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Top IBM mainframe reseller threatens to exit biz

'Leading OEM' hampers QSGI

Internet Security Threat Report 2014

A leading dealer of refurbished IBM z-series mainframes is looking to exit the hardware reselling business due to a "leading OEM" allegedly killing their ability to reconfigure systems.

QSGI is a relatively small, publicly traded company that specializes in buying, refurbishing and reselling IBM mainframes. They have the second largest inventory of mainframes and parts after IBM itself.

But hardware sales have been hit hard by alleged anti-competitive business practices by an unnamed "leading OEM" or incognito big manufacturer.

The conflict supposedly arose from changes that restrict a reseller's ability to make modifications to mainframe system specs.

Until last July, the company could buy a kit from Big Who to change the configurations of the computer to meet the end-user's requirements, according to Marc Sherman, QSGI chief executive officer.

"The OEM's new policies forbid everyone except them from making upgrades or downgrades," said Sherman during the company's Q3 earnings call last week.

"So in order for QSGI to sell a refurbished system, we would need to have an exact match in stock to meet the customer's exact needs. If QSGI does not have an exact match, it could sell a customer a box — but only the customer can seek an upgrade or downgrade, and then only after six months of installation."

For six months, the customer either pays too much for software in a box that's too powerful (negating the value of buying a used system), or for a box that's not powerful enough for them, said Sherman.

"The entire z used industry, including the third-party marketers, leasing companies, brokers and even the customers lose here — with the exception of the OEM and its related parties, which now control almost every aspect of the after-market."

QSGI said their attorneys have advised them the practices are a violation of the Sherman Antitrust Act, but they haven't filed a lawsuit yet. The company said they have reached out to the OEM with a letter to the chairman and board of directors to resolve this issue first.

"As a result of this OEM restricting our ability to remarket our mainframes, we are now looking to exit the mainframe hardware business," said Sherman.

This situation is not altogether dissimilar to mainframe emulator maker PSI's spat with IBM over alleged antitrust abuses.

IBM has a colossal claim to the mainframe marketplace, and can largely dole out its own terms to customers. When another business starts using IBM's own hardware to compete, IBM has a tendency to roll up its sleeves. ®

Internet Security Threat Report 2014

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