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Microsoft, EU Struggle to Settle Antitrust Issue Before Deadline

The antitrust regulators of the 15-member nations of the European Union have backed up antitrust commissioner Mario Monti as he prepares to announce a decision against Microsoft on March 24, after a five year review of assertions by Microsoft's competitors that it is using its monopoly power in the desktop operating system market illegally to lock out third-party application providers and to extend its monopoly into the server operating system market. Microsoft and Monti have been working around the clock to try to reach a settlement before the decision has to be handed down, and Microsoft's rivals, who compelled the EU to take action in the first place, want a settlement because it could allow the EU to impose stronger sanctions against Microsoft and would force the company to admit that its behavior was wrong.

Microsoft's CEO, Steve Ballmer, was in Brussels, Belgium, this week to help facilitate the settlement, according to reports in the business press. The word on the street is that the two sides still do not agree on what to do. Monti is apparently asking that Microsoft come up with its own punishments, thereby leaving it less room to argue on appeal that the actions taken against the company are unfair. While this is clever, it probably will not work. The EU is asking for Microsoft to distribute a version of Windows without a media player, and it is also asking for more of the APIs inside Windows server editions to be opened up so competitors can offer better integration with Windows as part of their own platforms. The first concession is for Real Networks and the second is for Sun Microsystems, both of which are the parties behind the EU's case. The EU regulators are reported to have taken the tough stance that if Microsoft settles, these provisions will only need to apply to Europe, but if it is forced to rule with a decision, it will compel these changes to be made on a worldwide basis, and it will impose fines on Microsoft, which could reach as high as $3 billion, according to some estimates.

Microsoft Says Shared Windows Source Code Hits 1 Million Peekers

One of the great things about open source programs is that you can grab the source and modify it as you see fit. That's why Linux is so popular. Microsoft's proprietary Windows operating systems are absolutely closed-source when it comes to their deployment, but the company does offer open source versions of Windows that allow academics and corporations to take a peek inside the course code for Windows. Microsoft says that it has distributed some 1 million open-source Windows licenses to date, which is a very large number.

Microsoft has made the course code to Windows available to third parties since 1991, when it was working on Windows 3.0, to allow them to writer drivers for the operating system. Since May 2001, when Linux and other open source programs really started to gain momentum in the corporate world, and years after it had already taken root in the academic world, Microsoft announced the Shared Source Initiative to try to counterbalance Linux and open source. That SSI program is what has the 1 million users.

You might think SSI is no big deal, but it is. The reason why Linux really took off is that computer science programs the world over can use Linux as an example of how to build an operating system and can talk publicly about it, since the source code is not proprietary. Students love Linux because they can get it for free and can run it on aging computers that would struggle to run Windows or industrial Unix environments. The play appeal of open source is just as dangerous to Microsoft as the early misconceptions that it was "free." Linux is free only if you know what you are doing and if you want to support your own systems.

Microsoft says that Windows CE.NET, Windows XP, Windows 2000, and Windows Server 2003 are available through SSI. The Common Language Runtime (CLR) and C# language are open source through the European Computer Manufacturer's Association standards body. Other portions of the ASP.NET and Visual Studio.NET tools have also been delivered through the SSI program.

Microsoft Losing Money in Server Biz

With Microsoft and its vast reseller channel making big market share gains in the server market year on year, it may come as a surprise that Microsoft does not always make money in the server business. In the second fiscal quarter that ended December 31, 2004, Microsoft actually lost money in its Server and Tools unit.

While the Server and Tools unit grew its sales by 21 percent in that quarter, to $2.13 billion, and server revenue (meaning Windows server as well as all the other Microsoft middleware stack) was up 22 percent (an increase of $290 million), the unit had an operating loss of $204 million in the quarter. According to the company, it had to book $651 million in costs related to employee stock option transfer programs. The unit also had a 10 percent increase in operating expenses as it increased headcount for development of various server and tool products.

Gateway Chases Windows Server Upgrade Biz

PC and server maker Gateway wants to help customers make the jump from Windows NT to Windows 2003, and if they don't want to make that jump, the company wants to help them move to Linux, as part of a new migration services offering that the company hopes will help prop up its profits. Microsoft is also sunsetting Windows NT, which has a huge installed base of over two million servers. And just about every Unix shop is looking around to see if it can save money moving applications to Wintel or Lintel iron.

