IBM Discloses Details of 2009 Game Plan

The System z upgrade is also helping vendors BMC Software(BMC Quote) and CA(CA Quote).

BMC also landed a contract to provide Finanz Informatik with some new mainframe software, CEO Bob Beauchamp said Thursday. And the z10 helped push CA's quarterly bookings up 44% year over year - 11% on an annualized basis - to $1.5 billion, the company said last week.

But sales of the high-end z10, which starts at $1 million, should taper off this quarter, says Josh Farina, hardware analyst at Technology Business Research.

The new, lower-cost z10 should help rescue IBM's quarter - growing total System z revenue 17.6% year over year to $1.4 billion - and the coming year, Farina adds.

At one-tenth the price, the smaller model should be an easier sell in an all-but-frozen IT spending environment. IBM is greasing the wheels by easing financing terms.

IBM financing is more relevant now due to the lack of credit available through traditional options. Deep-pocketed tech companies such as Oracle(ORCL Quote), Microsoft(MSFT Quote) and SAP(SAP Quote) are reportedly financing some of their customers to meet their own growth targets.

Financing is good business - generating gross margin of 49% during the last quarter, up 4.5 points year over year and far outpacing hardware systems, where gross margin was 36%.

New mainframes also drive so-called "software-attach" rates, where gross margins, of nearly 85%, are better still, Farina says. In the third quarter, software sales got an 11.8% bump to $5.3 billion, especially from the high-end z model. That compares to software growth of 7% in Q3 of 2007.