the lease.Improved financial management. IT executives should be aware of the fact that financing and leasingstructures can affect corporate financial statements. Measurements such as debt-to-equity ratios, returnon assets, EBDITA, etc. can be effectively managed through judicious use of operating leases. Theseratios are important to banks, capital markets, investors, and executive management wherecompensation could be based on how effectively these metrics are managed. Leasing is a tool that canassist in financial management.Avoidance of asset ownership. There are conditions under which added asset ownership is adisadvantage for an enterprise. The reasons can vary from compliance and legal issues to liabilityexposures to debt covenants to disposal risks. Leasing eliminates this exposure. Moreover, leasingbetter insures more consistent turnover of technology within a 36 to 40 month range, which RFG findsis a best practice. IT executives can construct leasing agreements that enable upgrades, swaps, andother actions.New business opportunities. Leasing allows corporations to keep capital or credit in reserve so thatthe company can take advantage of new business opportunities as they arise.The MethodologyRFG examined the costs of operating a Storwize V7000 storage solution with an initial raw storagecapacity of 25.5 TB of storage and growing at a 30 percent rate annually over a five year period. It wasalso assumed that an average storage utilization rate of 60 percent could be attained and maintainedover the period.For maximum performance it was assumed that a solid state drive (SSD) to hard disk drive (HDD)ratio of approximately 13 percent was used. The initial HDD units were the 450 gigabyte (GB) 2.5 inchdrives while the SDD units were 300 GB 2.5 inch drives. Hence, the initial 25.5 TBs consisted of 50HDDs and 10 SSD devices. As raw capacity was added, the SDD to HDD ratio was maintained. Theanalysis assumes that the latest drives with the best densities on the 2.5 inch platters are used whenadditional storage capacity is needed. Thus, for the purposes of the study, the 600 GB HDD willbecome the standard in 2013, replacing the 450 GB drives. 900 GB HDDs replace those starting in2014. Similarly, the 300 GB SDD are superseded by 400 GB and then 600 GB SDD units in the sametime frames.RFG assumed the systems have the base Storwize software and external virtualization softwareinstalled. In addition, RFG factored in a discount rate of 39 percent on all hardware and software© Robert Frances Group 2012 Storwize Leasing Advantages 6
  7. 7. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951purchases. Since these systems were deemed to be business-critical, the 24x7 maintenance package andwarranty service upgrades were factored into the analysis.Lease vs PurchaseThe TCO analysis was done over a five year period. On the leasing side, the original Storwizeenclosures and disk arrays are returned after 36 months and replaced by the latest generation enclosuresand storage drives. By swapping out the old hardware and moving to denser devices, it takes only fourenclosures to satisfy the capacity demands over the five-year period, with the exception of one yearwhen five are needed. Since the Storwize software is tied to the number of enclosures and not thestorage drives or total capacity, this is a key factor. Conversely, the purchase model assumes thenumber of enclosures grows over the years and to a maximum of six in the fourth and fifth years.TCO FindingsRFG finds that it is approximately three percent more costly to purchase the equipment than to lease ona net present value (NPV) basis although on a constant currency basis it is only slightly more expensiveto buy the equipment and use it over a five-year period.The TCO on the purchase side runs approximately $1,131,000 or on an NPV basis about $900,000. Theleasing TCO was less expensive by $24,000 on an NPV basis and ran about $1,130,000 and $877,000respectively.Figure 1. Cumulative CostsFigure 1 shows leasing proves to be a more economical approach near-term and overall to theacquisition of hardware when all the factors are taken into account. Moreover, the value is greater thanjust the monetary savings as the storage capacity of the leased systems is denser with the ability tohandle more I/Os per second.© Robert Frances Group 2012 Storwize Leasing Advantages 7
  8. 8. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951Detailed FindingsAn examination of the onetime charges associated with the acquisition and installation of purchasedstorage is less than leasing and refreshing the storage. However, when the cost of the hardwarewarranty and maintenance is included in the mix, leasing is less expensive by approximately $3,500.More significantly, the first year outlays for purchasing the hardware and software are nearly threetimes of that required when the storage is leased while the total costs for the first year show almost a2:1 advantage when leasing is used. Thus, the company preserves $136,348 in capital and IT executivesare not burdened with justifying the first year budgetary bump.In the purchased option there was a requirement for additional hardware and software maintenance feesand increases in energy consumption. The additional software maintenance expenditures in thepurchase model exceeded $26,000 while the added hardware maintenance and warranty costs weremore than $19.000. In a comparable fashion, power and cooling charges increased by about $3,500over the five years in the purchased model.However, due to the leasing model requirement to return equipment after three years and replace it withnewer hardware, the hardware costs were higher by $13,500. Since this also meant the turnover ofenclosures, the software (which is linked to an enclosures serial number) had to be re-licensed. Thisincreased leasing costs by more than $30,600 and acted as an offset to the software maintenance costsincurred in the purchase model. Facilities and administration costs were the same regardless of how theequipment was acquired.Figure 2. Leasing Savings over PurchaseFigure 2 demonstrates the offsets with the biggest savings achieved by using a leasing model being inthe areas of software maintenance and warranty costs. However, the software maintenance fees weremore than offset by the need to reacquire the software licenses at the end of the lease period for theenclosures. Additional savings were also achieved in power and cooling.© Robert Frances Group 2012 Storwize Leasing Advantages 8
