Highlighting potential fallout from

Hewlett-Packard's

(HPQ) - Get Report

strategic silicon shift,

IBM

(IBM) - Get Report

boasts that it has snatched away a string of technology customers from H-P.

In the latest win, toymaker

Lego

signed on with IBM after apparently balking at H-P's controversial move to phase out high-end proprietary chips in favor of

Itanium, the chip with a troubled history it co-developed with

Intel

(INTC) - Get Report

. According to an H-P spokesperson, Lego is one of a "handful of deals" lost amid the Itanium transition.

Last week IBM announced a deal with the Danish toymaker to replace 220 H-P servers with 34 of its ownboxes. While declining to say how much the deal isworth, IBM did take advantage of the occasion to talkup eight other victories over H-P at companies rangingfrom watch maker

Fossil

to the Brazilian officeof food conglomerate

Parmalat

. The bigger question for H-P is not the loss of a few customers, but what their departure says about acceptance of the shift to Itanium.

"It seems like lately we've been putting togethera whole series of H-P wins. There's a significantshift going on that's more than just a few customers.It started to accelerate as we got into '03," saysJeff Benck, director of IBM's e-Server products.

Resisting Itanium

IBM and analysts say some H-P customers areapparently rethinking their allegiance as the companymoves to phase out two of its high-end workstation andserver product lines (PA and Alpha), transitioningthem onto Itanium and other Intel silicon.

To be sure, IBM sells Itanium too. But Big Bluealso offers customers its own high-end Power series aswell as

AMD's

TheStreet Recommends

(AMD) - Get Report

Opteron processor. "We don't believe one size fits all," maintains IBM's Benck.

An H-P spokesperson acknowledges the loss at Legobut says the company will continue to use thousands of industry-standard servers from H-P, as well as storage and services.

Still, such incremental losses point up the risks for H-P amid the shift to Itanium. "Surveys plainly show people are leaving H-P -- not in a mass way but in a noticeable way," says Michael Shulman, director of research at ChangeWave Research. Part of the reason,he says: "Their high-end offering is being abandonedand what they will sell in the future is not all thereyet." Thus far, companies have been reluctant to adoptItanium because they must rejigger their applicationsto run on the new chip architecture. Few softwareofferings have yet been designed to work on H-P'ssilicon.

"Will Itanium -- or a 64-bit architecture fromIntel by another name -- be successful? Absolutely,"says Shulman. "The question is whether Itanium willmature fast enough to slow the erosion in the high endof the market for H-P. My belief is no."

In the meantime, he says, it's not surprising thatIBM should win over H-P customers. "IBM has a muchmore robust suite of product support around advancedcomputing architecture. Plus, they're committed to it.That's the part that makes a difference if you'regoing to build a new application you want to run for10 years."

As for H-P, the problem is not that it will suffera sudden sharp drop in revenue amid the Itanium shift,but rather that it risks gradually losing part of itsinstalled base that it counts on for future sales."That will have a significant long-term impact on howthey perform in the computer marketplace," Shulmanpredicts.

To be sure, not all the news is dire for H-P. Whenit comes to newfangled technology like on-demandcomputing (which includes offerings like Web servicesand server and storage virtualization), H-P's productsare at least equal to those of IBM, if not slightlybetter, says Frank Gillett, principal analyst atForrester Research.

And at least some data suggest that customersrate the two companies about equally. Gillett says aninitial look at his firm's latest survey indicatesthat H-P and IBM are in a statistical dead heat whenit comes to customers' satisfaction with their serverproducts.

As for the deal-snatching tit-for-tat, H-P notesfor its part that it recently wrested away from IBM ajuicy contract with the Chinese state tax authority,landing a deal to ship more than 60 Unix servers. H-Phasn't disclosed the value of the deal, but 40 of theservers were from its high-end Superdome line, whichcosts in the hundreds of thousands of dollars per box.

H-P points out, too, that in the first quarterof the year it claimed the No. 1 spot inworldwide server share. Measured by revenue, H-P owned27.9% of the market to No. 2 IBM's 25.5%,according to IDC.

Still, H-P's position masks the fact that it'sactually been losing share at the same time IBM hasgained it.

In the first quarter of 2002, H-P and Compaqcombined (before the merger) claimed 30.4% of theserver market, while IBM owned only 23%.

Dell Lurks

In fact, over the past year H-P has seen serverrevenue shrink nearly 12% while IBM's server saleshave grown 7%, IDC estimates.

Meanwhile, against the backdrop of so muchcompetitive elbow-jabbing, there's one competitor both companies would rather not mention. That rival is

Dell

(DELL) - Get Report

, which saw its first-quarter server revenue surge 15% from the year-ago period as customers flocked to its cheaper industry-standard boxes.

When it reported earnings last week, Dell boastedthat its 27% increase in second-quarter servershipments was 8 percentage points higher than theaverage server growth for its rivals.

So while IBM and H-P jostle for the high-endserver market, notes Gillett, consider what they

aren't

talking about. "IBM tries toconvert

worries about Itanium into a slur on H-P,when the elephant in the room is Dell," he says.