Sun Aims at Itanium's Weak Spots

The hardware giant hopes that the new chip's demands will drive customers its way.
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In a bid to win sorely needed revenues,

Sun

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has announced plans to steal away customers of

H-P's

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high-end servers. Its entry point: H-P's much-ballyhooed push of

Itanium, a new chip architecture that has so far been slow to catch on.

Over the next few years, H-P will phase out its proprietary chips and begin running many of its servers on Itanium, which it co-developed with

Intel

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. But Sun says H-P's customers are likely to balk at the forced move to Itanium -- and so it's trying to sweet-talk them into joining its camp.

The move coincides with the kickoff of Sun's fiscal year 2004. "This year Sun's going to return to growth," says Larry Singer, vice president of Sun's strategy office. As part of that goal, he says Sun wants to lift revenue by siphoning off some of the roughly 400,000 servers it estimates are running on H-P's Alpha chips.

The company could begin seeing revenue as soon as its fiscal second quarter, which ends in December, according to Singer. He says he'd consider the project a success if Sun wins over as few as 40 "substantial" customers. (Many customers run multiple servers).

But H-P counters that Sun's promotion is "more marketing hype than anything else," according to Mark Hudson, vice president of enterprise storage and servers.

He adds that H-P has ongoing programs of its own to win over customers of Sun and

IBM

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. Unlike Sun, he says, H-P doesn't spend time publicizing them.

Weak Spot?

Sun's pitch cuts to a frequent criticism of Itanium: that new customers must rejigger their software applications to run their servers on the silicon. "The solution H-P is offering requires customers to change the way they process applications almost 180 degrees," says Singer. "They're all right in our sweet spot. We know how to process 64-bit architecture in the Unix environment. And about 40% of

H-P's current customers are running ISV

independent software vendor applications already certified on Sun. That makes a very clean transition."

Timing-wise, Sun's ploy makes some sense, says Vernon Turner, vice president of worldwide commercial systems and servers at IDC. "There's uncertainty and doubt of new technology," he says, referring to Itanium. "And there's a reasonable fit between

H-P's Alpha RISC-Unix and

Sun's Solaris RISC-Unix platforms. It's still Unix."

On the other hand, says Turner, "Execution is always going to be difficult." For products like high-end servers, he adds, "The customer base tends to be fairly loyal and can be difficult to dislodge."

As a carrot, Sun says it will offer financing terms that let H-P's customers move to its servers for a payment equal to what they currently spend on maintenance and operations. "We offer a deal that for most customers requires no new capital expenditure," says Singer.

There's a reason why Sun is feeling the need to wheel and deal lately. Its server shipments fell 13.2% in the first quarter over year-ago levels, while its four leading competitors -- H-P,

Dell

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, IBM and

Fujitsu Siemens

-- all saw growth, according to Gartner. H-P's shipments rose 3.6%.

Sun's finances have also been reeling. The server and storage maker racked up a $2.4 billion loss through the first nine months of fiscal year 2003. In the same period, revenues fell off 12% compared to a year ago.

On Friday, Sun shares closed up 5 cents, or 1.1%, to $4.61. H-P rose 69 cents, or 3.2%, to $22.50.