Itanium Will Have to Fight Its Own History

Two years after the debut of the first, beleaguered Itanium server chip, Hewlett-Packard(HPQ Quote) insists the time has finally come to start making good on the silicon it co-developed with Intel(INTC Quote).

It won't be an easy sell. IT spending remains drowsy, and businesses must overhaul their software applications before they will run on the newfangled Madison architecture. On top of that, Itanium's brief but checkered track record is bound to hinder marketing.

Yet in the longer term, the potential rewards for H-P are tantalizing. Though server sales have tanked over the last couple of years, the market is still massive -- valued at just under $50 billion in 2002 -- and it's expected to resume growing in the single digits over the next five years.

"That's still a lot of money being spent," points out Mark Melenovsky, an analyst at IDC. "If H-P can attack that profitably and take share away from IBM and Sun, that's a great opportunity."

Aside from the strategic potential for share gains, the latest version of Itanium offers a more assured benefit: H-P can stop funneling so much money into its own high-end PA-RISC and Alpha chips. On Itanium, it shares development costs with Intel, which manufactures the silicon. "Instead of us having to invest in a processor, or multiple processors, some of [the savings] will go to the bottom line and some we can reinvest" in new areas of research, says Mark Hudson, vice president of H-P's enterprise servers and storage. Though he declines to say exactly how much H-P will save, one analyst has pegged the cost in the hundreds of millions.

This being the sharkish hardware industry, of course, a rival is already vying to exploit the shift. Sun plans to make a grab for customers of H-P's discontinued proprietary chip lines, wooing them over to its own Sparc hardware. "We'll offer a sweet financial deal," promises Larry Singer, vice president of Sun's strategy office.