Fujitsu talks big on x64 server sales

The European arm of Japanese server maker Fujitsu, to be called Fujitsu Technology Solutions, is staking the growth of its server business on the IA platform.

The new company came about after the €450m buyout of the half of the business formerly owned by German conglomerate Siemens.

At a press conference which spanned Tokyo, Munich, and Bracknell, Kai Flore, the president and chief executive officer explained the server and storage strategy at the newly christened FTS. (If you want the skinny on storage, check this out.)

That strategy is focused on what FTS is calling the IA chip architecture. It is a flashback to some earlier time when Intel was trying to give its 32-bit Xeon and 64-bit Itanium a name - Intel Architecture - that glossed over the fact that they were, and still are, two distinct Intel architectures. While Fujitsu and its global subsidiaries certainly do sell PrimeQuest Itanium-based iron, it doesn't take a genius to figure out that when FTS or Fujitsu say IA chips they mean x64-style processors, usually from Intel but sometimes from Advanced Micro Devices.

FTS is a sizeable portion of the Fujitsu empire, which accounted for $53.3bn in sales in 2007, and which brought a mere $481m to the bottom line. The overall Fujitsu company, and its byzantine collection of subsidiaries, has 167,000 employees worldwide. In that fiscal year, about $32.7bn of the company's overall sales came from what it calls technology solutions (meaning systems, storage, networking, and services relating to these products), which works out to 56.6 per cent of the pie. Another $11.9bn (or 20.6 per cent) came from what it calls ubiquitous product solutions, which is PCs, mobile phones, raw disk drives and so on. Another $8bn came from electronic components, and $5.3bn came from other operations.

FTS will have about €6.6bn in sales (that's fiscal 2007 again) and profits before taxes of a mere €105m. That is not a lot of dough hitting the bottom line, even before the economic meltdown.

FTS will have about 10,000 employees, according to Flore's presentation, and about 1,000 of them will be involved in research and development. The new subsidiary will span Europe, the Middle East, and Africa, with India tossed in for good measure and will represent about half of Fujitsu's €13bn in sales in fiscal 2007 in Europe. So this consolidation of Fujitsu and Siemens is serious business. But FTS will be under great pressure to produce profits.

It looks like one of the ways that Fujitsu, the parent, will try to do that is to double up its shipments of x64 servers. It is clearly going to want FTS to do its share - and maybe more - thanks to the relative strength of the Siemens affiliation for the past decade.

Based on IDC data for 2008, Fujitsu accounted for 270,000 IA server unit shipments, accounting for 3.5 per cent of the pie. The company wants to push shipments worldwide up to 500,000 units by 2010, giving it an expected 7 per cent of the market, and is targeting a 10 per cent market share (and what looks like 750,000 shipments) by 2012.

Considering that Hewlett-Packard had 2.74 million IA server shipments by IDC's reckoning in 2008, giving it a 35.4 per cent share of x64 server shipments, that is a pretty ambitious goal on the part of Fujitsu and its FTS subsidiary. In 2008, IDC believes that Dell had a 27 per cent share of shipments, followed by IBM with 14 per cent, and NEC was far behind Fujitsu with a 2 per cent slice.

In its Japanese home market, Fujitsu is the number four provider of IA servers, according to this report, behind NEC, HP, and Dell, and wants to take the top spot in the Japanese market, with more than 30 per cent market share, by the end of 2010. That is a tall order, indeed.

Whatever inclinations it might have for its Sparc Enterprise or PrimeQuest servers, Fujitsu has to go where the growth is to make money. In fiscal 2004, the combined mainframe operations of Fujitsu and its various subsidiaries, including the Fujitsu-Siemens partnership, accounted for 48 per cent of total sales, while Unix servers accounted for 25 per cent and IA servers accounted for 28 per cent. Two years later, the mainframe dropped to 43 per cent of sales, Unix was down one point to 24 per cent, and IA servers were up to 33 per cent. Even considering that the Fujitsu units actually saw shipments decline a tiny bit in calendar 2007 - a situation it cannot repeat again - the company is forecasting that IA server sales will account for 35 per cent of its sales in fiscal 2008 (ending in March 2009, tomorrow), with Unix servers slipping another point to 23 per cent of sales and mainframes slipping to 42 per cent of sales.

Fujitsu and its server subsidiaries are just surfing on the trends. IDC's models show that the mainframe server market will decline by 2 per cent, compounded annually, between 2009 and 2012 inclusive, and that the Unix server space will remain flat and, somewhat ominously, only 45 per cent of Unix shops telling customers they want to maintain their Unix platforms. But Windows and Linux operating systems are seeing growth on x64 servers, with a compound annual growth rate of 5 per cent over those years. No wonder at all, then, that networking giant Cisco Systems is jumping into the x64 server racket. And thus, Fujitsu is shifting resources to its x64 server business.

To that end, research and development for the Primergy x64 server line will be centralized in Augsburg and Paderborn in Germany, with manufacturing of Primergy iron for EMEA being consolidated at the Augsburg factory. Asia/Pacific x64 server sales will be supported by the factory in Fukushima, Japan. Where Fujitsu's North American IT division will get its servers and storage is not clear.

All of this x64 server talk is probably making mainframe, Sparc, and Itanium customers a little edgy, but Fujitsu has no intention of walking away from these platforms - at least not as long as they are making money. That doesn't mean Fujitsu was in any mood today to talk specifically about its Sparc64 chip and server plans or what a possible acquisition of Sun by IBM might have on its expectations and prognostications, since Sun OEM Fujitsu's midrange and high-end Sparc64 platforms,.

To that end, Fujitsu's top brass have been dancing around the issue and have not commented on the IBM-Sun deal, or speculation and rumour that Fujitsu itself was approached to buy Sun and turned it down.

In one of the choppiest quotes I have ever seen, in this Reuters report, Farhat Ali, chief executive officer at Fujitsu America, said - and I paraphrase because what he was quoted as saying was not English - that if Fujitsu sold a Sparc server, it would support a Sparc server. "From a customer perspective, we don't see any issue whatsoever," Ali ended.

Personally, I see all kinds of issues, none of which will be resolved until an IBM-Sun deal does - or does not - happen. ®