Posted by : bpburnwal on Mar 13, 2004 - 03:18 PM Hardware

Simpson Strong-Tie , a manufacturer of metal fasteners for the construction industry, believes its competitive edge comes from its policy of building all its own applications. The company, which doubled in size over the past seven years, also rejects the notion that its custom applications will work just fine on any type of hardware.

"One of the reasons we have grown so rapidly [100 percent over the past seven years] is by coming out with the latest and greatest manufacturing applications, built internally for exactly what we need," says Tom Richards, who heads Simpson's application development efforts. "And our hardware is key to our application development."

While software clearly is the driving force behind most innovative business processes, a sizeable number of companies share Simpson Strong-Tie's view about the importance of selecting the right hardware. And that fact is fueling a fierce battle among companies that sell servers--the machines that run applications and house databases.

In an average year, businesses will spend close to $50 billion on servers, with four vendors capturing nearly 80 percent of that revenue, according to IDC , the Framingham, Mass.-based IT research and consulting firm. Hewlett-Packard (HP), IBM, Dell , and Sun are the four major players in this space, and the competition is so intense that none of them can claim clear-cut leadership.

In the eye of the beholder

In fact, the most recent examination of the server market--covering the fourth quarter of 2003 by Stamford, Conn.-based Gartner --shows that where these vendors rank actually depends on how you view the data. When it looked at numbers of units shipped in Q4 2003, Gartner found HP leading the market, with Dell in second place, IBM third, and Sun fourth. But the rankings changed when Gartner compared each vendor's growth in relation to Q4 2002. By that measure, IBM topped the market, while Sun placed second, Dell was third, and HP fourth (see chart ).

While it may be difficult to identify a true market leader, some things about the server landscape are quite clear. First, this market is growing. Gartner says it grew 25 percent in Q4 2003, and 20 percent for the entire year. It also is obvious that most of that growth is happening in a single sector of the market--the one populated by lower-priced servers powered by Intel or AMD microprocessors.

Booming sales of low-end servers, often referred to as x86 boxes, lend credence to the argument that servers have been reduced to commodities and buyers are simply looking for the lowest price. But industry analysts say it's not that simple.

"There are a number of factors contributing to the growth at the low end of the market," says Mark Melenovsky, an IDC analyst.

"One factor is simply the type of applications being deployed. We are still seeing companies put in a lot of Web-based applications like front-end customer service systems and corporate firewalls. Those applications work quite well with these tier-one servers."

The concept of clustering, or stringing together a bunch of x86 boxes in a chain that performs like a single large computer, also is driving more sales of these machines. "The cluster can work faster than a single large mainframe for the same dollars," Melenovsky explains. "So this is not simply a case of looking for the lowest-cost machines. It actually is giving yourself the ability to do more for the same amount of dollars."

New entrant changes the market

Regardless of how or why they are being used, the emergence of the x86 server has changed the dynamics of the entire server market. For instance, Dell, which until recently sold only PCs, might not be in this market at all if the x86 server didn't exist.

Dell, through a company spokesman, declined several requests to be interviewed for this article. But Melenovsky and other industry experts say Dell has forced other vendors to change their business models, bringing the same efficient supply chain methods that propelled Dell to the top of the PC market to the server space. "Dell clearly is the volume player in this market," Melenovsky says. "It has low research and development costs, and an efficient supply chain, and it is almost exclusively in the low end of the market where you might argue that some people see servers as commodities."

If nothing else, Melenovsky says, Dell's rapid sales growth has forced other vendors to "stop investing so heavily in their own proprietary technology and embrace a more industry-standard approach."

This shift has been most dramatic for Sun, which not only was committed to servers based on its own proprietary SPARC chip, but also was wedded to its own Solaris version of the UNIX operating system. In just the past year, Sun has ported Solaris to the x86 platform, entered a partnership with AMD to sell servers based on AMD's new Opteron chip, and started selling servers with the Linux operating system.

Last month, Sun further enhanced its position in the x86 space by acquiring Kealia , a privately held server company that was designing new servers based on the Opteron chip, as well as Intel's Xeon processor. Kealia's CEO, Andy Bechtolsheim, was an original Sun cofounder, and has agreed to rejoin Sun as chief architect of volume servers.

Sun, IBM, and HP all concede that Dell's presence in the server market inspired them to embrace the x86 chip. But they all continue to sell more powerful systems based on their own proprietary technology, and they all argue that their strategies offer three things that Dell doesn't: choice, service, and continued innovation.

"We're trying to give our customers both choice and affordability," says Tim Golden, a director in HP's industry-standard server group. "And that means innovation will continue to be a large part of what we do."

