Cloud storage: Lower cost and increase uptime

Despite HP's healthy rise in Itanium server sales, IBM think its major rival and Intel will have to give up on the processor in the near future due to basic economics.

"The end of life for Itanium will occur in the next five years," IBM VP Scott Handy told us, during an interview here in Austin, Texas. "(HP) will have to announce some kind of transition."

The fuel for IBM's renewed assault comes, in part, from healthy Unix sales. During the third quarter, IBM grew Unix revenue by six per cent, according to Gartner, keeping it as the top vendor. IBM has also shifted hundreds of customers off HP and Sun over the past two years to its systems and looks to continue this success in 2008 with the continued roll-out of Power6.

Thus far, IBM has slotted the speedy Power6 chip only into a single midrange box and a blade server. Handy portrays the limited roll-out as a luxury that IBM alone can afford.

"We can beat HP or Sun with our previous chip the Power5+," he said. "We're in the unique position of being able to play the market with both chips and provide discounts when we want."

Sun and HP no doubt see things differently.

For example, Sun has enjoyed strong high-end Unix server sales over the past couple of quarters and saw its revenue rise 7.3 per cent in the third quarter, out-pacing IBM's growth..

HP has benefited from high double-digit increases in Itanium server sales and in its most recent quarter used those rising sales to offset the loses of PA-RISC and Alpha server sales for the first time, generating an overall gain in "business critical systems" revenue.

Handy, however, charges that Sun has raised the prices of its high-end systems to offset volume losses with low-end and midrange Unix gear.

"The customers we call on perceive Sun as increasing its prices," he said. "They're using margins on the high-end to fund lower-margin efforts."

Historically, Sun has long sold far more Unix boxes than rivals, using its higher volumes to justify the in-house production of UltraSPARC chips. But Handy thinks that Sun's x86 business is cutting into those volumes, making UltraSPARC, like Itanium, a doubtful long-term proposition.

"They are already signaling to customers the beginning of the end," Handy said. "Rock (Sun's next UltraSPARC chip family) is their last-ditch effort, and no matter what their volume is it's already too small to afford what comes after the first Rock chip."

For HP, Handy retells a familiar story. Sure, HP is growing Itanium server sales, but it still needs to replace all of its PA-RISC and Alpha revenue to keep pace with IBM and Sun. A one-to-one revenue swap seems unlikely even over the long haul since IBM and Sun put so much effort forward trying to poach HP's disgruntled customers. Even worse for HP, Intel's latest version of Itanium, code-named Montvale, recently arrived as one of the most unimpressive upgrades you'll see in the processor game. HP customers must wait until late this year to see a fast, revamped version of Itanium.

"We know what a business case looks like and how much business you need," Handy said. "There is not enough business to afford Itanium. So, they have to find other spaces for that chip or find another chip or it's going to be a sinkhole."

IBM claims an economics edge over rivals since variations of the Power chip end up in everything from game consoles to massive mainframe-like servers. In addition, the US government will fund part of IBM's next-generation Power chip development thanks to a lucrative contract dished out by the Defense Advanced Research Projects Agency.

Overall, Handy believes that IBM can turn a very healthy profit in the Unix game even if the market remains flat overall by taking share from Sun and HP at a steady rate.

IBM's theories will be put to the test over the next 18 to 24 months. Both Intel and Sun plan to release rather radical high-end processor designs around the end of 2008. Their chips should excel when handling multi-threaded software. Meanwhile, IBM will be married to Power6 and its follow-on, Power6+, for a number of years, which will have Big Blue place a stronger emphasis on single thread performance because of the high clock rate of the chips. ®

Steps to Take Before Choosing a Business Continuity Partner