Server war could ensue

When Dell Computer Corp. in early 2001 begins selling a re-branded version of the Unisys 32-way ES-7000 server, a race will be on between Dell and Compaq for dominance of the ultra-high-end Intel-based server market created by the ES-7000, a server that can run 32 Intel processors using Microsoft’s Windows 2000 Data Center operating system. Dell announced its plans this month.

Meanwhile, analysts predict a second race will heat up between Compaq and Dell in the still-developing lower and middle range WinTel server markets, as both Dell and Compaq begin shipping more task-specific servers pre-loaded with software. Analysts believe Dell will further leverage its build-to-order infrastructure to try to beat Compaq prices.

“The people demanding [the 32-way server] are outgrowing their Microsoft-based systems” that currently run on 2-, 4- and 8-way servers, said Mark Melenovsky, a server market research manager with research firm IDC, in Framingham, Mass.

Concern about losing customers prompted Compaq, Dell, and Hewlett-Packard to re-brand the ES-7000 rather than develop their own systems, Melenovsky said. Officials for both Dell and Compaq said it would take two years to develop their own 32-way WinTel servers in-house.

The addition of the 32-way server was vital to the continued growth of the standard Intel architecture server market and the networks using Intel technology, said IDC research analyst Hoang Nguyen. “These vendors are trying to scale up, and [adding the 32-way server] is a good opportunity for them to compete with the upper class servers such as the Unix servers,” he said.

The notion of “scaling up” with a larger server designed for heavy application versus “scaling out” by adding on multiple 2-, 4-, and 8-way servers represents something of a departure for Dell and Compaq.

“We believe that scaling out is the way to go, but some customers want to scale [up], and we don’t want those customers going somewhere else,” said Gene Austin, vice-president of worldwide marketing for Round Rock, Texas-based Dell.

Compaq’s WinTel server customers that were scaling outward with multiple 8-way servers “wanted the ability to grow up,” according to Paul Santeler, vice-president of the industry standard enterprise server group with Houston-based Compaq.

Despite Dell and Compaq each adding a 32-way server to their lineup, the systems won’t make money for the companies at first due to what is still a relatively small market for the units, according to IDC analyst Vernon Turner.

Instead, observers expect the price competition to come from the middle and low end WinTel server market.

“The Intel-based server market has become very broad in the last couple of years,” IDC’s Melenovsky said. “So for parts of it, especially the front-end servers, margins will get tight and prices will come down.”

Melenovsky said the trend by Dell and Compaq to design task-specific, appliance-style servers has been going on for the past year, and will allow the two companies to drive the prices of their lower-end servers way down.

“The WinTel side is moving towards the stack concept, and going forward, the pure hardware characteristics of a server are going to be less important than the right hardware built around a specific application. So it may only take a [value-priced] processor to run a certain server, or if you ship both hardware and software together, you also get a higher margin,” Melenovsky said.

Tom Manter, a research director covering Windows NT and Windows 2000 at Boston, Mass.-based Aberdeen Group, said “nobody wants to get into a price war,” but that the temptation to capture the largest share of the newly expanded Wintel server market makes a price war tempting for a company like Dell, which is capable of controlling costs and cutting prices.

“Absolutely, Dell has been extremely aggressive and will do whatever it takes,” Mantern said.

“You’ll see server wars within PC servers [WinTel servers], but you won’t see the Unix servers get pulled into the fray,” said Joyce Becknell, the director of computer platforms and architectures at Aberdeen. “Unix customers in particular are looking for entire solutions.”

Although Dell sources hinted of an impending server war with rival Compaq, Dell spokesperson Jim Mazolla said the official company line was that “Dell has and will consistently be the one putting the price pressure on others in the industry.”

Charging that Dell has been marketing pricing more than products, Paul Miller, the director of marketing for mainstream servers at Compaq, said: “We’re going to maintain competitive pricing, but our strategy will be [supplying] the right features for the right price.”