COMMERCIAL NEWS

San Diego, CALIF. — Hewlett-Packard Co. will attempt once again to wrestle Unix server market share away from Sun Microsystems Inc. with new 64-bit boxes. At a press event in New York, HP unveiled Superdome, its most powerful server to date, according to sources.

But while observers expect HP to enjoy a boost in sales due to the server upgrade and more aggressive marketing efforts, they remain skeptical about the company’s chances of slowing Sun’s strong growth. In fact, many say the greatest threat to Sun’s dominance in Unix servers may come from within, in particular its delay in introducing its UltraSPARC III.

Sales of Unix servers have soared in recent years, fueled by the rapid growth of the Internet and Web-related businesses. In particular, high-end Unix servers equipped with 64-bit processors have come to serve as the e-commerce backbone due to their scalability and ability to address large amounts of memory.

Sun, in particular, has experienced tremendous growth by securing business ties to many up-and-coming Internet-based businesses, and it secured the position of Unix server market leader in 1998. Since that time, HP and IBM have remained at No. 2 and No. 3, respectively, according to revenue figures compiled by International Data Corp.

But HP sales of high-end Unix systems dropped dramatically in the second quarter of this year, analysts said. While company officials blamed the drop on customers awaiting the launch of HP’s new high-end server, some analysts thought otherwise.

“Hewlett-Packard has a pretty bad quarter from a Unix gross sales standpoint compared to Sun, with HP saying people were waiting for the new high-end Superdome,” said Don Young, a market analyst with PaineWebber, in New York. “But the reality is that Sun customers are waiting for UltraSPARC III, Serengeti servers and all that – possibly a much bigger product transition than HP – and Sun’s demand accelerated.”

Nevertheless, HP and IBM are pressing on. On Tuesday, HP CEO Carly Fiorina rolled out the company’s new top-of-the-line, 64-processor Superdome at a New York news conference. The $1 million-plus system, powered by the company’s 64-bit PA-RISC chips and utilizing HP’s custom-designed flavor of Unix called HP-UX, is designed to compete against Sun’s flagship system, the 64-processor E10000.

HP customers will be able to further boost their system power, sources said, by integrating four of the high-end servers together to create a clustered system capable of utilizing up to 256 processors. HP’s previous top-of-the-line server, the HP 9000 V-Class, was scalable up to 128 processors.

The Superdome is designed to handle Intel’s upcoming line of 64-bit processors once they become widely available early next year. In three or four years, HP plans to integrate IA-64 processors, which feature an architecture HP helped develop, into all of its servers.

HP is also expected to announce several new initiatives designed to make its server offerings more attractive to businesses looking to expand their Internet-related commerce capabilities. HP officials in Palo Alto, Calif., declined to comment on next week’s announcements.

Although Sun’s competitors can boast better benchmark scores on their servers, “speeds and feeds” alone won’t be enough to lure away Sun customers, analysts said.

“Businesses aren’t choosing Sun just on the basis of their product-line alone,” said Bill Moran of D.H. Brown and Associates, in Port Chester, N.Y. “Sun has a strong reputation, even among the traditional brick-and-mortar businesses, for providing solid support and services. While companies like HP and IBM have taken steps to improve in those areas, both had their problems in those areas in the past.”

Laura Conigliaro, a market analyst with Goldman Sachs, agreed. “In general, enterprise customers are loath to change vendors simply based on another round of speeds and feeds,” Conigliaro said. “It really takes protracted delays from an existing supplier or else just a general discontent to cause those kind of changes to take place.”

One delay that could prove problematic for Sun is the postponed release of its UltraSPARC III processor, now more than a year behind schedule.

The chip, code-named Cheetah, is expected to be released this month in workstations and low-end servers, but it won’t be integrated into Sun’s high-end servers until next year.

The delay could give Sun’s rivals an edge, Moran said. “If they get seriously outgunned by the HPs and the IBMs of the world, this is going to turn up in their business results down the road,” he said. “They are going to lose business if they cannot stay competitive.”

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