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Compaq jockeys for dot-coms with new servers

The PC maker tomorrow will unveil its next-generation Alpha server, taking on Sun Microsystem's high-end server for corporate data centers and Internet service providers.

Compaq tomorrow will unveil its long anticipated and much delayed next-generation Alpha server, taking on Sun Microsystem's high-end server for corporate data centers and Internet service providers.

But as Houston-based Compaq readies it server, code-named Wildfire, it must contend with lost sales because of delays and the unexpected departure of the executive responsible for tomorrow's launch event.

In many ways, Wildfire represents Compaq's transition from mere PC company to full-service provider capable of delivering "not just products but end-to-end solutions," said Technology Business Research analyst Lindy Lesperance.

The company in January 1998 agreed to buy Digital Equipment for more than $9 billion, adding high-end servers and storage to its product mix and gaining about 25,000 services workers. That move was supposed to bring Compaq on par with Hewlett-Packard and IBM and set it ahead of Dell Computer, but digesting the larger company proved difficult.

"Compaq has had a hard time integrating Digital, but it looks like some of the pieces are beginning to fall together," Lesperance said.

While it struggled with the Digital acquisition and passed a difficult year in which it ousted former CEO Eckhard Pfeiffer, rivals such as Sun seized the advantage, chalking up big server sales.

Sun led the market for Unix servers last year with 33.4 percent, followed by IBM with 20.4 percent market share and HP at 14.5 percent, according to market research firm Dataquest. Compaq fell from third place in 1998 to fourth, with 13.1 percent market share.

Sun's biggest success has been selling Unix servers to ISPs and application service providers (ASPs), both markets Compaq has been trying to crack with modest success. Sun's server sales surged about 50 percent in last quarter, partly because of strong sales to those markets.

"Compaq has woken up, and they see the World Wide Web, the Internet. And they're seeing the growth has never been on the customer side, the consumer side," said Piper Jaffray analyst Amir Ahari. "The Web has been tremendously successful in doing transactions with corporations. The thing that's making the Web come to fruition are the servers and the new networks they're built upon."

Compaq hopes to answer Sun and others with Wildfire, which offers performance on par with Sun's high-end E10000, or Starfire, server but with a leaner configuration. Starfire comes with as many as 64 Sun UltraSparc processors. Wildfire delivers comparable performance with half the number of chips, according to a performance benchmark conducted by SAP.

Compaq tomorrow is expected to reveal similar performance figures running other data intensive applications.

It eventually will offer three Wildfire models--the 32-processor GS320, 16-processor GS160 and eight-processor GS80--but only the GS160 will be available initially. The other models are expected to ship in the second half of the 2000.

Analysts estimate the GS80 will cost around $100,000, the GS160 around $500,000 and the GS320 more than $1 million. The high-end servers initially will come with OpenVMS or Tru64 Unix; Linux will be available later.

Compaq worked six months on readying the Wildfire event, which is being described as the company's most important product launch of the year. The company has also been quietly but aggressively gathering customers. The computer maker has nearly 200 preorders for Wildfire, which it expects to bring about $1 billion this year.

Behind the scenes, Compaq CEO Michael Capellas and other executives are grappling with the unexpected resignation of Encrico Pesatori, who left to head a Silicon Valley start-up. Pesatori ran the enterprise computing and services division, which is responsible for Wildfire and accounts for half of company revenues.

Compaq had to reissue press invitations following Pesatori's May 4 resignation and make other last-minute changes affecting tomorrow's event.