New York - PC Expo: Two Japanese firms join server frey

PC servers may not sound sexy, but the U.S. market is so attractive that two Japanese companies jumped in this week, launching new systems at the PC Expo show.

But while Hitachi and Toshiba say they're interested in extending their enterprise business lines, analysts say the companies may be interested in the significantly higher margins that the server business brings.

Toshiba and Hitachi are jumping into a market that is even more consolidated than the PC market. The top four server makers control more than 70 percent of the market, and have remained at the top for some time.

Jeffrey Friederichs, vice president of marketing for Toshiba's computer systems division acknowledges this will be a tough market to crack. But Toshiba has been selling PC servers in Japan since 1992 and the company has been planning to enter the US market for several years, he said. "It's something we've always wanted to do," he said. "But we wanted to wait until we had the ability to tie this into [the company's portable product line]."

At the show, Toshiba demonstrated its new line of Magnia systems together with Libretto notebooks that can act as wireless companions to the line - used by IS departments for maintenance and support.

But while Toshiba may be looking at this expansion as a natural extension of its business, the company will also gain some protection from the price erosion that has slashed margins in the PC and portables market. While the sub-$1,000 PC market has not had the same impact in the corporate sphere as it has in consumer, average selling prices have been dropping steadily. So it's no surprise that companies have turned to servers which have traditionally offered vendors more room for price protection.

"I definitely believe that this is first and foremost about margins," said Lynda Fitzpatrick, senior analyst at International Data Corp. (IDC). "People have been feeling the pressure of shrinking PC markets and looking for any way to expand margins by seeking out other products."

There are some indications though that the server market may begin to suffer the same pricing pressures as the PC market. "There is a degree of price elasticity in (low-end print and file servers)," said Mary McDowell, vice president and general manager of the server product group at Compaq.