New Intel servers dial in to telecom market

The Santa Clara, Calif.-based chipmaker is shipping "building block" servers designed for handling voice-over-IP traffic, multimedia messaging, virtual private network traffic and other telecommunications services. The company won't sell these servers under its own name. Instead, computer manufacturers will buy them, customize them at their discretion, and sell them under their own name starting in the first quarter of 2002.

The servers are largely aimed at displacing Sun Microsystems and other telecommunications equipment makers, said Shantanu Gupta, Intel's director of marketing for enterprise platforms. Currently, Sun's Netra servers are popular systems for these services. Most of these computers, however, depend on proprietary hardware and software.

"With this, they can buy at a much lower price point," he said. "We're offering the end customer an alternative."

Even with the downturn in the communications market, PC manufacturers have long viewed telecommunications as a ripe market for colonization. The subject has been at the heart of speeches by Michael Dell, Intel CEO Craig Barrett and Intel Chairman Andy Grove, one of the more vituperative critics of the telecommunications industry. When asked whether a phone outage at his house was a retaliatory move by a carrier, he replied that telco companies weren't smart enough to do something like that.

Gupta would not identify companies that planned on re-marketing Intel's equipment. However, he noted that Dell currently sells no server in this category, while Hewlett-Packard and Compaq Computer sell servers containing, respectively, PA-RISC and Alpha chips.

Telco servers differ from standard rack-mounted servers primarily when it comes to disaster preparedness. Telecommunications servers are subject to a battery of international regulations--including the Network Equipment Building Specification (NEBS)--that work to ensure that these machines will continue to work under a wide variety of circumstances.

"They have to be able to withstand earthquakes. If they catch fire, they can't release harmful fumes," he said.

They also can't melt, which is one of the reasons the chassis is made of metal rather than plastic. The server kits also come with warning systems that will page IT managers in the event of component failures, such as a fan burnout, Shantanu said.

Initially, Intel will release two Pentium III-based server kits that computer manufacturers will begin to market under their own names in the first quarter. These will come in 1U (1.75 inches) and 2U sizes. In a year, the company will release kits that contain Xeon processors, while an Itanium-based kit will come out in the middle of 2003.

Intel technically isn't selling the complete server. It sells the chassis with the hard drive and other components already inserted into the case to the PC maker. The PC manufacturer then inserts the memory and processor and burns in the operating system on its own. By dividing the labor as such, Intel avoids conflicts by competing against computer makers directly.

The division of labor, however, means that the industry, or at least companies that buy the server kits, is allocating more of the research and design work to Intel. Shantanu acknowledged the shift but called it a natural byproduct of industry trends. Although manufacturers derive revenue from hardware, they are increasingly seeking profit in services.

"For (the PC makers), hardware is a small piece of the revenue pie," he said. "You don't necessarily need to do the design from ground up to add differentiation."