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Plug pulled on server maker

Hyundai stops funding Concord, Massachusetts-based subsidiary Axil, forcing the company to lay off 80 percent of its workforce.

Axil Computer, a subsidiary of Hyundai Electronics America, is pulling the plug on development of high-end, Intel-based servers, pulling down some of Hewlett-Packard's 8-way Intel server efforts in the process.

Because of ongoing economic difficulties in Korea, Hyundai has stopped funding the Concord, Massachusetts-based Axil, forcing the company to lay off 80 percent of its workforce, officials said today.

Axil officials said they are exploring the possibility of a buyout plan to acquire the rights to its technology. If the buyout succeeds, the group would operate under the name Axil2 and continue development of the product line.

"We're hoping to find funding sources to move ahead with development. We have found some prospects in the last week," said a hopeful Bob Nilsson, vice president of marketing for Axil.

Although Axil is the direct victim in the cutback, other companies will likely curtail projects as well. Axil and HP have been collaborating on 8-way Pentium Pro server development since last December. Three months ago, Data General joined the two companies in the effort. Axil makes the main circuit boards for HP and Data General's 8-way systems, and its remaining employees will continue to do so in the near term.

HP doesn't expect to see much impact from Axil's setback, however. As far as product availability is concerned, executives said they have enough inventory and spare parts to cover forecast demand and also have another manufacturer that can produce the main system boards. Still, the announcement likely means that HP's effort to push the Intel architecture into the upper echelons of corporate computing will be temporarily stunted.

Whether the company should be offering systems that are priced in the same range as its high-end, Unix-based servers is another question.

HP introduced its 8-processor system in December of 1997, beating rivals to market--and apparently demand, too. Analysts and computer resellers have said that the systems have not been hot sellers. Data General and HP combined have sold about 1,500 of the pricey systems.

Most server vendors, including IBM and Compaq, have said that they will not release 8-way Intel servers until late 1998 or early 1999, when Intel releases a standard chipset for 8-way processing.

A number of other companies with similar technology have either been acquired or have changed their business models because the market for high-end Intel-based servers is an extremely small one. Corollary is the prime example, having been purchased by Intel last year as the chipmaking giant moved to accelerate development of multiprocessor systems built around the Xeon Pentium II due out next week.

Even with Intel's efforts, the market for systems such as HP's LXr Pro8 has not taken off, and isn't likely to anytime soon, analysts say.

"We're not waiting for [this market] to explode in the mainstream anytime soon," said Joyce Tompsett Becknell, director of distributed computing research at In-Stat.

"In our research, most customers are buying 1- or 2-way systems. Windows NT certainly doesn't scale up to eight processors, but that's not where Microsoft is playing," she noted. "Scale" refers to the performance of Windows NT in high-end multiprocessing environments. NT 4.0, according to many, can only take effective advantage of four processors at once in conventional servers.

"It is an emerging market. NT is only now scaling to take advantage of 8-way systems, but it scales more than some have realized," Axil's Nilsson acknowledged.

Becknell sees companies focusing more on tying 4-processor systems together rather than buying a single system with eight chips because they are looking for ways to increase system reliability. Even beyond the introduction of new Intel chips and chipsets, analysts say companies will be cautious about adopting new systems for critical programs that need to constantly running without interruption.

HP sees a different reason for participating in this admittedly small market. Because these servers are being used in the backbone of corporate networks, HP is gaining experience with deploying and certifying these high-end PC servers, said Brian Cox, worldwide product manager for high-end NetServer products.

The big benefit of being in the market early is that "There were companies that were diehard Compaq or IBM PC server accounts, but because [those vendors] didn't have this 8-way system, they went to HP. We've broken into number of accounts that were Compaq strongholds. Now we have a place at the bidding table that we might not have had before," explained Cox.