Currently, HP is creating new architectures that allow it to use similar components on multiple models of servers. For instance, HP is replacing the old Alpha systems it inherited in its acquisition of Compaq, as well as its own RISC-based platforms, with servers based on x86 and Itanium chips.

"We are taking five platforms down to two," Golden says, adding that the move is creating economies of scale that are translating into lower prices for customers. "We won't stop inventing," he says. "But with respect to Dell, the difference between our price and theirs is negligible--no more than 10 percent on any product."

Doug Oathout, an IBM product director, says his company's innovations include taking technology that was first associated with mainframes--such as virtualization, which is a form of clustering--to other server platforms, including its x86 line, which IBM calls its xSeries.

In addition to the xSeries, IBM offers its pSeries based on its own power processor; the zSeries, which is its mainframes; and the iSeries, which replaced the AS/400. With all of these platforms, Oathout says, IBM's strategy calls for "understanding what the customer is trying to do and then configuring a solution to meet those needs. We don't go in trying to sell a particular type of solution," he says. "The customer tells us the applications and database they want to run and we tell them which servers can run them. Offering that choice, and having great products in each group, has fueled our growth."

Creating customer loyalty

Melenovsky, the IDC analyst, says these old-line server vendors have something else that typically doesn't come from selling products solely on price: customer loyalty.

"The applications and workload typically dictate what type of server a company buys," Melenovsky says. "But these buyers also tend to be pretty conservative. Quick changes are not the norm, and legacy can play a pretty big role."

That theory has held at Simpson Strong-Tie, which has run nothing but HP servers in its five data farms during the past seven years. Those servers have been upgraded three times, and other vendors were invited to make sales pitches on each occasion. But according to Richards, the application development leader, "We don't believe anyone can give us better service than HP."

That service includes regular sessions in which HP engineers brief Richards and his staff on HP's new product plans. "That helps us map our application development to the HP platform," Richards says. "It's one of many reasons we are happy with this relationship."

Kendall-Jackson , Santa Rosa, Calif., is just as pleased with its relationship with IBM, which began when the winery installed its first AS/400, the predecessor to the iSeries, in the mid-1990s. Kendall-Jackson now is running its primary business application--the One World package from J.D. Edwards--on its second iSeries. This package and the single iSeries machine support all of the functions--sales order management, purchasing, manufacturing, distribution, inventory management, and financials--that Kendall-Jackson requires to run its business.

"There has been no reason to change," says Mike Shaw, Kendall-Jackson's iSeries operations manager. "The system is extremely reliable. It never crashes, and it's a good fit for our applications. And IBM has done a great job of protecting our investment by consistently upgrading the platform."

Shahin Khan, a Sun VP, argues that only the vendors that continue investing heavily in research and development will survive in the server market for the long term. "The move toward utility computing is moving servers into a whole new category," he says. "We already have seen a similar move in the storage market. Customers no longer buy storage disks. They buy storage systems, and the companies that sell storage systems buy disks from component suppliers."

Khan predicts companies will soon be shopping for server solutions that include a fleet of computers with built-in management capabilities. "Developments like virtualization, clustering, and even the [advent of] blade severs are leading to this," Khan says. "The computer sellers of today will be the component sellers of tomorrow."

To be more than just a component seller, Khan contends, a vendor needs "the engineering know-how and technical wherewithal to see the patterns and build this new class of server solution."

Blade servers slice management costs Sidney Hill, Jr. The blade server sounds like the title of a science-fiction movie, but it is a real-life product, and apparently the hottest thing in the server marketplace today.

"The blade server really is just a different form factor for a server," says Mark Melenovsky, an IDC analyst. "But IT professionals especially find it appealing because it eliminates a lot of redundant equipment, like power supplies and fans that come with servers in other form factors."

Blade servers make the most sense as replacements for rack-optimized servers, which call for installing a series of regular servers in a rack that sits in a data center.

The blade form factor consists of a chassis that houses its own power supply, fan, and other equipment to support servers that will be attached to the chassis. The actual servers--or blades--are thin boxes with microprocessors inside that are placed in individual racks within the chassis.

"This is infrastructure simplification," says Doug Oathout, an IBM product director. "You can scale up as you add users or applications just by plugging another blade into the front of the chassis."

Currently the blade configuration is offered primarily in conjunction with x86 servers, but vendors are working to expand the concept to other lines. Melenovsky believes they will succeed, and that customers will respond favorably, as they have with x86 blades.

"Blades are a little more expensive than rack-optimized servers because of the smaller form factor," Melenovsky says. "But they greatly reduce management costs because you only have to maintain the single blade chassis instead of each individual server."