SERVERS AND WORKSTATIONS: Going FullSteam

Industry analysts' term FY 2004-05 as a great year for
servers with further escalation of the consolidation factor and the market
getting more defined in terms of server platforms. This paved the way for the
two major categories of servers-x86 and UNIX-seeing good business during FY
2004-05 with large scale projects from various verticals driving the demand.
Thanks also to the still buoyant BFSI vertical that went server shopping from
high to low end products.

Servers and Workstations occupy a vantage position in the IT
hardware space. Unlike PC business the server dynamics are totally different and
it's not only a volumes game here. The server industry rides on two critical
parameters-power and performance. This is because mission critical data gets
processed in various types of servers. Given that servers constitute a key place
in an organization's IT infrastructure, they command significant budgets.

The server market had another good year with positive growth
both on the x86 and the UNIX front. India might have missed the Top 3 server
spenders list in APAC, but it's just a step behind South Korea with 8.5%
market share in the first quarter of 2005, a 23.6% growth as compared to same
quarter of 2004. For the entire year, x86 grew by 29% in unit terms, while
non-x86 grew by 50%. For both these segments, the biggest growth drivers have
been the banking and the telecom verticals. All the leading server vendors were
able to garner large mandates from both of these verticals. Government and
education also responded positively and these verticals hold big promises in the
ongoing year too.

x86 Servers: Biggest Slice of the Pie

This category of servers still represents one of the biggest slice of India's
server pie cluttered by various vendors offering high to low-end systems. This
segment accounts for about 50% of the total server market. But industry analysts
doubt its ongoing dominance of x86 32-bit platform for long, as in the recent
times the x86 64-bit platform is gaining momentum. Most of the vendors estimate
that by 2007, x86 32-bit systems would be almost phased out. Coming to numbers,
HP shipped about 17K units of x86 servers during the year. BFSI vertical
contributed in excess of 30% revenues for HP. Meanwhile for IBM, its server
business is getting to the pink by the day. Aggressive price points, high spend
on branding, and new models helped IBM to race past HP in this category by about
1K units. IBM experienced a huge traction in the financial services, telecom,
and the SMB segments. It closed the year with a 25% market share and a growth
rate of 35% in value terms (more than the market growth of around 19%). IBM was
the first vendor to ship more than 5000 units, over two quarters (third and
fourth quarter of 2004). Meanwhile, Indian players like HCL faced the MNC
aggression and pushed their server offerings with aggressive marketing.
Therefore, HCL did shake off the MNC onslaught to post a 62% growth in unit
terms to about 10K shipments. For instance, HCL bagged one of the biggest orders
from the education space for Punjab government schools to which it supplied
close to 1,700 servers.

Another interesting trend during last year was the aggression
showed by Sun on the x86 space. Sun, which was predominantly a UNIX server
vendor, forayed into the x86 space with its new line of Linux Servers. Linux has
enjoyed some success in the lower end server space primarily due to the fact
that it is open source and less expensive. Linux has also gained momentum
because of the fact that it offers the ability to run Windows applications also.
In the Linux server market in India, Sun recorded a spectacular growth in unit
shipments to reach the number two spot. Sun's strong growth in the Linux
server market in India was due to its new line of x86 servers: the Sun Fire V20z
and Sun Fire V40z. Sun also had the Solaris edge that pushed its servers on to
the comfort zone. With Sun getting into the x86 space, it saw good wins in
segments like retail and biotech. Sun is pitching hard saying that the choice of
being able to run Solaris 10 on just about any platform available, makes it a
far more compelling proposition for the CIOs.

Meanwhile, Big Blue IBM continues to champion the Penguin. It's
emphasis over the last year was in workload consolidation of clustered systems
for high performance computing and access to new applications on different
hardware platforms. For instance, the entire IBM eServer and total storage
product line including clusters acquired the Linux deployment capabilities.
During 2004, IBM increased its focus on enhanced secure Linux, carrier grade
Linux, datacenter Linux, and topped it with Windows capabilities. In the ongoing
year IBM would continue to evaluate, test and improve its support to Red Hat and
ensure that Linux is supported on its new products.

During OND 2004 relates to the LG entered into the server
space with its Pro Server range. With x86 on the Linux front on the incline,
entry of new players like LG, only augurs well for the enterprises. As a result
enterprises can go in for cheaper options in the days ahead as Linux gains more
traction on the x86 and definitely a space to watch out for in FY 2005-06.

Non-x86 Servers: A Hit with BFSI

In the UNIX space Sun continues to hold its sway, retaining
its dominant position. For Sun the core focus areas have been the banking and
telecom verticals during FY 2004-05. Sun secured a large mandate for server
deployment from Punjab National Bank which rolled-out its core banking solution
(CBS) cutting across its 1000 branches and at the back end are a range of Sun
servers powering the CBS. Other big time financial segment clients include names
like Oriental Bank of Commerce, Andhra Bank, Karnataka Bank, South India Bank
and SBI. Additionally, other major segments where Sun made significant in-roads
were the education and research segments where Sun's Opteron based systems
witnessed lots of traction. For instance IIT Kanpur's deployment of largest
Opteron cluster was significant not just for Sun, but also from the perspective
of the Indian academic and research communities

In the non-x86 space, IBM has been showing rapid growth,
especially with the launch of its Power5 based servers. In the fourth quarter of
2004, IBM managed to outgrow competition to secure the number two place in the
UNIX space, with a market share of 30%. IBM was the only vendor to gain share on
a QoQ in this space, registering a growth of around 25% YoY. With the rapid
improvement in technologies and performance on the IBM servers, IBM has been
successful in setting its non-x86 servers, especially its pSeries range. Among
the major clients that IBM had in the server space over the year was the UTI
bank to which it provided Power 4 based servers for its core banking
applications. For Aviva Life Insurance IBM provided its server consolidation on
x-series and disaster recovery. Meanwhile, HDFC bank went in for IBM P5 for its
core banking application, and IndusInd Bank went for the I-series servers and
integrated with x-series and disaster recovery solutions. On the telecom side,
IBM provided its p-series range for Hutch for its Oracle implementation. BPCL
also went in for IBM's x-series.