  9. 9. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951A factor not included by RFG is the increase in “uptime”. In most companies the monies lost due toadditional outages far exceed any of the other parameters. In addition to uptime, productivity gainswere not included as these are intangible costs that may not be meaningful to all executives.Figure 3. Detailed TCO SummaryFigure 3 shows the added expenses borne in the first year by purchasing the hardware as compared tothe apportioned costs associated with leasing. Furthermore, while the savings on constant dollars areminimal, on an NPV basis the savings approaches three percent. It also shows how leasing lessens thevariability in budgetary planning and thereby makes it easier to attain executive buy-in. year 1 year 2 year 3 year 4 year 5 Purchase option Hardware Yearly Cost $ 152,445 $ 36,773 $ 41,121 $ 45,055 $ 43,305 Deployment $ 1,419 $ 426 $ 553 $ 719 $ 935 Provisioning $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 500 Warranty $ 8,232 $ 2,016 $ 2,016 $ 14,187 $ 15,429 Administrator Costs $ 59,012 $ 79,076 $ 105,254 $ 139,383 $ 183,853 Administrator Training $ 1,020 $ 1,367 $ 1,819 $ 2,409 $ 3,178 Software $ 49,410 $ 16,470 $ 16,470 $ 16,470 $ - S/W Maintenance $ - $ 9,882 $ 13,176 $ 16,470 $ 19,764 Power And Cooling $ 1,172 $ 1,543 $ 1,934 $ 2,327 $ 2,572 Facilities $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000 Total Per Year $ 277,709 $ 152,553 $ 187,343 $ 242,020 $ 273,537 $ 430,263 $ 617,606 $ 859,626 $ 1,133,163 NPV $ 900,704 year 1 year 2 year 3 year 4 year 5 Lease option Hardware Yearly Cost $ 47,856 $ 59,399 $ 72,308 $ 69,522 $ 83,117 Deployment $ 1,419 $ 426 $ 553 $ 2,138 $ 1,361 Provisioning $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Warranty $ 8,232 $ 2,016 $ 2,016 $ 8,232 $ 2,016 Administrator Costs $ 59,012 $ 79,076 $ 105,254 $ 139,383 $ 183,853 Administrator Training $ 1,020 $ 1,367 $ 1,819 $ 2,409 $ 3,178 Software $ 17,651 $ 23,535 $ 29,419 $ 29,419 $ 29,419 S/W Maintenance $ - $ 9,882 $ 13,176 $ 6,588 $ 3,294 Power And Cooling $ 1,172 $ 1,543 $ 1,934 $ 788 $ 658 Facilities $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000 Total Per Year $ 141,361 $ 182,244 $ 231,479 $ 263,479 $ 311,896 $ 323,605 $ 555,084 $ 818,563 $ 1,130,459 NPV $ 876,827 Annual differences $ 136,348 $ (29,691) $ (44,136) $ (21,459) $ (38,359) Cumulative differences $ 106,657 $ 62,521 $ 41,063 $ 2,704 Total NPV difference $ 23,877© Robert Frances Group 2012 Storwize Leasing Advantages 9
  10. 10. 46 Kent Hills Lane, Wilton, CT 06897 Phone: 203-429-8951ConclusionsSwitching to modular, highly automated, storage systems like the Storwize V7000 is something ITexecutives should consider when replacing existing midrange storage systems. Advances in storagetechnologies are occurring rapidly, which makes retention of previous-generation storage solutions acostly proposition. Since the growth in stored data is expected to remain greater than 25 percent foryears to come and IT support costs will remain constrained, the future of storage will be modular,inexpensive, highly automated storage systems. IT executives can expect the TB/administrator ratio tobe in the 100+TB range and growing. This is the only way data administrator costs can remaincontrolled; and systems like the Storwize V7000 enable this advancement to occur.Leasing proves to be a more economical approach to the acquisition of hardware when all the factorsare taken into account. More importantly, leasing provides organizations with the flexibility to satisfychanging business requirements without impacting ITs budgetary constraints.RFG believes the conventional wisdom of extending the life of purchased storage systems may makesense from a CFOs financial perspective but from an IT operational approach it is not a best practiceand should be discontinued. Moreover, the new generation of hyper-efficient storage systems must beacquired if IT executives are to satisfy the rapid growth in data volumes and required storage capacity,while maintaining flat storage budgets. The TCO model proves that a well structured leasing programcould save an enterprise three percent or more over five years while significantly lowering first yearoutlays. Finance and IT executives working with their preferred storage leasing vendor shouldconstruct their own lease versus purchase models and evaluate if and where the leasing model worksfor them. Additionally, they should determine which leasing structure best meets the companysbusiness, financial, and technology requirements.IBM Corp. sponsored this study and analysis. This document exclusively reflects the analysis and opinions ofRobert 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 This publication may not be reproduced in any form or by any electronic or mechanicalmeans without prior written permission. The information and materials presented herein represent to the best ofour knowledge true and accurate information as of date of publication. It nevertheless is being provided on an"as is" basis.© Robert Frances Group 2012 Storwize Leasing Advantages 10