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NetFrame: Micron's path to server

NetFrame's disciplined focus made it an attractive buy for Micron. The direct computer marketer is looking to broaden its reach.

Micron Electronics' (MUEI) plans to acquire network server manufacturer NetFrame Systems (NETF) will allow Micron to rapidly extend its reach into the server market, where it has been practically absent.

Boise, Idaho-based Micron, a manufacturer and direct marketer of PCs, has been traditionally strong in sales of high-end desktops and notebooks to individuals and small businesses. More recently the company has begun expanding its line of computers to address larger corporate customers.

Dell Computer, also a direct marketer, has successfully taken this tack in the last few years. Gateway 2000, too, is beginning to employ this strategy.

With the expected purchase of NetFrame, Micron will target high-end servers, a major market segment that Micron needs to address to be a full-fledged PC vendor. Dell recently reached the No. 4 position in the marketplace for PC servers, proving that direct sales work for servers. "Micron feels they can do the same thing," noted Jane Wright, an analyst with Datapro.

Micron is "very strong in sophisticated notebooks through desktop systems, but has no presence in the high-end market," according to Marcia Speech, a spokesperson for NetFrame. "That's where NetFrame is most successful."

Buying NetFrame will help Micron break into the midrange and high-end business server market, according to Wright. "There was a perception that Micron servers were just entry-level servers. You didn't buy Micron for high-end applications."

Now that NetFrame is a part of Micron, Wright said, "customers will feel safer to turn to Micron for a high-end server."

The deal should be good for more than just Micron. NetFrame hopes its server line will benefit from being part of a complete offering of business-oriented systems, which allows potential customers to buy all of their computer systems from a single company.

Speech cited NetFrame's narrow focus on enterprise servers as a primary reason it was attractive to Micron: By buying NetFrame, Micron was able to get the enterprise server technologies it needed without having to purchase other businesses as well.

NetFrame also has valuable server technologies under development that could boost Micron's future server offerings. The company was one of only two developing hot-pluggable PCI cards, according to Wright; the technology should be ready in 1998.

NetFrame will operate as a wholly owned subsidiary of Micron, continuing to do its own research and development.

Details of what technologies will be shared between the two companies for use in future computers have not yet been worked out; nor do the two companies know how support for present NetFrame customers will be handled.

News of the $14 million dollar deal, however, was not received well by NetFrame stockholders; they dumped the stock following Monday's announcement.