Trend Setters

One of the biggest trends over the year was the blade servers garnering
major attention and getting more mainstream. By 2008 the blade server market
will reach 9.9 mn units and values in excess of $3.7 bn, says IDC. In India,
vendors like Sun, IBM and HP pursue the blade market aggressively. HP, for
instance, announced its new breed of servers based on the Intel Xeon 64-bit
platform, code named Nacona. HP was also the first vendor to push more than
100,000 blades worldwide in the last one-year or so. Blades, hence, became one
of the preferred options for enterprises during 2004 and expanded the
enterprises' server capabilities. Unlike traditional servers, blades occupy
very less floor space and come in thin form factor. They also offer enormous
flexibility in running different applications on various operating environments.
For instance, by using blades, an enterprise can run Windows in the day and
Linux during night. Simplicity and flexibility are the hallmark of a blade
system and that is exactly what most of the CIOs asked for. In the entire server
value chain the blades moved one level up on the server maturity ladder during
FY 2004-05.

With server technologies becoming more evolved, companies
also came to realize that increased performance and utilization could help
reduce cost of operations. They also realized that getting more work done with
fewer servers considerably lowers the cost and complexity of managing the IT
environment, ultimately making more funding available for desperately needed
services that actually improve business. Hence, server consolidation became a
major thought and most of the CIOs explored ways and means of optimizing on the
existing servers they had instead of going to new ones. While server
consolidation will thin out repeat orders from large enterprises, at the same
time, vendors firmly believe, server volumes will grow with new application
demands. For instance, SMB is a segment where many of the vendors pin their hope
for future server growth. This is where servers and workstations volumes lie in
the x86 space.

Hence, server consolidation became the key trend during FY
2004-05. It also provided users like educational institutes to optimize on their
computing capabilities to support their programs and initiatives at just the
right cost, enabling higher adoption rates amongst these organizations. Further,
businesses, which traditionally ran their IT infrastructure in a fragmented or
decentralized manner are now recognizing the need for higher optimization,
manageability and security levels. An optimized datacenter helps deliver higher
level of service at lower costs. Hence, to tap that consolidation market, most
of the vendors provided consolidation services for companies who want to reduce
IT costs, improve service levels, and improve IT manageability.

According to industry experts, gone are the days when a
customer looked for RAS (reliability, availability and serviceability) when
purchasing a server. During 2004 the tone was about simplicity, affordability
and productivity. CIOs in the last year became aware of the infrastructure
simplicity and its benefits. Given that virtualization as a concept became more
realistic during 2004 from just the buzzword that it was in 2003. Most of the
vendors also drove home the point that Virtualization is not just about hardware
consolidation-where one brings together multiple servers into one box, and
still ends up with multiple servers handling multiple jobs within the
organization. A true virtualization environment is where all servers were
optimized for seamless activity. The second trend that is already visible, but
will gain greater significance with different ramifications is that of 'affordability'.
Says one server expert, "Affordability is not just about reducing costs by
increasing volumes-affordability is about using industry standard technology,
combining it with the best of design skills to reduce overall cost of
ownership". The best example is that of blade servers. Meanwhile,
affordability also has another dimension to it-capacity on demand. This
implies, pay for capacity only when needed and used. Here the vendors pitched
concepts like 'pay as you grow' or scale up or scale down.

While we look at the vendors' server strategies over the
year, we see a perceptible shift in selling style. Rather then selling plain
vanilla servers, they emphasized on IT infrastructure optimization and offered
mix-n-match solutions. This is so because of CIO pressures on factors like TCO
and RoI. Vendors had no way out but be more flexible and support open standards
and listen to needs of the enterprises rather than pitching hype factors. This
approach brought lots of rationalization on the server market and enabled
vendors to hold on to their traditional strengths.

What to Look Out For

The outlook for the server market for FY 2005-06: the leftover PSU banks
will adopt the CBS and that will secure BFSI demand for servers. But ultimately,
demand will thin out by the latter part of 2006 as banks will reach higher
levels of automation, most even achieving 100% computerization across branches
by then. But, most vendors are bullish on the automotive and the education front
that will, they hope, pump up the server market in 2006 and beyond. With all the
leading automotive manufacturers adopting ERP and having consolidated their
operations on ERP, they are now going beyond. This is one of the biggest market
opportunities for server vendors who will actually power the CRM, dealer
management system (DMS) and SCM initiatives that various auto majors are
planning. In terms of technology, x86 32 will be cannibalized by x86 64 systems
that will usher further reliability and robustness to the x86 server platform.
Meanwhile, high-end enterprise demands will be met with RISC/UNIX combo.

Beyond the x86 and the UNIX terrain, a space that is fast
gaining traction is high performance computing (HPC) wherein vendors like HP and
Silicon Graphics are seeing lots of traction. HP secured mandates from
organizations like TIFR and Integrated Genomics for HPC deployments. Meanwhile,
vendors are also bullish on the Healthcare vertical for HPC with hospitals
talking about digitizing patient records like X-ray images, that will be
embedded in the patient record systems. And as enterprises think of a cost
conscious server optimization plan, blades will invariably find their acceptance
growing in those places gaining further traction during FY 2005-06. In all,
looking at the current server market dynamics, the outlook remains extremely
positive for India with vendors hoping for yet another great growth year ahead.

Shrikanth G