HP and IBM Eye Sun's Server Lead

SAN MATEO (05/12/2000) - With their larger customers' Y2K concerns in the rearview mirror, IBM Corp., Compaq Computer Corp., and Hewlett-Packard Co. are redoubling their efforts to go after market leader Sun Microsystems Inc. in the red-hot Web server market.

Last week's M80, H80, and F80 server announcement from IBM; HP's A-Class server launch; and this week's much anticipated AlphaServer event from Compaq arm the three companies with much stronger lineups of Unix-based servers to cut into Sun's two-year lead in this market.

"Sun made a critical call back in the mid-'90s when everybody took their eyes off the Unix ball except for them," explained Tony Iams, an analyst at D.H.

Brown, in Port Chester, New Hampshire. "Back then it was Sun as the oddball for not embracing [Windows] NT like everybody else, but no more."

Sun was also able to gain a comfortable lead in 1998 because it was the first to identify the marketing opportunity the then-emerging ISPs and ASPs (application service providers) represented.

And because many of these companies were start-ups with no Y2K baggage to contend with, Sun was able to quickly mine those opportunities while IBM and HP's traditional corporate users delayed purchasing decisions for both Web servers and servers for more traditional applications.

"With HP and IBM going through a slowdown because of Y2K, Sun was unaffected because they got into so many greenfield accounts that didn't have large installed bases or migration issues," said Jean Bozman, an analyst at IDC, based in Framingham, Massachusetts.

For HP and IBM to cut into Sun's lead, they too will have to attract either new corporate customers or dot-com companies.

HP's plan centers on its Garage Program, a strategy that engages companies early on, then retains them as long-term HP customers, according to Mark Hudson, marketing manager for HP's Business Critical Computing group.

For IBM, which so far has not been particularly adept at wooing youthful companies with its proprietary servers, the RS/6000 M80 appears to have the best chance.

At last week's announcement IBM trotted out Network Solutions Inc., which controls the Internet Registry Domain, as one of those companies. Network Solutions general manager, Bruce Chovnick, said he decided to replace some, but not all, of his Sun systems with M80s because the company "did a great job in packaging a lot of nice features into one box.''Nancy Weintraub, the director of strategy and marketing for Sun's enterprise server division, perceives the Network Solutions deal as a high-end IBM server displacing a lower-end Sun system.

Despite Sun's swagger, IBM executives last week again said they have been gaining huge hunks of market share at Sun's expense since the introduction last fall of its RS/6000 S80. They claimed the S80 has been outselling Sun's systems 3-to-1 and will soon surpass Sun's E 10000's installed base.

"The S80 has done very well. But my problem with [IBM's] numbers is the S80 is midrange and the E 10000 is high-end where naturally you would sell fewer units because of the cost. IBM believes the comparison is fair because they do better on the benchmarks comparing the two systems," IDC's Bozman said.

Even with Sun's market-share lead, some observers believe the company has left itself open to attack with much of its server line getting on in years and being late in delivering its UltraSparc IIIbased servers.

"Our time line [for UltraSparc III] hasn't changed," Weintraub said. "We haven't altered the windows for introducing products."

Sun Microsystems Inc., based in Palo Alto, California, is at www.sun.com. IBM Corp., based in Armonk, New York, is at www.ibm.com. Compaq Computer Corp., based in Houston, Texas, is at www.compaq.com. Hewlett-Packard Co., based in Palo Alto, California, is at www.hp.com.

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