HP, Foxconn Team To Break Price Performance Server Barrier For Internet Giants

Meg Whitman, president and chief executive officer, HP, and Terry Gou, founder and chairman, Foxconn, shake hands at partnership ceremony in Taipei.

Hewlett-Packard Wednesday unveiled a joint venture with Foxconn Technology Group, the world's largest contract manufacturer, in a bid to deliver a dramatic breakthrough in server price-performance for Internet giants like Facebook and Amazon.

HP said the strategic commercial agreement, which takes effect May 1, is aimed at disrupting traditional hyperscale server design with a new line of cloud-optimized servers "specifically targeting service providers."

The two companies, which have some of the top server designers in the world and combined have more than $200 billion in annual sales, said pricing and availability will be disclosed at a later date.

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HP, which has been working with Foxconn for several decades, said the new server line will complement both its existing ProLiant servers and even its much heralded low-power Moonshot servers, which already deliver breakthroughs in energy and cost for specific business workloads.

Hyperscale servers are low-cost x86-based servers that act as the workhorse compute that powers many of the world's largest Web companies. That market is expected to grow at a compound annual growth rate of 15 percent to 20 percent from 2013 to 2018, according to IDC.

HP CEO Meg Whitman was in Tapei Wednesday at a private event with Foxconn Founder and Chairman Terry Gou to mark the formal signing of the deal.

"This partnership reflects business model innovation in our server business, where the high-volume design and manufacturing expertise of Foxconn, combined with the compute and service leadership of HP, will enable us to deliver a game-changing offering in infrastructure economics," said Whitman in a prepared statement announcing the deal.

Gou, for his part, said in a prepared statement that the deal comes with cloud computing "radically changing" the entire supply chain for the server market. He said customers are placing new demands on server design and manufacturing. "In partnership with HP's server leadership, we are embracing this new opportunity to change the industry, capture growth in this emerging market, and deliver end-to-end value as we expand our global leadership in design and manufacturing," he said.

With HP weighing in at $112 billion and Foxconn at $96 billion, the two companies have both financial muscle and design and engineering prowess necessary to put intense pressure on competitors, partners said. Rivals include Dell, IBM and China-based computer giant Lenovo, which is expected to finalize this summer its $2.3 billion acquisition of IBM's x86 server business.

"This is going to allow HP to leapfrog the competition in the service provider market," said Kelly Ireland, founder and CEO of CB Technologies, a Westminster, Calif.-based Platinum HP Enterprise partner. "No competitor is going to be able to match the server price-performance that HP and Foxconn combined will bring to the market."

Ireland said she sees HP accelerating its lead in the server market with a stepped up focus on innovation under Whitman's leadership. "This is all about Meg investing and innovating to deliver what the customers need," she said.

NEXT: 'HP Returning To Its Engineering Innovation Roots'

Mike Strohl, CEO of Concord, Calif.-based Entisys Solutions, an HP Platinum partner and one of the top virtualization solution providers in the country, said he sees HP returning to its engineering innovation roots in a market that desperately needs new server economics.

"I'm in Silicon Valley where a lot of these Internet companies were born and grew up, resorting to manufacturing their own servers," he said. "That just doesn't make sense. Why would these multi-billion dollar companies want to be in the business of manufacturing servers? HP can eliminate the need for that and let them focus on their core business by accelerating innovation in this market."

Strohl said HP is shattering the prevailing myth that hyperscale servers are nothing more than commodity compute. "HP is giving organizations a strategic advantage with a new class of servers that are better designed for what is happening in our industry and in the customer community as a whole," he said.

Strohl predicted that the deal will drive many customers into the HP fold as they see the computer giant driving big advances in server economics. "This shows customers looking three to five years out that HP is ahead of the technology curve," he said.

Romi Randhawa, who heads up the U.S. business of Cancom Group, a $1 billion technology integrator based in Germany, said the deal gives HP an "edge" in the intensely competitive hyperscale server market.

"They will be faster to market and positioned better from a pricing model perspective," said Randhawa. "This will also put pressure on white box manufacturers who don't have the service and support that HP has globally. My only hope is that HP can leverage their key partners like us who know this market well and can augment HP."