How MS will end the Dell - Intel love-in
Mr Bill delivers AMD
Analysis Here's a prediction you don't see everyday. Microsoft will be responsible for ending the monogamous relationship between Dell and Intel. Microsoft will deliver Dell to AMD.
Over the past three years, Dell has hinted time and again that it will pick up AMD's 64-bit Opteron processor. Dell, however, has never actually made the move to AMD, saying it won't do so until customers beg for a second supplier. Well, come mid-2005, Dell's customers may start begging.
In the middle of next year, AMD will beat Intel to market with a dual-core 64-bit x86 processor. Intel isn't expected to match AMD with a similar product until the first quarter of 2006. That gives AMD at least six months to pound away on the singular message that it's the obvious choice for Microsoft customers - or at least those Microsoft customers that care about the price of their software.
Microsoft recently beat out most of its software rivals by declaring that it will recognize dual-core processors as a single chip in per processor pricing schemes. This licensing policy applies to SQL Server, Biz Talk Server, Commerce Server, Content Management Server, Host Integration Server, Identity Integration Server, Speech Server and Internet Security and Acceleration Server. Opteron server customers will be able to pay for a two-processor license on these products and essentially run the software on four processor cores. Intel server customers won't enjoy the same advantage for several months. So, if you're in the market for a box to run Microsoft software, there's a pretty compelling reason for you to give an Opteron-based box a go.
If you're in the market specifically for 64-bit kit, the move to Opteron becomes even more compelling. Microsoft said in July that customers can move from 32-bit Windows Server 2003 to a 64-bit version of the OS at no charge. A production version of the 64-bit operating system should arrive in the first-half of 2005 - just in time for the release of the dual-core Opteron.
Here's what all this means for Dell and its large collection of Microsoft customers.
"I just think Dell tracks what Microsoft's customers are doing," said James Governor, an analyst at RedMonk. "If Microsoft is really aggressive about pushing 64-bits, and Intel is not ready with a chip, I would assume Dell would not wait any longer."
Another top executive at a large Intel and AMD server shop said the Dell shift might not even have anything to do with 64-bits. He put the potential cost savings for Dell customers this way:
"Two-way servers are the bulk of the marketplace," he said. "AMD will release a chip that turns a two-way into a four-way, and there will be no extra cost for Microsoft software. Even a VP can figure this one out. They'll understand that AMD is a better chip for Windows."
Despite the complexity that a second-supplier will add to Dell's vaunted supply-chain, the company will be forced to placate customers by delivering Opteron-based boxes. Dell can ignore the single-core Opteron for the time being, but it simply can't afford to let HP, IBM and even Sun Microsystems offer dual-core systems to Microsoft customers for months without a response of its own, particularly in the two-way server market that it wants to dominate.
The downside to the upside
Numerous pundits would argue that such a prediction doesn't make sense.
For one, customers don't often change their entire server architectures simply because of an interesting pricing scheme. Microsoft and Dell customers would see a nice price/performance advantage when comparing a dual-core Opteron-based box versus a single core Xeon-based box, but such a price break might not be tempting enough for those customers who are enamored with the Intel brand and happy to wait for Chipzilla to catch up to its rival.
It's no secret that IT budgets remain tight. This environment makes customers less willing to try out unproven technology until they see that new systems really can deliver what they promise. By the time customers assess AMD's product and get their heads around new software pricing models, Intel will have product out on the market.
"A six month lead won't really matter," said Laura DiDio, an analyst at the Yankee Group. "Very few organizations will be brave or foolhardy enough to just deploy these new servers and software once they're out the door."
DiDio highlighted one of the second major obstacles to a mad dual-core Opteron server rush, which is that customers aren't exactly sure how software will perform on these boxes. Unlike the Unix market, the x86 market isn't chock full of software that has been tuned for years to take advantage of multiprocessor boxes. Microsoft and Dell customers need to think not only about multicore chips but also about sophisticated partitioning software, multithreading technology and other virtualization packages.
"There is no guaranteed predictability on application performance (with multicore chips)," DiDio said. "That doesn't mean software will freeze or crash, but it might behave differently. It may impact organizations in ways that surprise them."
