New Windows stirs up server world

With the arrival Thursday of the new server operating system, Windows now works on servers based on Intel's Itanium chip. The symbiosis between the two could carry the operating system into powerful back-end computers it hasn't been able to tackle in the past, and the Windows support could encourage more customers to use Itanium servers.

The software release is giving new life to companies' prospects for the server market. For Intel, it's fueling hopes that Itanium will conquer high-end computing. Hewlett-Packard has a new way to sell high-end computers and a new sales pitch for low-end systems. And Dell Computer, which made the debut of its forthcoming Itanium-based server on Thursday, is looking to accelerate its market share gains.

Microsoft wants the new operating system to replace Windows NT 4, the grandfather of Windows Server 2003 that runs on millions of servers, and is putting its biggest sales effort into that, said company CEO Steve Ballmer at Thursday's launch event.

But Microsoft has been strong in such low-end servers for years, so the more strategically significant change would come in high-end machines. The top-end Datacenter Edition of Windows Server 2003 works on servers with as many as 64 processors, giving Microsoft new ammunition in its effort to displace previously untouchable servers--from IBM, HP and Sun Microsystems--that run the Unix operating system.

HP is leading the high-end charge. On Thursday, an HP Superdome server with 64 Itanium processors running Windows took the top score in the widely watched TPC-C server speed test. At $6.4 million, the system isn't cheap, but it has the least-expensive cost per transaction* in the top 10 tested.

The server maker expects the number of Superdomes it will sell will double or triple within two years as a result of the availability of Windows for Itanium. That's in part because the product line will benefit from Microsoft's sales effort for its new software, said Mark Hudson, head of marketing for HP's Business Critical Systems group. That predicted surge is significant, given that Superdomes typically cost hundreds of thousands of dollars and often more than $1 million.

A revenue boost would help HP, which is struggling to bring its enterprise computing group to profitability by the end of October. Hudson said that for every dollar HP gets from sales of high-end servers, it makes nearly two dollars more from HP services, storage, software and lower-end servers. "The ripple effect to the rest of the family is amazing," Hudson said. It's common that each high-end server sold is accompanied by the sales of 20 or 30 midrange servers and even more low-end models, he added.

The first Itanium version of Superdome is set to arrive in late summer, Hudson said. The system will use Intel's Itanium 2 6M processor, the model code-named Madison that's scheduled to make an entry midway through this year. Later in 2003, HP will launch eight-processor and 16-processor models with Itanium. And in 2004, the product line will be upgraded with the faster Itanium 2 9M processor and mx2 technology, which doubles the number of Itaniums that can be plugged into each socket.

Itanium, initiated and co-developed by HP, but manufactured and now designed by Intel, has had a rocky start. It was hampered by several delays and by the fact that software must be rebuilt to take advantage of its 64-bit nature, which permits it to use vast amounts of memory. Hudson said the arrival of Windows Server 2003 will accelerate software companies' moves to support the processor.

At the Windows Server 2003 launch event, Intel Chief Operating Officer Paul Otellini promised major performance improvements with future versions of the processor. The Montecito chip, set to arrive in 2005, "will take the absolute performance up two to three times from where this (Superdome) machine is today," Otellini said. Another Itanium model that "will come out in a few more years takes performance up a factor of 10 from where this is today," he said.

Otellini also noted that server makers are now building dozens of designs around Itanium, with more than 80 two-processor or four-processor designs and more than 15 eight-processor or larger designs expected in 2004.

One of those new designs should come from Dell. It showed its first Itanium server Thursday, a dual-processor, rack-mounted model that is 3.5 inches thick. The system, set to arrive in the second half of this year, shared the stage with Ballmer, an HP Superdome and a Unisys machine that can accommodate both Itanium and Xeon processors.

Dell representatives declined to comment on which Itanium its system will use, but a source familiar with the design said it will use the Itanium 2 6M processor.

Windows Server 2003 will mean an acceleration in Dell's market share gains from No. 1 Intel server seller HP, said Dell's Jim Totton, vice president of Windows operating system and applications at Dell. The market in 2002 for servers using Intel processors or compatible models was $16.4 billion, according to research firm Gartner.

"There is a pent-up need in the NT 4 (customer) base to move. We think it will be to Windows Server 2003, not to Windows 2000," Totton said. "I think the adoption rate will be faster than for Windows 2000."

Dell's top competition will be Hewlett-Packard. There are 4.5 million computers using Windows NT 4, "2.5 million of those are ours," said Mary McDowell, head of HP's Industry Standard Server group.

The actions of another server seller highlight the merits of the new operating system. Egenera, a maker of high-end Linux servers costing hundreds of thousands of dollars, has for the first time expanded to support Windows as well.