These changes in the market are why Gateway has announced an OS migration service, the first in a set of professional services that the company is going to roll out to chase sales and profits in 2004. Gateway says that it has more than 5,000 operating system migration experts on tap in the United States to do these migrations, and presumably some of these are coming through partnerships.

Under the Windows Server Migration, Gateway will move servers running NetWare, Windows NT, OS/2, or Unix to either Windows 2000 or Windows 2003. The company is also offering services to migrate Windows 9X, Windows NT, and OS/2 workstations to Windows XP machines, and is also offering migration services from GroupWise, Notes/Domino, and early versions of Exchange (5.5 and earlier) to Exchange 2000 or Exchange 2003.

Under the SuSE Linux Migration offering, Gateway will assist companies with NetWare, Windows NT, OS/2, or Unix migration to either Linux Standard Server 8 or Linux Enterprise 8, depending on the needs of the applications. Gateway is not just supplying the iron and a license, but is actually migrating user accounts, print and file serving, and TCP/IP infrastructure from one box to the other. The company is keen on doing server consolidation as part of the package, too, and migrating user applications and data.

Gateway will bundle either Windows or Linux on its Model 955 and 975 two-way Xeon DP servers and Model 995 four-way Xeon MP rack-mounted servers. These operating systems will also be available on preconfigured Model 960 two-way Xeon DP and four-way Model 980 Xeon MP tower servers.

HP Hits the High End of Expectations for Q1, Enterprise Storage and Servers Post Operating Profit

Hewlett-Packard has kept to its word and indeed hit the high end of its estimate range for sales in the first fiscal quarter which ended January 31, with sales of $19.5 billion, up 9 percent, compared this time last year. Net income was up 30 percent, at $1.1 billion, with earnings of 30 cents a share, up 25 percent. Notably, the Enterprise Systems unit, which, as the name suggests, sells HP's wide portfolio of Unix, Windows, Linux, and proprietary platforms and related storage and systems software, posted an operating profit after losing money for a few quarters at the operating level.

Specifically, the Enterprise Systems unit posted sales of $3.9 billion in the quarter, up 5 percent compared with last year, with an operating profit of $108 million, significantly better than the $82 million loss the unit had a year ago in the fiscal first quarter of 2003. HP's software unit dragged down this sector, with an operating loss of $46 million, while the server and storage part of this unit booked an operating profit of $154 million. Unix server sales were down 13 percent in the quarter, with intense pricing pressure at both the high ends and low ends of the Unix market. Moreover, with HP known to be readying its PA-8800 dual-core processors, customers were not exactly inclined to buy before they saw what HP would do with pricing on these new CPUs and what kind of performance they would deliver. HP 9000 revenues were flat year-to-year, which is a sort of victory given the transition to the PA-8800, but sales of AlphaServers (running either OpenVMS or Tru64 Unix) were down 32 percent despite the rollout of the "Marvel" line of EV7 Alpha processors in the fall. The Marvel machines included a top-end 64-way GS1280 using 1.15 GHz processors and a new memory architecture that offer a factor of 16 greater memory bandwidth that significantly boosts performance for OpenVMS and Tru64. HP danced around how well the Itanium-based Integrity line did, saying that Superdome (the top-end Integrity machine) orders were up 52 percent and that sequential sales in the fiscal first quarter of 2004 were up 60 percent over the fiscal fourth quarter of 2003. Almost by default Integrity sales had to be up, and by a huge percentage, since Integrity sales were a miniscule part of HP's revenues last year. Overall, the Business Critical Systems unit--comprised of Integrity, Alpha, and NonStop systems--posted sales of $901 million in the quarter. Sales of X86-based ProLiant servers were up 15 percent, to $1.96 billion, said HP, with shipments up 23 percent.

HP said that high-end and midrange storage sales were up 14 percent, driven in large measure by the new StorageWorks Enterprise Virtual Array, which have more than doubled in sales since last year. But high-end arrays that HP rebrands from Hitachi were weak, and the company's overall tape business declined by 5 percent as it exited the OEM tape library business. Overall, disk and tape storage sales (what HP calls Network Storage Systems) were $862 million, down 2 percent, compared with the first quarter of 2003. Oddly enough, software sales were up 9 percent, to $196 million, with HP hitting the highest software sales it has had in any first quarter. But these increased sales came at a cost, since this business posted a significant operating loss of $46 million.

