Thin-server infrastructure is trendy.
Dell Computer, in its last call, singled out these small, rack-mounted products as the fastest-growing segment in its product line. Predominantly driven by the Internet build-out, these thin servers can either be full-function servers or single-purpose "appliances." Each foster accelerated growth in storage and software to manage and support this infrastructure.
For investors, this is important for three reasons: It signals the rise of a new computing architecture; it is driving a wave of new product configuration and features; and it is fostering a new group of companies focused on this segment.
The availability of sub-$2000 servers that can be easily rack-mounted and are often only one rack-unit tall means that a single rack can hold up to 40 separate servers. This allows the customer tremendous flexibility. ISP and hosting companies like this configuration because capacity can be added incrementally, or a "slice" at a time, as opposed to the traditional way of purchasing a larger server with excess capacity.
Also, for an aggregator that has multiple customers, this configuration allows for dedicated resources for each customer. Often companies like to see their own server, rather than know they are sharing resources with numerous other customers.
This new multiple thin-server architecture also places new demands on a computing environment, compared with the single large-server traditional model. Many customers want the ability to make the multiple servers appear as if they were one large computer, and balance the computing loads across them, which necessitates clustering and load-balancing software. New thin-storage devices also are required to function as server data stores and to speed performance with caching. And, finally, because cost is also a prime driver for demand of thin servers, low-cost software is needed, making thin servers an ideal platform for Linux.
Traditional systems companies have embraced the form-factor--Sun Microsystems, for example, has long had a "pizza-box" server. But it is really the start-ups that are focused on the segment, directed at the biggest customers of the new machines (the ISPs and ASPs), and are embracing the appliance concept. Cobalt Networks, for example, offers both rack-mounted thin-servers and appliances tuned for caching and network-attached storage. VA Linux offers tuned thin servers running Linux that have become the server of choice for demanding customers such as Akamai, which needs to launch significant numbers of low-cost servers. Software suppliers such as Resonate are supplying functionality such as traffic management and load balancing.
Overall, I see nothing stopping this trend toward low-cost thin servers. Additionally, I see a potential acceleration as more of these hardware systems are tuned and optimized for a particular application. This could lead to an even more pervasive opportunity--software delivery on pre-packaged servers.
The days of large, multimillion-dollar servers are not over, but the real growth potential appears to be at the other end of the scale.
Philip Rueppel is a research analyst with Deutsche Banc Alex. Brown. His comments that appear herein are not a publication of Deutsche Banc Alex. Brown and may not represent his complete or current opinion with respect to any company. Persons who want to make an investment decision with respect to any company mentioned should obtain a copy of Rueppel's current and complete opinion as contained in the most recent publication of Deutsche Banc Alex. Brown. Rueppel's opinions are not intended as an offer or solicitation, nor as the basis for any contract for the purchase or sale of any security, loan or other instrument.