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Server buyers shift toward muscle machines

Average server prices actually increased in the fourth quarter, marking a purchasing shift toward beefier machines that handle more work.

Stephen Shankland Former Principal Writer
Stephen Shankland worked at CNET from 1998 to 2024 and wrote about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
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Stephen Shankland
4 min read
Defying the prevailing pattern of the computer industry, server prices increased at the end of last year as customers showed a new preference for more powerful machines.

"For the first time in 10 years, we've seen the average selling price marketwide go up year-over-year," said analyst Matthew Eastwood. In the fourth quarter of 2006, worldwide server sales increased 5.2 percent to $15.2 billion but shipments stayed level at 2 million units, meaning that the average server price tag went up from $7,308 to $7,690.

Nobody expects the market to return to the days when million-dollar mainframes ruled the roost, but customers took a step in that direction. Seeking to cut the operational costs that come with the fleets of lower-end servers that dominate the market today, they opted instead to load more work onto a smaller number of more powerful servers.

According to analysts and server makers, virtualization and multicore processors helped trigger the change. Virtualization can make a single server more efficient, running more software at the same time in separate partitions called virtual machines. And multicore processors let a single chip handle the work of two or four single-core models.

But both technologies require servers to be equipped with more memory, more hard drives, more network capacity, and presto! Up goes the price tag.

Server makers accustomed to building a business on products that constantly sell for less could be expected to revel in the prospect of price hikes. But it's not all sunny news: on Tuesday, IDC pruned 4.5 million systems and $2.4 billion in sales out of its forecast for Intel- and AMD-based servers, adjusting for customers' preferences to consolidate work onto fewer, more powerful systems.

The fourth quarter was something of an anomaly, and server price declines will resume, IDC analyst Michelle Bailey predicted--but they'll be less dramatic than in earlier years. "The declines are not going to be what they used to be," she said.

For more than a year, Hewlett-Packard has seen increases in the average price of an x86 server--those using Intel's Xeon or Advanced Micro Devices' Opteron processors, said Paul Miller, marketing chief for the company's x86 server business.

He agrees with Bailey's assessment that price declines won't be the same. "Price points are pretty close to the bottom for the acceptable feature set. I don't think you'll see too much more price erosion in the market," he said.

But Jay Parker, director of Dell's PowerEdge servers group, is betting on a new round of bigger price cuts. Dell has profited from the shift toward lower-end systems and urges customers to buy systems with multicore processors in favor of bigger-iron machines with four, eight or 16 processors.

"We expect that to begin this year but accelerate next year," Parker said. "You'll see IBM and HP try to prop that up, and you'll see Dell try to drive that down."

Miller put virtualization at the top of the list of explanations for the change. "As people start to put five, 12 and sometimes up to 20 (virtual machines) on a single server," he said, "they require more memory"--2GB per processor core, which means 16GB for a system with two of Intel's quad-core Xeon 5300 "Clovertown" chips. "Then with that," he said, "you need extended I/O"--input-output capacity through Ethernet, InfiniBand and Fibre Channel network connections, making for even richer server configurations.

Another change: customers are buying more blade servers, larger chassis that supply shared network, and power to thin servers that can be plugged in. Customers today typically buy a chassis with only half the server slots full, Miller said, but they're maxing out network and power options on the assumption that they'll need it over the blade chassis lifespan.

With blades, customers are buying equipment designed to last five to seven years instead of the regular three, Miller said. "We're seeing customers put in a larger investment that they're going to amortize over a longer period of time," he said.

Electrical power constraints factor into the equation, Miller added, driving people toward multicore and virtual servers that make more efficient use of power. "Every time you save a watt within a server, that saves data center power and cooling people 2 watts," Miller said.

Of the big three x86 server companies, IBM has placed the biggest bet on powerful systems that inherit the philosophy and sometimes the technology of its Unix servers and mainframes. It's got a whole division dedicated to symmetrical multiprocessing (SMP) systems with 4 to 32 x86 processors, and it's eagerly embracing the move toward plump servers.

"I think you're seeing a resurgence for a large SMP marketplace driven by 64-bit processors. And bigger is better for virtualization," said Jay Bretzmann, marketing manager for that high-end group.

All new x86 chips that ship today are 64-bit models, which lets them easily use more than 4GB of memory when equipped with a 64-bit operating system. "Memory is the precious resource in a multicore world," Bretzmann said.

While new technology enables new ways of tackling computing chores, part of the reason for the changes is moving away from earlier sore spots. In Eastwood's view,

"For many years, end users were being penny wise and pound foolish," with the server population expanding at rabbit-like rates, Eastwood said. "But users were not thinking through the ramifications--what it costs to power and cool those machines, to manage and maintain them."

But now, he said, "There's definitely been a shift in the mind of the end user...A more consolidated infrastructure, while it may cost more up front, will definitely pay for itself on the back end with lower operational costs."