HP expands server appliance push

They're still built by Intel, but Hewlett-Packard hopes eventually to start doing more of its own design

Hewlett-Packard on Wednesday launched a new line of special-purpose servers designed by Intel, but HP plans to wean itself somewhat from dependence on the chipmaker in the future with the critical new products.

"Server appliances" are computers designed to handle chores on a network faster or with less fuss than general-purpose servers. HP released 21 new models that do everything from sending streams of video to encrypting secret transactions between computers on the Internet.

Intel actually designed most of the computers -- HP adds only sales and services. But in the future, HP expects to be doing more of the design itself, said Frank Harbist, general manager of HP's server appliance group.

Using Intel's hardware helped HP jump-start its server appliance business, a market pioneered by start-up companies that already attracted major backing from HP competitors Dell Computer, Compaq Computer, IBM and, most recently, Sun Microsystems.

HP had hoped, in vain as it turned out, that sales of servers would prop up sinking revenue from the PC sales slowdown. But server appliances still show promise for HP.

Server appliances have higher profit margins than general-purpose servers, Harbist said, because they come with software and services and are often sold directly to customers instead of through other companies that customize or support the products. "We're taking profit margins from the software companies or the middlemen," he added.

Aberdeen Group analyst Gordon Haff agreed that profits are plumper with server appliances, but he criticized HP for a clumsy entry into the market.

"HP has good individual products," Haff said, "but I have not heard from HP the sort of coherent message about the server infrastructure as a whole that I've heard from Compaq, Dell to a certain extent, and certainly IBM and Sun."

Haff and Harbist agree, though, that HP's most significant competitors are the larger, established companies such as IBM, rather than server appliance specialists such as CacheFlow or F5 Networks.

Duane Zitzner, head of HP's computing group, named Harbist to lead the server appliance effort in October. Harbist's staff is now up to about 30 managers, who draw on talent from elsewhere in the company's hardware and software groups.

"He (Harbist) can pull from anybody who works for me," Zitzner said. In the future, the server appliance group will take on more and more responsibility for its products, Harbist said.

These virtual organizations aren't always a good idea, though, Haff said. Server appliances must be knit into a much larger computing fabric, so making sure all the pieces work well together is "just as if you're designing a single, large computer system," Haff said. "That's difficult to do if you're just pulling people from a bunch of small groups."

Indeed, HP revamped a virtual organization that had been working on the Linux operating system and related software, replacing it after a year and a half with a dedicated staff.

Intel had developed the products under the NetStructure brand name, but conflicts with server companies led it to stop selling the systems directly and instead let computer makers sell the products under their own brand names.

In December, HP became the first company to sign up to sell the computers, with Compaq Computer following suit in January.

Servers were a black mark on Intel's earnings in the first quarter. Unit shipments and revenue from Xeon server processors declined. In turn, this caused a drop in the company's overall average selling price for microprocessors.

Recovery in the second quarter will partially "depend on whether the server market recovers," said Paul Otellini, general manager of the Intel Architecture Group.

The server appliance group is based in Roseville, Calif., deliberately close to other groups that have been working on server appliances HP has been selling for months. Those products focused on narrower markets--storing files and sending jobs to printers--but Wednesday's effort is much broader.

The company is selling "caching" server appliances that speed up the delivery of Web pages, servers that speed up encrypted Secure Sockets Layer (SSL ) communications such as credit card transactions, servers that juggle requests for Web pages among other computers and servers that set up private network communications over the public Internet.

HP emphasizes that while server appliances are important, they're not for everyone. The company will continue with general-purpose server products, such as its high-end Superdome Unix server, which can be split into different partitions that each handle a different task, Zitzner said.

Intel is amenable to HP taking over more of the design of the server appliances, said Randy Smerik, general manager of Intel's Network Equipment Division. The company prefers to sell "building blocks" for systems rather than complete computers, he said.

Intel is working on a host of new designs, Smerik said. Among them are server appliances for managing digital certificates that guarantee the identity of a particular computer, servers that record transactions, appliances that process digital signatures and appliances that detect network intruders.

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