HP fights back in workstation market

The new Kayak workstations come as HP rethinks its overall marketing strategy by re-emphasizing graphics performance and bundled extras and departing from it previous strategy of offering single-processor low-end systems.

Today's announcement is the second step in the company's strategy to recapture its glory days, when HP dominated the PC workstation market.

HP started the process in April when it rolled the high-end Kayak XW into its new Visualize Personal Workstation line.

This next phase streamlines the low-end and midrange of HP's NT workstation line. HP will replace its Kayak XA and XA-s workstations with the dual-processor capable Kayak XM600. The Kayak XU800 replaces the Kayak XU and XU Xeon.

The new Kayaks, which will start as low as $1,375 with a single processor and around $2,000 for a dual processor system, are aggressively priced and should ship by mid-October.

HP still plans major changes to its workstation line, next emphasizing improved graphics performance. "Altogether, this will allow us to recapture the majority of our market share," said Mark Bony, HP Kayak product manager.

Just a year ago, the workstation world belonged to HP, which approached 50 percent market share for Windows NT workstations.

But Dell outmaneuvered HP with better pricing, good graphics offerings, and market-specific orientation, such as finance, digital media or software development, said analysts.

HP's market share roller coaster ride started in late 1997, when the company rebranded its single-processor Vectra XA PC as a workstation. Before HP's surprise repositioning, workstations typically could take two processors even if shipping with one.

The move catapulted HP to the top spot in the Windows NT workstation market, according to market researcher Dataquest. Competitors harshly criticized HP for shifting PC sales, where it trailed leaders, to workstations, where it was a market contender.

In the second quarter of 1998, when HP had 46.5 percent market share and second-ranked Dell 16.2 percent, single-processor systems accounted for 65 percent of HP1s NT workstation sales, according to Dataquest.

A year later, HP's lead eroded by about 20 points and Dell closed the remaining gap, grabbing for the NT workstation crown.

HP faced competitors offering their own low-end, single-processor workstations and Dell's release of the Precision Workstation 210. The combined assault proved deadly for HP, said analysts.

The Precision Workstation 210 often beat the Kayak XA-s' price and offered up to two processors. Dell successfully used second-processor support as a marketing tool when competing for business with HP. Dell gained market share on perceived value, said analysts.

"The ability to add a second processor is important as the demands of graphics applications increase," said Markus Hochmuth, a Maryland-based computer dealer.

"We're seeing demand for dual processor systems, but the time is only now right with Windows 2000 approaching," said Bony. "We were finding a lot of customers running Windows 95 on dual processor capable systems."

Windows 95 and Windows 98 do not support more than one processor, and Windows NT 4 doesn't take full advantage of two processors they way the forthcoming Windows 2000 does, said analysts.

The new Kayaks are perhaps HP's most powerful PC systems to date, but the company recognizes it will take more than just a good box to win customers.

Dell's meteoric rise, from workstation upstart to market contender in little more than a year, had as much to do with delivering focused products as offering more system for less money.

"Dell has been very good at expanding beyond their base as a box builder into new territory, customized solutions for specific markets," said Joe Ferlazzo, analyst with Technology Business Research. "Their sales force has done a great job at this."

HP's revamped line of Kayaks and Personal Workstations is more stratified than in the past. The move is designed to broaden the appeal of HP workstations to a wider range of specialized markets. Unlike PCs, workstations tend to be more specifically configured for each market, such as finance or software development.

This is a major obstacle for HP as it attempts to hold back Dell, and now IBM, said analysts. Windows NT workstation graphics performance is growing at over 100 percent a year, according to the Aberdeen Group.

HP's perceived failure to deliver advanced graphics would further erode market share in favor of Dell, said analysts

But HP executives are confident new graphics solutions available later in the year coupled with the revamped market strategy will reclaim the workstation crown.

"Just because Dell has done it once, doesn1t mean they can do it again," said Bony. "We've had more consistent results in this market over the long haul."