It's Not Always About Cost

While low-end server vendors characteristically engage in fielding inexpensive systems to gain market share, those that emphasize bleeding-edge technologies performed the best in the 2005 VARBusiness Annual Report Card (ARC) Entry-Level Servers category.

IBM and Hewlett-Packard tied in this category because they delivered low-end servers crammed with powerful dual-core processors, flashy blades and sophisticated chipsets. Both earned high marks in Product Quality/Reliability and Technical Innovation.

"This is the trickle-down effect, where companies borrow technologies from higher-end systems and integrate them into the lower-end systems," says Dan Love, vice president of business development at Siwel Consulting in New York. "It is how they can consistently feed customers more value. Blades are a good example of that this year."

The blade-server market is where VARs stand to make money as most of the top-tier vendors continue to cascade higher-end technologies down into less expensive boxes. Presently, blade servers constitute roughly 6 percent to 7 percent of the overall server market, according to IDC, although that number will likely rise dramatically over the next few years.

"Have blades as a form factor shifted everything tremendously? Not yet. But they have customers thinking," says John Humphreys, research manager at IDC's Enterprise Computing and Modular Server programs. "Every time we ask users what they are thinking about, the migration to blade platforms is one of the top couple of things they talk about."

While it typically received low technical innovation marks, Dell did jump into the blade-server market for the first time this year and attempted to compete with its characteristic pricing pressure. With its first offering, Dell pursued VARs largely focused on single-box sales, while IBM and HP--particularly HP--responded with more aggressive pricing; both companies focused more on VARs selling solutions to larger companies.

Dell's overall efforts are off to a fast start. After less than a year in the market, Dell is shipping close to 15,000 blade servers per quarter; IBM and HP are each selling 35,000 units per quarter.

A little surprising is that Dell has yet to make the decision to use AMD chips in its lower-end servers as a way to be even more cost-competitive, whereas HP and Sun Microsystems both did.

Dual-core processors from a number of top-tier vendors were another breakthrough technology that made the low-end server market more dynamic, creating more sales opportunities for VARs. Perhaps the most interesting development was Sun's low-cost entry into this market. Some observers believe the new systems, containing single or two-way processors, give Sun its first legitimate chance at becoming a low-end volume supplier.

"The fact that they actually came out with an x86-based line of servers with dual cores is a pretty interesting development for them and the market," Humphreys says.

IBM did an admirable job partnering by delivering consistently reliable and innovative products. Big Blue delivered its first servers based on its X3 architecture, which has a customized chipset, allowing VARs to better shape solutions. The company also unveiled a unique low-cost, water-cooling unit for data centers.

"The [IBM] xSeries products have been good and reliable. They come in with zero-failure rates," Love says. "They have also been innovative in some of the stuff they have done, especially the little water-cooling unit that brings the heat down inside of the data center."

HP made a concerted effort to improve relationships with its solution providers during the past year.

"HP has been focused on cleaning things up in how it deals with the channel and how it goes to market," Humphreys says. "I think the VARs' response is a reflection of these improvements."