I have a suggestion for you which is a bit different from both the above options.
Upgrade your existing SEPM to 12.1 and then think of moving the SEPM 12.1 to another machine.
In this process, after the existing SEPM is upgraded, you may add the MSL (Mgmt. Server List) in such a way that the new server listed in Priority 1 and the existing server in priority 2.
Install SEPM on the new server and then restore the backup of the existing (OLD) SEPM's database and the server private key backup.
Upon successful implementation of the above steps, you should see the clients reporting to the new SEPM server. After realizing this migration of clients, you shall stop the SEPM services on the existing (OLD) SEPM server for a few days and after which you could think of de commissioning the old SEPM permanently.
Please refer to the below link for your assistance on the database and server private key restoration
http://www.symantec.com/business/support/index?page=content&id=TECH102333
Hope that helps!
Regards,
Elango M.