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New IBM Servers Spur on Pricing War with Sun

By Clint Boulton (Send Email)
Posted Apr 22, 2001


IBM Corp. will take aim at Sun Microsystems Inc. Monday with the launch of two new midrange servers -- the deskside p620 and rack-mounted p660 -- as part of its overall strategy to catch up to Sun, which leads the U.S. in UNIX server market share. It also will open up things a bit in the UNIX market by introducing its AIX 5L, which is primed for Linux, in an effort to gain an edge over the closed systems of its competitors.

The smaller p620 is a tower package that's geared for small businesses, corporate departments and branch offices; the p660 was designed to service harsh environments, such as Internet data centers operated by telcos and service providers -- businesses where machines face extreme physical stress. Big Blue launches its latest midrange server set, touting them as cost-effective when stacked up against Sun's midframes.

Big Blue is itching to best Sun, its arch-rival in terms of servers, with a new line of eServers that feature Silicon-on-Insulator (SOI), the technology it first debuted in 1999. The SOI technology uses less energy and processors -- and generates less heat -- and therefore yields faster performance for lower operational costs, according to IBM vice president of marketing Mike Kerr.

The cooler processors, according to Kerr, help the fledgling servers operate 35 percent faster than traditional aluminum chips. Copper chips have generally proven to provide superior performance to aluminum chips because copper is a better electrical conductor than aluminum.

"Businesses don't have to go out and buy fans to cool their systems," Kerr said.

Specifically, IBM is gunning to top Sun's Sun Fire 3800, which was announced in March with some fanfare. But while IBM and Sun consistently swap levels of power and claim to shatter each other's performance benchmark records with every new server release, it is nearly impossible to prove which company has the best product.

Yet IBM seems to be scoring points in the industry by offering a more cost-effective product, which is part of its tactical strategy.

Jonathan Eunice, an analyst at research firm Illuminata, told InternetNews.com pricing is where IBM is winning the server war.

"It's a price attack, basically," Eunice said of IBM's strategy. "In its last server release, Sun went with a high-end design that has the ability to partition 8-way, 16-way, or 32-way [processors] model."

Partitioning lets the computer be divided into several smaller machines, which is appealing to engineers who want to run software tests without interruptions, Eunice said. IBM doesn't buy the partioning approach.

"IBM's new boxes [p620 and p660] are a much lower-end than Sun's -- they don't claim to attack the whole Sun Fire line. Their strategy has been not to compete with Sun by the number of processors it puts into its machines," Eunice said.

According to product specs, a 4-way IBM eServer p660 with 4GB of memory, 36 GB disk, DVD/CD-ROM and tape drive costs $92,885, compared with $174,445 for a similarly-configured Sun Fire 3800. That is an 89-percent price differential.

And this has been the strategy since IBM's S80 server debuted in October of 1999 -- undercutting Sun in terms of pricing.

"They're hitting Sun in their sweet spot," Eunice said. It's a kind of jujitsu move -- they're taking a page out of Sun's own playbook."

As it stands now, Sun bests IBM in UNIX server market share in the U.S., with IBM being the global leader in that category, according to research firm IDC. Eunice said the two remain in fierce battles over the top slot, with Hewlett-Packard a distant third -- but it was not always so.

Eunice said IBM was in a terrible position two or three years ago, with mediocre servers until the server line was resurrected by the S80. How did IBM turn it around?

"Its the package price performance," Eunice said. "Every six months, IBM does not produce just a box or a feature -- they are aggressively engaged in producing quality packages at lower costs than Sun."

Sun is well aware of IBM's pending release. A company spokesperson told InternetNews.com that the company knew about it and that its "hardware people are working on it."

Sun may have betrayed its awareness last week when it said in a press release that it was cutting costs on its Sun Enterprise 3500 to 6500 servers by as much as 16 percent. Granted, this line is not the Sun Fire line that IBM is itching to take on with its p620 and p660, but a Sun spokesperson admitted marking down the prices to attract more market share.

"The introduction of the new Sun Fire servers gives us the perfect opportunity to realign prices of our existing product line to eliminate overlap with the new Sun Fire servers," said Shahin Khan, vice president of product marketing and planning, Sun Microsystems Inc. "The repricing also broadens our price range, which gives more choice for customers and potentially greater market share for Sun."

IBM, which last week announced a 15 percent income growth for the first quarter, thinks Sun will battle back by trumpeting the feature flexibility and partitioning in its own servers.

IBM's Kerr, who presided over the p620 and p660 rollout, said the launch would "take the wind out of their sales."

To be sure, Sun is not slowing down for anything. It's still king in terms of UNIX server market share in the U.S. and it's hedging its bet on a killer 128-processor server -- called StarCat -- which it hopes to launch within the next year.

And while Sun said last week that it suffered lower-than-expected sales and net income dropped 73 percent to $136 million, Goldman Sachs (GS) said in a research report Friday that Sun has probably seen the low end of an "ugly" cycle.

GS' Laura Conigliaro said Sun will have a refreshed product line in place once the economy starts to turn, providing it with the ability to reaccelerate growth. Moreover, Conigliaro approved of Sun's midframe servers, such as the SUN 3880.

"Among the advantages of Sun's recently introduced midframe server line are functionalities such as dynamic reconfiguration of partitions and advanced clustering capabilities, features that previously only existed on Sun's current high-end StarFire and that enable single servers to run multiple applications," Conigliaro said.

The analyst also noted that the latest midframes are not yet the greatest the company has to offer; Sun will upgrade Sun Fire with 900 MHz chips this summer to get in line with IBM who has been using them for more than a year.

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