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Early Server Wars Made Dell The Undisputed Champ

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Dell Computer launched an all-out attack on the server market last week with its introduction of a new Pentium Pro-based server line. In an aggressive speech, CEO Michael Dell said the company would offer Pentium Pro-based products at “half the cost of existing single-Pentium servers,” adding, “The time is right.”

With key competitor Compaq Computer announcing server price cuts days after the announcement, analysts agree that an era of tough competition is dawning for the server market.

Mr. Dell stated that thanks to the “convergence of Pentium Pro and Windows NT,” Dell had an opportunity to “strike heavily at the high cost of proprietary technology” and offer “technology leadership.” According to Mr. Dell, his company’s direct sales model permits substantial savings over traditional channel sales, in part through lower margins in disk and memory components. When asked whether he thought these actions might begin a server price war, he responded, “I certainly hope so.”

Dell’s first generation of products includes the Dell PowerEdge 2100, priced from $3,799 with a 180MHz Pentium Pro Processor, 32MB of system memory, a 2GB disk drive and an 8x CD-ROM. The PowerEdge 2100 may also be configured with a 200MHz processor. The company also announced plans to ship the dual-processor Dell PowerEdge 4100 in November, with the quad-capable PowerEdge 6100 to be introduced at a later date.

Meanwhile, primary competitor Compaq lowered prices on several entry-level server models a scant two days after the Dell announcement, with ProSignia and ProLiant Pentium-based servers cut by up to 14 percent and certain server options cut by up to 29 percent. For example, an entry-level ProSignia 300 Model 2100, equipped with a 90MHz Pentium processor, is now priced at $2,799, a reduction of 14 percent, while a dual-capable ProLiant 1500T Model 2100 with a 133MHz processor was cut by 4 percent to a price of $6,799. Compaq holds a major share of the low-end server market and is considered the one to beat by many analysts.

A Compaq spokesman said the decision to drop prices was made some time before the Dell announcement, and primarily reflected lower prices in memory and other components. However, he added, “Dell is a competitor that we take very seriously.” While the spokesman said that Compaq was “not seeing people in the mainstream area interested in the Pentium Pros at this (entry-level) price point.” He stated that Compaq “will be offering a competitive product in the near future.”

The spokesman notably refused to address Mr. Dell’s price/performance claims, stating “it’s really an apples-to-oranges comparison” and said that Compaq offered Pentium servers at a similar price point, with its lowest-priced servers beginning from approximately $1,888. He added that Compaq believed its R&D and service and integration efforts, along with partnerships with many key business application providers, gave its products added value.

Analysts agree that Dell’s entry into the server market is a sign of major changes hitting the server market. Dean McCarron, a principal with Mercury Research, stated that while Dell “probably can’t change the market all by themselves,” the move can be seen as “heralding in the new era of commoditized servers.” Mr. McCarron explained that as Windows NT and Intel processors increasingly penetrated the server space, servers could become a commodity product, similar to desktops, with similarly low margins. Norm Bogen, an analyst with In-Stat, agreed, stating that many of the large server companies, including Compaq, “had room to move” in their pricing.

The server market may not yet be as cut-throat as the desktop sector has become. As Mr. Bogen noted, “it’s not just a price issue,” with integration capability and service and support still a critical part of the server market. Mr. McCarron also stated that while “the box can’t be selling for $2,000 more,” companies like Compaq could offer value-add features like installation programs justifying higher prices.

The amazing thing about these servers is despite their advanced age, many are being used even now much after Compaq has become HP and Dell has long since retired those initial Pentium models.

“These servers are pretty rock solid and still in use in a lot of places,” says Garry Linden, data recovery engineer at Hard Drive Recovery Group. “We find that the ProLiant and PowerEdge servers tend to last at least 10 years, and while the servers from the 1990s aren’t typically in use, some are still alive and kicking.”

So, although the lifespan of these servers can be beyond 10 years (according to Serverfault.com), Linden recommends that companies still using the old PowerEdge and ProLiant servers have a solid data recovery plan in place. With the length of time many of these servers are expected to perform, the hard drive stacks will tend to fail, which can result in major organizational disruptions. He points to the popularity of HDRG’s HP/Compaq Proliant and Dell PowerEdge data recovery guides, which are visited daily by companies with server issues related to these models.

“When these servers go down, their age can make them very difficult to deal with,” says Linden. “This is when they need the most help.”

Nevertheless, the NT/Intel convergence has created sizeable opportunities in the server market for companies like Dell–as well as for new competitors. Mr. McCarron, for one, predicted that in the future, smaller companies may also enter the server space, possibly leading to “a whole new level of competition the market has never seen before.”

Written by TheEditor

November 25th, 2014 at 12:35 am

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