HP to sell Intel's server appliances

The chip giant Thursday said Hewlett-Packard will begin selling Intel's line of NetStructure server appliances. The two companies will sell the products to existing Intel customers and potential new ones for HP. As early as March, HP plans to offer its own line of server appliances based on NetStructure products.

As first reported by CNET News.com, Intel in November backed away from the NetStructure brand because of sales conflicts with PC makers.

HP is the first computer manufacturer to license NetStructure, as Intel moves the product line away from independent branding and folds it into more traditional business processes. As with microprocessors, HP will use NetStructure technology under its brand.

Server appliances--small, limited-function servers geared for specialized tasks such as email or storing data--are one of the hottest hardware growth areas, analysts say. When Intel entered the market, few of its PC maker customers sold server appliances, but that rapidly changed throughout 2000.

Market researcher IDC forecasts the server appliance market will exceed $11 billion by 2004, up from $1 billion in 1999. Gartner is more bullish, forecasting $14 billion by 2004.

Intel faced increasing problems selling the products, particularly after Dell Computer introduced its PowerApp line of server appliances in early April. Because Dell's product line is more closely tied to Intel's than that of other companies selling server appliances, such as Compaq Computer, tension increased between the two companies, say analysts.

With the HP deal, Intel has found a place to sell its technology and take care of its existing server appliance customers, said Technology Business Research analyst Humberto Andrade.

"It's a win-win situation," he said. "HP can capitalize on the research that Intel has done before, and HP solves a problem for Intel about who's going to take care of the customers."

Intel chief executive Craig Barrett stressed the importance of the agreement. "Together, Intel and HP have the potential to expand dramatically the distribution of these products and enhance customers' ability to build complete Internet solutions," he said in a statement.

As part of the agreement, HP will adopt Intel technologies such as Web hosting, e-commerce, management, load-balancing and virtual private networking. "With this plan, HP extends the line of best-in-class HP NetServer systems and opens the door into a new market space," HP chief executive Carly Fiorina said in a statement.

HP is expected to expand its Intel-based NetServer line using NetStructure technology, but Gartner analyst Kevin Knox said that won't mean much initially.

"A server appliance is a server appliance is a server appliance," he said. "There's not that much differentiation in the hardware from one to the other." What matters more is how HP handles the software, he said.

"Software is the real differentiator," Knox said. "If you look at what Dell and IBM have done, they've got some custom Windows 2000 stuff on there. HP's approach will be software differentiation rather than hardware differentiation."

But Technology Business Research's Andrade sees an important asset of HP similar to what Compaq and IBM offer: services.

"HP has consulting capabilities, so the fit is really good here," he said. "I believe those consulting capabilities helped them to get this agreement."