HP Rakes in $200 Million Displacing Sun Gear in 1H 2005

by Timothy Prickett Morgan

While Sun Microsystems has been making a lot of noise with server and processor announcements in recent weeks, rival Hewlett-Packard wanted to remind everyone that it has a tidy little business selling its servers into Sun accounts under its Sun Eclipse program, which was launched in October 2003 as a marketing vehicle to push Linux-on-ProLiant servers as an alternative platform to disgruntled Sparc-Solaris customers who were tired of overpaying for those platforms.

According to Paul Miller, vice president of marketing for HP's industry standard servers and blade servers in the ProLiant family of products, the Sun Eclipse program generated more than $200 million between January and June of this year among 150 former Sun accounts, which Miller says is nearly double the revenue that the Sun Eclipse program generated during the first six months of 2004.

HP offers some sense of how the Sun Eclipse program is doing from time to time, and it is generally when it wants to steal a little thunder from Sun as that company is making some announcements. In January 2004, HP said it had converted some 50 Sun shops to Linux between October and December 2003 and had generated $75 million in sales. And this time last year, HP was bragging that it had converted some 200 of Sun's customers to the HP fold in the prior 18 months under the Sun Eclipse competitive replacement program. At that time, HP said that during the summer of 2004 the migration rate from Sun to HP shops has increased by 50 percent. HP did not say in September 2004 how much money those 200 Sun Eclipse deals generated, but given that the average run rate seems to be well above $1 million per customer, it was probably north of $265 million. If you fill in the gap between September 2004 and December 2004 with a similar run rate of about 75 deals and about $100 million, and then add in the first six months of 2005 with its $200 million, you get a grand total of $565 million or so that can be attributed to the Sun Eclipse deal in two years and converted about 425 customers.

Over time, HP has expanded the Sun Eclipse program to include not just Linux running on ProLiant machines, but also to include Windows on both ProLiant and Integrity boxes and HP-UX running on Integrity servers. HP will sell tower, rack, or blade machines into Sun accounts--it doesn't much care what customers buy.

Miller says that out of the $200 million in sales it booked for the Sun Eclipse program in the first half of 2005, about 60 percent of the sales were for Linux platforms and 40 percent were for HP-UX; in terms of box counts, Linux boxes represented about 85 percent of shipments for these customers, with bigger Integrity servers running HP-UX 11i accounting for about 15 percent of shipments. Windows has not really taken off for the Sun accounts, which stands to reason considering their staunch support of Unix. Miller says that one of the main attractors for ProLiant machines is that customers can buy four or eight configured servers for the cost of an annual maintenance contract on a Sun box.

So far, Miller says that HP is not seeing a lot of competitive bids against Solaris on Opteron servers, but given that the Galaxies are what Sun really wanted to ship as its Solaris-Opteron box, this stands to reason. The Sun Fire V20z and V40z were nothing remarkable and were really nothing more than a placeholder for the Galaxy machines. That is not a bash on the Opterons, which HP is certainly selling in its ProLiant machines. "Because of our Opteron support, we are being invited into accounts to bid that we would not have been asked to dance in before," says Miller.

Miller questions whether or not Sun can match the scale of a Dell or HP in the X64 server market, which is going to be a deciding factor in its financial future. "If you are trying to play the industry standard server game, you have to get economies of scale," explains Miller. "Just shipping an X64 processor is not enough, and Sun just does not have HP's scale." The idea is simple: Only those players who buy lots of parts and sell lots of machines can make enough profits to stay in the game.

Miller also says that one of the big problems at heterogeneous accounts in the financial services, pharmaceuticals, retail, and manufacturing industries where Sun wants to play with the Galaxies is the lack of integration of Solaris 10 into the Windows and Linux tools that customers already have deployed on X86 and X64 servers. "This is the biggest 'ah-ha!' among Solaris shops that we talk to," says Miller. "It's not just about a piece of hardware, but having better management tools and sophisticated support."

Miller got a good laugh when I suggested that maybe HP should stop messing around and just support Solaris 10 on its Opteron and Xeon ProLiant blade and rack servers and take a direct run at the Sun customer base, chasing exactly the same Solaris shops in exactly the same way as Sun will do. In fact, because it has both Xeon and Opteron processors in its ProLiants, HP could offer a broader X64 server product line than Sun, and do so right now as Sun is still building out the Galaxies. And, because he is a seasoned executive, Miller deflected the question with laughter and never really answered it. It would be a much bolder tactic than pushing Linux as a Solaris alternative--that's for sure. But it would also be a backhanded endorsement for Solaris, and HP will not do that.

Which is why some of HP's channel partners should get together and do it.