New competition for sun
Compaq, with its acquisition of Tandem and its update of the Tandem Himalaya line, is also a new contender in the consolidated server space. Consolidated servers are multiprocessor machines that can do the jobs of several other servers. The IBM Z900 and Sun Starfire 10000, for example, are machines that require one administrative interface, but can be partitioned into dozens or hundreds of virtual machines, each representing a Web business or other customer. Consolidated servers require fewer management resources than many small machines. They can make use of a centralised pool of storage, as opposed to each machine having separate storage. And they contain many redundant features that keep them up and running 24/7.
After buying Tandem and Digital, Compaq needs to capitalise on its expertise in servers - both large Himalaya and the former Digital's Alpha architecture servers - to make the acquisitions pay off.
"So far, there have been three big winners in Internet computing - Cisco Systems in network equipment, Oracle in databases and Sun in servers," said Joyce Becknell, an analyst at Aberdeen Group.
IDC's figures now indicate that Sun owns 56 percent of the high-end Unix server market and 36 percent of the total high-end server market, with its recent gains appearing to come at the expense of traditional rivals HP and IBM.
"Sun has been growing revenues more quickly than anyone else. Intel architecture vendors have to compete with Sun," IDC's Melenovsky said.
If Sun has emerged as a winner with its Solaris operating system, a flavor of Unix, and UltraSparc chips, will Compaq and Dell succeed in undercutting its position with commodity Intel-based servers? Both have taken away workstation market share from Sun with cheap and powerful desktop machines based on Windows NT and 2000. In addition, Dell is now shipping 8 percent to 10 percent of its servers with Linux installed, Dell's Lambert said.
It's too soon to say whether Compaq and Dell can make headway against Sun's entrenched position, analysts said, but doubts about Sun's next-generation chip, UltraSparc III, make the tenure of its lead over other vendors appear shaky.
"We believe there are yield issues regarding the UltraSparc III, which could mean we are not going to get the midrange product from Sun in early summer that we had thought," Merrill Lynch analyst Tom Kraemer said last month. At the same time, Prudential Securities downgraded its rating on Sun stock from "buy" to "accumulate."
Sun denied it has experienced any setbacks in producing the UltraSparc III chips. Sun doesn't manufacture its own chips. It is relying on Texas Instruments to produce its design for the UltraSparc III, said Max Baron, editor of the Microprocessor Report. Chris Kruell, marketing manager for Sun's Systems Group, said his company will implement UltraSparc III into the rest of its server line as planned over the next three to six months. Nevertheless, Sun's stock, which has traded at a high of $64.65 per share over the last 12 months, has been changing hands recently in the $28 to $32 range.
Sun is actually playing hard at both ends of the server market, with its production of UltraSparc thin servers plus its Dec. 7 acquisition of low-end, server appliance maker Cobalt. Server appliances are often thin servers preconfigured with software to do particular tasks, such as Web serving or database serving. At the same time, Sun produces high-end Starfire Enterprise 10000s with up to 64 UltraSparc central processing units (CPUs). Sun sold 500 Starfires at up to $1 million each over an eight-month period, from June 1998 to February 1999.
Now the vitality of the Sun product line rests on its ability to deliver on the UltraSparc III promises that it made Sept. 27 in New York, three years after the original UltraSparc III announcement. The company has just started to make deliveries of Sun Blade 1000 workstations and low-end Sun Fire 280R servers with UltraSparc III chips running at 600 MHz, 750 MHz and 900 MHz.
Meanwhile, Compaq, Dell and IBM are rapidly raising the price/performance ante, with HP eagerly waiting in the wings for the 64-bit Itanium chip, which it codesigned with Intel.
"The UltraSparc III design has taken a lot more time than anticipated," Baron conceded, but Itanium has also suffered production delays and does not yet appear to be available in quantity. The new breed of thin servers is particularly dependent on the price/performance of their respective CPUs. Sun is as strong as it is in server competition based on its aging UltraSparc II because Intel's Itanium's schedule also slipped, he said.
UltraSparc I and II have been primary engines of the Internet so far, and "UltraSparc III takes Sun to the second generation of dot-com architectures," said John Shoemaker, executive vice president at Sun's Systems Products Group, on Sept. 27.
Intel compared a 600-MHz UltraSparc III with a 660-MHz Itanium in executing security algorithms commonly used over the Internet for virtual private networks, Secure Sockets Layer in transactions and public key infrastructure for trusted documents, and claimed Itanium was about seven times faster, according to figures published on its Web site.
Intel introduced its fourth-generation Pentium chips at 1.4 GHz and 1.5 GHz, and Itanium's first-generation successors are expected to quickly achieve those speeds.
"The potential is there for Itanium to take over more of the market," Baron said. "The lead Sun is enjoying right now is because Intel left it some breathing room." Intel's upcoming Itanium 64-bit chips are due in quantity later this year, he said.
IBM's Power chips are being mass-produced reliably with copper instead of aluminum circuits, which allows cooler and smaller circuits, Baron said. IBM has Power4 chips in pilot production with cooler-running copper circuits and insulating layers in the chip to reduce electrical interference. The result is an ability to pack up to 170 million transistors on a Power4 chip, compared with UltraSparc's 27 million, and is expected to appear in an IBM Regatta server by the end of this year.
