Dell picks Intel over IBM in server design

Dell has been casting about for a way to offer high-end servers using Intel processors--machines that increasingly compete with heavy-duty servers running Unix and that can bring higher profit margins, more prestigious customers, and associated sales of storage systems and other products. Intel server sales were a $4.6 billion market in the first quarter of this year, according to analyst firm IDC.

But Dell didn't like IBM's terms for Summit, Russell Holt, vice president of Dell's enterprise systems group, said in an interview Wednesday.

The scotched IBM-Dell deal has consequences for both companies as they wrestle for profits in the Intel server market.

Dell's decision curtails IBM's ability to profit more broadly from technology it's developed, a strategy Big Blue used successfully with microprocessors and hard drive components. And until Dell's new eight-processor system is ready, it keeps Dell reliant on an older technology at a time when high-end Intel server sales may be poised to increase.

"We had some discussions with IBM, but the (Summit) architecture is proprietary," and is not a standard building block that could be widely used by Intel server makers, Holt said.

Dell's business successes with PCs and low-end servers have relied on the company's ability to become the most efficient manufacturer of computers based on standard technology. Standard parts let Dell spend less money on components, on testing to ensure those components work together, and on simplifying manufacturing processes. Proprietary technologies tend to cost more and require more sophisticated engineering skills.

And IBM's price was too high, Holt said. "As a result, we opted (out)."

Instead, Dell is "working with Intel" on an eight-processor system of its own, Holt said. The system is based on a variant of Intel's E8870 chipset coming later this year, a source familiar with the plan said. The E8870 is designed to work with the Itanium 2 processor, but Dell is funding work to modify it for the Xeon processor, which is a close relative of the Pentium and thus able to run more software.

Intel declined to comment for this story.

Chipset partnerships are essential for Dell, which doesn't have the extensive research and development capabilities of IBM and Hewlett-Packard. Dell's growing power in the Intel server market has been built on the shoulders of chipset suppliers Intel and Broadcom subsidiary ServerWorks, which sell their chipsets to all comers.

IBM's Deepak Advani, vice president for high-end Intel servers, didn't comment on the specific discussions, but made no apologies for IBM's decision to take the proprietary approach.

"Technology matters. You don't necessarily have to have a model where there's no differentiation at the technology level," Advani said. "It is not my intent to develop technology and invest in technology to level the playing field."

As Intel servers have matured, the standard building-block approach of the PC market world has generally persisted. For component makers and technology developers, non-proprietary technologies have a better chance of becoming industry standards and being widely used. But server-specific components such as hard drives, memory modules, network cards, chipsets, processors and more advanced versions of Windows are all tested more rigorously, which makes for increased development costs and a reduced inclination to share the technologies with others.

The wrangling illustrates dynamics of the Intel server industry as server sellers try to take advantage of the growing encroachment of Intel servers on the rest of the server market. Intel servers once were little different from mere desktop computers, making them inappropriate for tasks that need many processors as well as features to protect against crashes or data corruption. Logging corporate sales transactions is one example of such a task.

"The four- and eight-way market has been stagnant to down in the last year, but there are indications that growth is going to return to the eight-way market in the third quarter," said IDC server analyst Mark Melenovsky. In the first quarter of 2002, IBM gained market share with four- and eight-processor systems while Dell lost.

IBM's Summit technology, officially called Enterprise X Architecture, or EXA, is a chipset that is the foundation for IBM's x440 servers. The x440 can accommodate up to eight processors, but will be expanded within two months to accommodate as many as 16.

Summit is geared to work with Intel's new Xeon MP chip. The only other Xeon MP server with more than four-processor capability is Unisys' ES7000, which is more expensive but can accommodate as many as 32 processors.

Compaq Computer, now a part of HP, has been working on a chipset called F8 for eight-Xeon servers, but the company delayed the product until later in 2002, when it expects a second generation of Xeon MP chips code-named Gallatin to arrive.

The Gallatin chips will be built with smaller circuitry, allowing more high-speed "cache" memory to be built into the chip, an important feature for multiprocessor servers. Gallatin will arrive by early 2003, Intel has said.

Dell had also tried to penetrate higher-end accounts using 32-processor Intel servers from Unisys, but eventually backed away from that deal--the same route Compaq and HP had gone. The deals were canceled because of issues such as lower-than-expected performance and economic conditions that have curtailed server spending.

As a result of the failed deal with IBM, Dell will stick with chipsets from Intel and ServerWorks, Holt said, which fit into Dell's preference for selling industry-standard components.

IBM counters that while Summit isn't a mainstream product, IBM explicitly designed the system so it could still use standard operating systems, memory, disk drives, processors and other components, Advani said.

"High-end Intel servers have been around for a decade or more. The reason they weren't mainstream is because they have been proprietary, with different flavors of Unix running on exotic architectures," Advani said.

And while Dell may have passed on the deal, IBM has had success with its plan to promulgate Summit: Fujitsu and NEC have signed agreements to use the technology, Advani added.

ServerWorks, which builds chipsets for the types of Intel servers that sell in large quantities, has no plans for chipsets to build eight-processor systems, said Kimball Brown, vice president of business development at ServerWorks. "We sell about a million chipsets a quarter, and the part of the market that wants eight-ways is very small," Brown said. "IBM has a real good chipset for that market, and we wish them well."