Dell, expect in the case of Itanium, always waits for customers to demand a new product before it adds the gear to its hardware lineup. If only the bravest customers are testing out Microsoft Server products on dual-core Opteron servers, then Dell would seem to be able to wait until Intel rolls out a dual-core Xeon.
Forget Wintel. It's all about DeWinteron
Regardless of these detractors, Dell will still cave and start shipping dual-core Opteron boxes as soon as they are available because its reputation depends on it.
In the past, Dell has prided itself on being able to ship new, faster chips ahead of the competition. When Intel rolls out a new part, Dell is often the first vendor to offer it in servers. This is a competitive advantage for Dell. Historically, AMD hasn't been able to disrupt this tradition because its products were only comparable to Intel's - not overwhelmingly better.
Dell, however, will not be able to afford being the last major server vendor to the dual-core market. There's no way Dell would invite every single one of its customers to take a peek at what IBM, HP and Sun have to offer for a six month period, especially in the key Windows software market. One can only imagine how a Dell salesperson would respond to a two-way ProLiant with four processor cores without a similar Opteron box in Dell's arsenal. Dell would look like a stubborn laggard that does what Intel tells it to do without question. (It's already hard to question that Dell isn't subject to Intel directives given that Dell has sold about 800 Itanium servers - ever. "We only ship what customers demand." Hardly. Dell only ships what Intel demands. Might be time to rethink that strategy.)
Besides the utter embarrassment of being last to market, Dell's rejection of dual-core Opterons would hurt its partner of all partners - Microsoft.
Microsoft has taken a leadership role in multicore processor pricing to try and help it gain ground against Oracle, IBM and Linux and to warm customers' hearts.
"It does look like Oracle and IBM are right in the cross hairs with Microsoft's announcement," said RedMonk's Governor.
How about another perspective?
"It's aimed at Oracle and IBM to a lesser extent," said DiDio.
Microsoft is going to trumpet its per processor licensing advantage over the likes of IBM, Oracle, BEA and Veritas until it can trumpet no more. The folks in Redmond still make most of their money off of Windows and Office. Microsoft has less to sacrifice than an Oracle or an IBM by taking a per processor hit on its enterprise software stack. It also has billions in the bank that allow it the freedom to fund an innovative, risky pricing model ahead of competitors.
In addition, Microsoft's quick action on the multicore processor front is surprising customers who didn't expect to see such kindness from a typically tight-fisted vendor.
"This seems like an unlikely play from a company that never really allows itself to get the short end of any stick," said Arturo Castellanos, an IT consultant for non-profits in Austin. "It doesn't seem to fit the usual m.o. of strict licensing that has been part of Microsoft's strategy in the past. It's really pretty encouraging."
Small and medium-sized businesses are exactly the types of customers Microsoft can woo effectively with this new licensing plan. These customers certainly want the most bang for their buck, and getting two processors for the price of one has to look pretty good. Larger customers have much more complex data centers and complex licensing arrangements that would tend to dilute the gains of just moving to dual-core chips.
"This is a big part of Microsoft's overall, long-term strategy - to regain customer trust," DiDio said.
The SMB market happens to be one of the key segments that Microsoft and Dell target together. Microsoft will want Dell onboard with the dual-core Opteron processor from day one to make the most of its goodwill effort.
In the end, Microsoft may have nothing to do with Dell's acceptance of Opteron.
Dell executives have seemed eager to stir up Opteron rumors of late. It may well be the case that the company had decided internally to go the Opteron route awhile ago. At the very least, the Dell Brass wants the world at large to think it made the Opteron decision independently. The chip is a strong performer that has captured customers' attention, and AMD seems to have its act together a bit better than Intel on the 64-bit front.
Dell could end up giving AMD a test run with single core Opterons when 64-bit Windows Server 2003 finally ships for the chip. If Dell hasn't caved in by then, it will surely fall when the dual-core Opteron arrives.
Should Dell counter our stunning logic and resist Opteron at that time, then the conspiracy theories about Intel doing all it can - wink, wink - to keep Dell away from AMD will really fly. Dell is a bottom line kind of company, and Microsoft is providing the bottom line reasons for Dell to pick up AMD's kit. ®
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