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IBM Aims Squarely At Dell Customers With Server Price Cuts

IBM is cutting some server prices in an attack on Dell's business, and Dell doesn't care.

IBM executives said Tuesday that the company, which has seen four consecutive quarters of faster growth than Dell in Intel-based server revenue, will cut the price of certain IBM eServers by up to 15 percent for current Dell customers.

"This is an opportunity to help customers realize additional cost savings for industry-standard servers," said Jay Bretzmann, manager of xSeries products at IBM.

The price cuts apply to customers that buy either directly from IBM or via solution providers, said Bretzmann. Solution providers will not lose any margins because of the special pricing, he said.

The price cuts are expected to last through the end of the year, Bretzmann said. "Fourth quarter is always a big quarter for us," he said. "We want to be able to take advantage of any leftover budgets.

"If Dell wants, it could drop its prices," Bretzmann said. "But they can't sell against our scalability."

The price cuts affect IBM's x440 server, which can be configured with two to 16 processors. Bretzmann said Dell's server line doesn't offer the scalability of the x440, which can expand to up to eight processors in a 4U space, with two cabinets able to be combined for a 16-way configuration. A 32-way version is expected by year-end, he said.

Dell abandoned the high-end server space, Bretzmann said, referring to a decision by the company last month to discontinue development of eight-way servers.

In July, Dell executives told CRN that the company decided to focus on scaling out the data center with two-way and four-way servers, as this is the biggest part of the Intel-based server market.

IBM is also offering the lower prices for Blade Center server blades, for which up to 14 two-way servers can be squeezed into a 7U package, Bretzmann said.

"Bring it on," said Linda Hargrove-York, worldwide vice president of marketing at Dell, referring to IBM's move."

The only thing IBM can offer our customers is a guaranteed way to spend more money faster," she said.

Dell has had 10 quarters of consecutive growth in server shipments in the United States and 29 worldwide, while IBM's share has been relatively flat over the same period of time, said Hargrove-York. She also said Dell has a 29.1 percent volume share for Intel-based servers in the United States, compared with IBM's 11.8 percent share cited by IDC.

"If IBM can claim four consecutive quarters of Intel server revenue growth, that says they are asking their customers to spend too much," she said.

The extra discount will be a big help in competing against Dell, said Michael Madigan, vice president of sales for the western region at Sirius Computer Solutions, a large IBM solution provider.

"Dell is an extremely tough competitor but not unbeatable," said Madigan. "Any help IBM wants to give its distribution channel is a definite help, particularly with Dell deciding to get out of the 16-way server business."

While Dell is able to help customers scale out with its blade server offerings, IBM can help them both scale out with blades and scale up with its x440 server, Madigan said. "Which way to go depends on the application mix the customers are running," he said. "They may want to go both ways. IBM decided to make both available. There are definite applications where they want to scale up, and others where they want to scale out."

Madigan said that the fact that IBM is officially offering the discount only against Dell doesn't bother him. "Dell has the leading share, and is just a phone call away," he said. "In the server world, 15 percent is a big swing. Margins are thin. Any help we get to swing the deal, I'm all for it."

Even though the discount is aimed at Dell, the discounts don't necessarily end there, Bretzmann said. "We tend to replicate successful programs," he said. "Anyway, for large customers, we tend to sell via bidding."

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