An industry analyst believes the deal is aimed at making HP more competitive in selling to big buyers

Hewlett-Packard and Taiwanese electronics manufacturer Foxconn announced a joint venture to build a line of low-cost, “cloud-optimized” servers aimed at service providers.

The two companies aim to carve out a piece of the market encompassing service providers that are rushing to expand their cloud architecture implementations as well as businesses pursuing the in the hosting-as-a-service models.

The non-equity joint venture is in the form of a strategic commercial agreement. It took effect May 1. Pricing details on the products will be announced later.

The partnership will bring together Foxconn’s supply chain expertise and HP server technology, the companies said. Foxconn is a multinational electronics contract manufacturer best known for turning out products including BlackBerry handsets, Apple’s iPhone, iPad and iPod as well as Kindle tablets, Xbox, Playstation and Wii game consoles.

In a blog Forrester Research analyst Richard Fichera observed that HP has been hard pressed to make good money selling high-volume, low cost servers to Web service providers, who often want customized units. Smaller and more agile Asian manufacturers are offering competition. A former HP employee, he said the company’s high quality standards are shackled by rigid processes that make it hard to make custom designs with enough margin. Hence  the deal with a company known for agility.

Foxconn will design the servers, HP will sell them.

“Life will get more difficult for competitors who compete on price alone, and with Foxcon’s engineering holding out the promise of rapid turns for custom designs, the competitive advantage of fast-turn design capabilities is blunted,” he writes. “Potential customers in the high-volume web services world will have a world-class duo of providers who can probably bid product, including customized designs, at prices previously only obtainable from smaller ODMs (original design manufacturers.)”

The new line of servers will complement but not be part of  HP’s existing ProLiant server portfolio.

“This partnership reflects business model innovation in our server business, where the high-volume design and manufacturing expertise of Foxconn, combined with the compute and service leadership of HP, will enable us to deliver a game changing offering in infrastructure economic,” HP CEO Meg Whitman said in a statement.

The servers will be designed to meet the compute requirement of “the world’s largest service providers” to deliver, low cost of ownership, scale and service and support. The move towards cloud-based delivery models such as infrastructure as a service is expected to bolster 15 to 20 per cent growth in servers used for hosting between 2013 and 2018, according to latest estimates by analyst group IDC.

“Cloud computing is radically changing the entire supply chain for the server market as customers place new demands on the breath of design capability, value-oriented solutions and large-scale and global manufacturing capabilities,” said Terry Gou, founder and chairman of Foxconn.

The two companies have been partners for years. In 2008  they began construction of a 32,000-square-meter manufacturing facility for making of HP PCs in Russia, part of a joint venture to invest $50 million in the country.

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