Compaq pins hopes on 8-way servers

Success in this effort is crucial to the overall survival of Compaq, which has gone through dramatic changes this year, including the ouster of chief executive Eckhard Pfeiffer.

With new Proliant 8000 and 8500 servers and a revamped corporate computing division, the company will increasingly target Internet service providers and business-to-business e-commerce, said Enrico Pesatori, senior vice president and group general manager of the enterprise solutions and services group. During the unveiling here, Pesatori and others repeatedly referred to "dot.Compaq," a spin on Sun's advertising campaign that claims Sun puts "the dot in dot.com."

The strategy shift comes in a division that is vital to the company. Pesatori's group, which oversees server development and corporate computing services, accounted for 53 percent of Compaq's revenue in the first half. The division has 36,000 employees, more than half the company's total. Corporate PCs accounted for only 33 percent of revenue while consumer products accounted for 14 percent.

"These products [the Proliant servers] will be the center of the non-stop e-business strategy," said Pesatori.

As reported earlier, Compaq is one of a number of companies coming out with servers that can accommodate up to eight Intel Xeon processors at once. Although these products were delayed, they will likely represent a watershed moment for the server market. With these new machines, companies such as Compaq, Dell Computer, and IBM will be able to manufacture fairly high-powered machines that can rival the performance on brawny systems from Sun and SGI, but at a lower price.

At the same time, these servers are fairly expensive, giving Compaq and other Intel-based vendors an opportunity to build their bottom lines. The new Proliants will sell for between $20,000 to $80,000, depending upon the configuration.

The shift to this market is also prompting Intel to change its chip strategy. Rather than come out with new products every quarter, the company will release fewer chips for this market with longer intervals in between processor releases, according to Pat Buddenbaum, marketing manager for Intel.

The deceleration comes because computer customers have told Intel they don't need constant upgrades. The qualification, or testing and design, process for servers is generally time consuming and expensive. Fewer processor changes simplifies the process.

"They are looking for stability. They don't need an additional 50-MHz every three months," Buddenbaum said. "There will be fewer iterations with more meaningful speed upgrades."

In the future, for instance, Xeon processors will be available for sale to customers for three years, rather than the 18-month time span given to Intel chips today. Processors will also come out less frequently, he added.

Analysts agreed with the shift in strategy, noting that the server market changes much more slowly.

"The guys making the servers don't want the products," said Dean McCarron, principal analyst at Mercury Research. "They are saying: 'Give us something that stays the same.'"

Intel will release a 550-MHz Xeon processor for four- and eight-processor servers on Monday, said Buddenbaum. Xeons at 550 MHz for two-processor computers are already out.

The next major version of Xeon, code-named Cascades, has been delayed until toward the end of the year, he added. Similar to the desktop "Coppermine" chip, Cascades will run at 600 MHz and come with an integrated secondary cache. Secondary cache is a memory reservoir close to the processor. Current Xeon chips come with secondary cache, but it is not on the same piece of silicon. Integration improves performance.

Joe Wilcox reported from New York and Michael Kanellos from San Francisco.