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HP to rebate Merced servers

The PC maker will give customers up to $20,000 in rebates on select servers based on Intel's upcoming Xeon and Merced chips.

Hewlett-Packard will give customers up to $20,000 in rebates on select server computers based on Intel's upcoming Xeon and Merced chips, as HP moves aggressively to establish itself as the leading vendor for 64-bit servers.

Under a new rebate program, customers that purchase HP NetServers containing either four or eight of Intel's older Pentium Pro processors over the next two years will qualify for an upgrade program that will allow them to buy server hardware based around the future Xeon "Slot 2" and Merced chips at a substantial discount. The rebates start at $1,000 and range incrementally up to $20,000, depending on the type and number of processors purchased.

The program is part of an ongoing effort by HP to position itself as a front-runner in Intel-based 64-bit computing, according to Amir Ahari, server analyst with International Data Corporation. Merced, jointly developed by Intel and HP, will form the basis of the latter's future computing platforms.

The program essentially seeks to balance the pace of technological change with customers' need to amortize their enterprise computing investments, according to Cathy FitzGerald, worldwide marketing manager for Enterprise NetServers at HP. New processors come out every quarter. Customers, by contrast, typically only upgrade servers every couple of years.

With the program, "they can upgrade without incurring a penalty," she said.

The upgrade itself functions more like a trade-in rather than an upgrade. To take advantage, qualifying Pentium Pro owners must buy a new server chassis from HP. Prices start at $9,450. Rebates then attach to the processors purchased to "populate" the chassis. In addition to new processors, users also have to buy memory and hard drives to fill in the chassis.

The new processors will not inserted into the old Pentium Pro-based server, and HP in fact is not even requiring that users turn in their old servers.

HP is one of the first, but certainly won't be the last, server vendor to roll out an upgrade program of this type, said James Gruener, senior analyst at Aberdeen Group.

"Servers have a life of about three years," he said. "You have to be able to provide IS executives with investment protection."

"Intel's shortcoming is its life expectancy and higher TCO [total cost of ownership]," added Ahari. Hardware acquisition costs for NT systems are less than Unix servers, he explained, but the upgrade cycle means that the overall cost to users can be higher.

While server vendors have employed upgrade programs in the past, the discounts offered are fairly substantial. For each Xeon processor containing 512K of high-speed cache memory, users receive a $1,000 discount. Xeon or Merced processors containing 1MB of cache get a $1,500 per processor discount, while purchasers of the 2MB versions of the chip come with a $2,500 per processor rebate.

Intel has not released pricing on these processors yet, but analysts have said that they will start in the $2,000 range. In that sense, the discounts seemingly confirm that these processors will sell for far more than their desktop counterparts.

Merced will play a significant part in HP's future. While there is one more version of the company's PA-RISC processor coming out in 1999, further upgrades are not likely to occur, sources have said, making Merced the company's default platform. HP is also porting its HP-UX operating system to Merced.

In the end, this means that HP will be marketing both Merced-based NetServers running Windows NT as well as Enterprise servers based around Merced and HP-UX. While HP has not clarified whether it will merge these product lines, such a consolidation "is certainly within the realm of possibility," said Jerry Sheridan, server analyst with Dataquest.

Along with the rebate program, HP will also kick off an trade-in program under which users can turn in Unix or NT servers from other manufacturers for new Intel-based HP servers.