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It's Razor-Sharp Competition In Growing Blade-Server Field

Quoting CNN Money

Hewlett-Packard won much notice for its sexy PCs that helped it grab the lead in its market and beat Wall Street earnings estimates of late.

But HP HPQ also credits its recent success with gains it has made with a more drab product called blades, a slim and simple type of server computer.

While HP grabbed headlines by leapfrogging Dell DELL last year to take the lead in PC sales, in the fourth quarter it also ousted IBM from its longtime perch as No. 1 in blades.

It is expected to retain the lead for awhile at least. But IBM, which with HP has some two-thirds of the market, isn't sitting still. Two smaller blade rivals, Dell and Sun Microsystems (NASDAQ:SUNW) SUNW are rolling out new blades in a bid to get more share.

"It's going to get much more competitive," IDC analyst Jed Scaramella said. "We're entering the next wave of blade adoption."

HP 41%, IBM 35%

Market tracker IDC says HP had 41% of the blade market last quarter. It says IBM had 35%. Among several also-rans, Dell had 9% and Sun a mere 1%.

"It's hard to say (HP is) going to hold the same amount of market share forever," said James Staten, an analyst with Forrester Research. (NASDAQ:FORR) "Everyone is jockeying for position."

Computer makers see blades as a key market. Why? Blade sales are expected to rise an average of 30% a year for the next five years, while the rest of the server market remains flat, Scaramella says. In 2011, blades are expected to make up 29% of all server shipments, vs. less than 10% last year, he says.

In 2011, blades -- which are cheaper than most servers -- will make up 18.9% of revenue, up from 5% last year.

Blades are part of what's called industry standard servers -- servers powered by commonly used processors from Intel (NASDAQ:INTC) INTC and Advanced Micro Devices (NYSE:AMD) AMD.

Blades have become more popular as companies seek ways to quickly and easily boost computing power. They are simpler to upgrade or replace than high-end servers or mainframes.

Customers place slim blades sideways in a "chassis" -- somewhat like blades in a razor, hence the name. Blades save space, are easier to swap in and out and are easier to manage.

HP's blade sales rose nearly 60% in its past quarter vs. the year-earlier quarter. Paul Miller, an HP vice president in the server group, expects the growth rate will remain at least 30% for the next several years. He says blade sales as a percentage of total HP server sales last quarter were in the mid-teens, up from less than 10% a year earlier.

Miller says HP Chief Executive Mark Hurd's mandate to the group is to do even better. "He's very interested in the blade and industry standard server business," Miller said. "He sees this as a vehicle to continue to grow the HP business."

Last summer, HP launched the c-Class blade product line, which provided energy savings that Miller says was a big hit with customers.

IBM executives concede that the c-Class line helped HP.

"It is a much more competitive market since last June," when HP rolled out c-Class, said Douglas Balog, a vice president in IBM's server unit. "But that said, we're not missing anything in our portfolio."

IBM is trying to expand the market. It recently announced new blades targeting small and midsize businesses.

Already, IBM's BladeCenter S is small enough to sit on a desktop and works with a standard 110-volt plug found in any office, where most servers require a 220-volt plug.

"The small and medium-sized business is where the blades are going to go," Balog said. "It's not just about the guy with 6,000 servers; it's about the guy with six servers."

John Enck, an analyst with research firm Gartner, sees the blade market as a two-horse race, though he expects HP to say ahead.

Sun Microsystems is among the companies looking to make it a three-horse race.

The one-time server king has struggled since the dot-com bubble burst, but analysts say its products have improved the past year or two. It always has been strongest with high-end servers, but analysts applauded its new blades for broadening its product line.

Virtualization One Key

"It looks like a pretty good offering," Enck said. He says Sun's new products are loaded with more memory than most. That helps customers that are increasingly using a software called "virtualization," which takes a lot of server memory. Virtualization technology essentially helps users maximize their servers' computing power.

"We feel we've got the formula right here," said John Fowler, a Sun executive vice president. "We're a small player. We don't have to have a huge market to have a really big economic impact at Sun."

Dell, meanwhile, plans to come out with a new blade line near year's end, says Jay Parker, an executive in Dell's server unit.

He says the company's next generation of blades will leapfrog rivals in performance, features and energy conservation.

Some analysts like Dell's chances of rising in the blade market. "They're doing their homework," Forrester's Staten said. "They're doing a lot of work in this space."

Read the original, here.

Published Tuesday, July 03, 2007 6:37 AM by David Marshall
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