HP upgrading Unix servers amid sales turmoil

Hewlett-Packard plans a new midrange Unix server later this year to put pressure on rivals IBM and Sun--assuming HP can recover the goodwill of sales partners.

Stephen Shankland principal writer
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Stephen Shankland
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PALO ALTO, Calif.--Hewlett-Packard plans a new midrange Unix server later this year, a 16-processor machine that will put pressure on rivals IBM and Sun Microsystems--assuming HP can recover the goodwill of sales partners.

HP's eight-processor N-class server--the current workhorse of the product line--will be upgraded with the coming PA-RISC 8700 chip, according to Mark Hudson, worldwide marketing manager for the Unix server line. The server will be joined by a higher-end product later this year, Hudson added.

Midrange machines aren't the only new products on the horizon. HP plans to introduce servers that use a "bladed" architecture. Such a system squeezes several servers into one space to maximize computing power for customers who need it, such as Web hosting centers, Hudson said during an interview with CNET News.com.

And HP's first machines using Intel's long-delayed Itanium processor--codeveloped by HP--will arrive in the third quarter, he said.

While new technology is important for HP, many of the problems the company's Unix server group now faces lie elsewhere. The company acknowledges it badly botched its most recent quarter, losing market share to Sun and IBM and incurring the wrath of business partners that sell the servers.

The frankness with which the company talks about its problems stands in stark contrast to its longer-term boldness. Hudson goes so far as to predict that Sun, the No. 1 seller of Unix servers today, will become an also-ran.

"We think it's going to be a two-horse race in three or four years, and it's going to be HP and IBM," Hudson said.

Sun, though, dominates the Unix server market today and doubtless won't go down without a fight. Though its new generation of servers has been long delayed, the company plans to release new midrange models based on the UltraSparc III chip March 21. The new models will benefit from "partitioning" abilities, which let a server be split into several independent parts and currently is available only on Sun's high-end E10000 server, HP's Superdome and mainframe computers.

HP has made some inroads with high-end Superdome sales, though HP Chief Executive Carly Fiorina has said it's taking longer to sell them than the company hoped. Hudson confirmed that HP won a bid to sell its Superdome systems to Cisco Systems.

Another major win was for the heart of Oracle's production system, and HP continues to point to Amazon.com as one of its prime accounts. And despite Sun's tight partnership with AOL Time Warner's America Online division, "AOL is buying L-class (servers) up the gazooba," Hudson added.

Reseller blues
But the company also acknowledges that it faces problems getting resellers back on its side.

The reseller problem was that HP didn't clearly delineate which companies it would sell to directly and which it would let resellers approach, Fiorina said in February. In addition, HP had cut back on advertising and other programs that help generate sales demand for those partners, just when rivals were increasing that investment. The result: Several HP-only shops added other companies' products to their sales lines.

And an overly aggressive HP sales force stepped on resellers' toes, alienating the resellers by competing for the same customers. Currently, about half of Unix server revenue comes from HP and half through reseller partners, Hudson said. A few people believed HP should have about 60 percent of that share. They've since lost their jobs, he said.

The reseller problem, combined with the loss of Internet-company spending, the economic slowdown and corporate spending delays, meant HP's Unix server sales grew only 6 percent in the most recent quarter. "That's not where it needs to be. Sun and IBM outgrew us substantially," Hudson said.

Though the reseller problem had been brewing for six or nine months, HP didn't notice because sales through the year ended in October were good, with 20 percent revenue growth, Hudson said.

To fix the problem, HP has instituted a "hard deck" that lists the large corporate accounts HP targets--sometimes with support of subcontracting resellers with specific expertise--and the smaller accounts left to resellers, Hudson said.

Though HP is contrite about its reseller relations, the company is bending backward only for those who add services, software or other improvements to HP's products rather than simply selling an unmodified server. "We're not going to establish a relationship with someone who's just pushing boxes," Hudson said. Those companies will continue to be squeezed out of business by low profit margins, he said.

New CPUs
The N-class servers will be the first to use the PA-RISC 8700 CPU when the chip arrives in the second half of this year, Hudson said. Top-end Superdome machines will be next, with lower-end models the last to benefit.

The new CPU will debut at several clock speeds--likely spanning the range from about 600MHz to as high as 800MHz to 900MHz--and will improve performance by about 30 percent to 40 percent over the current 8600 models, he said.

Though HP is planning two more generations of the PA-RISC chips after the 8700, the company will begin its long-awaited move to computers based on Intel's Itanium chip this year, Hudson said. HP's version of the Unix operating system, HP-UX, works on the new chips along with Windows, Linux, IBM's AIX 5L and a handful of other operating systems.

HP invented the architecture that underlies Itanium's design. HP approached Intel, the largest chipmaker, to make sure the chip wasn't relegated to niche status, but the chip has taken years longer to emerge than HP and Intel hoped.

This year, though, HP finally will begin to see the fruits of the collaboration. With the arrival of the first Itanium system in the third quarter, HP will begin a gradual unification of the designs of HP's two main server lines, the PA-RISC-based Unix servers and the Intel-based NetServers. The Itanium machines will share the same product numbers and hardware across both lines, though separate divisions will market them, Hudson said.

Duane Zitzner, president of HP's computing division, said he expects a version of Superdome with Itanium's successor, code-named McKinley, to arrive in the second half of 2002. Hudson said that plan still is on track.