The execs at HP might want to think about changing the fiscal year at HP, since it hurts its financials relative to rival IBM. HP's server sales were up 7 percent in the first quarter and storage was down 2 percent. But these numbers include January, the worst month in the year to sell anything. If you recast HP's financials for an October-December 2003 quarter that matches IBM's, HP's server revenues were up 19 percent, compared with IBM's 16 percent, and its storage sales were up 12 percent, compared with IBM's 14 percent.

Dell Pushes Prescott P4s into Entry PowerEdges

Dell has announced two new entry servers that take advantage of the new "Prescott" Pentium 4 processor Intel announced in early February. With the new PowerEdge 700 tower and PowerEdge 750 rack-mounted systems, Dell is trying to deflect more intense competition from rivals IBM, Hewlett-Packard, and Fujitsu-Siemens, which are trying to take the battle to Dell with inexpensive uniprocessor X86 servers. Such machines represent a big portion of Dell's sales volumes.

The Prescott support is interesting for Dell, as it is for all other suppliers of Intel 32-bit machines, in that it supports HyperThreading simultaneous multithreading and has a bigger L2 cache memory. HT presents two virtual cores to an operating system running on the Prescott chip using sophisticated circuitry, even though there is only one physical core. Such multithreading can boost the performance of machines by 20 to 30 percent, but in the case of Prescott, Intel increased the number of stages in the chip to 31 compared to 20 in the prior "Northwood" Pentium 4 core, and Intel says that when you test common desktop workloads using Northwood and Prescott cores running at the same clock speed, you get about the same performance. (Northwood did not support HT.) In effect, the HT benefits are cancelled out by the longer pipeline. However, this lengthening pipeline allows Intel to ramp up clock speed in the future, and it intends to boost the clock speed to 4 GHz by the end of 2004. This chip should have 25 percent more performance than the Northwood. For server customers, the 1 MB L2 cache on the Prescott chip is also appealing, being double that of the Northwood core. Many commercial applications like L2 cache, whereas plenty of desktop applications don't need it as much. In any event, the PowerEdge 700 and 750 servers support this Prescott chip, which will also have 64-bit memory support later this year with as rev on the Prescott design.

The PowerEdge 700 tower server supports the 2.4 GHz/128 KB Celeron processor with a 400 MHz front side bus, which is the default chip for this machine despite all the noise about the Prescott. Dell is supporting the 2.8 GHz/1 MB Prescott with an 800 MHz front side bus as well as the 3.2 GHz/512KB and 3.4 GHz/512KB Northwood Pentium 4s with 800 MHz buses in the PowerEdge 700 as well. It supports up to 4 GB of DDR400 memory and the tower can house four Serial ATA or SCSI hard drives with RAID 0, 1 (mirroring), or 5 (data/parity striping) data protection through an optional RAID disk controller. The machine has a single integrated Gigabit Ethernet controller and five PCI slots. The base machine with the Celeron processor, 256 MB of main memory, a 40 GB SATA drive, and no operating system has a list price of $699, but has a $100 instant rebate this week. This is not the price of a real business machine. With 1 GB of main memory, four 18 GB/15K RPM SCSI disk drives with a RAID controller, and a Windows 2003 license with five clients, this machine costs $3,292 after that instant rebate.

The PowerEdge 750 supports the same processors, but comes in a more tightly packed 1U rack chassis. This machine can support two Serial ATA or SCSI disk drives with RAID 1 mirroring as an option. The server includes two on-board Gigabit Ethernet controllers and two PCI slots. The base machine with the Celeron chip, 256 MB of memory, and a 40 GB SATA drive, and no operating system lists for $949, but has a $150 rebate that drops the price to $799. But again, a real configuration for real workloads costs more. With Windows 2003 with five licenses, the PowerEdge 750 with the Prescott chip, 1 GB of main memory, two 18 GB drives mirrored with a RAID controller costs $3,044.

IBM Chases Entry Customers with xSeries 206, 306

IBM has announced its latest foray into the fiercely competitive entry X86 server market with two new uniprocessors, one of which Big Blue hopes to sell for $499. While uniprocessor machines are generally not flashy, these machines account for a large number of shipments each quarter and they help all server makers establish relationships (often good, sometimes bad) with small customers who might survive their early years to become real midrange shops that spend big bucks on computers. Getting and retaining those small shops is therefore pretty important.

To that end, IBM has announced a new tower server, the xSeries 206, and a new rack-mounted server, the xSeries 306. Both machines feature hot-swappable Serial ATA drives, making IBM the first vendor to deliver this to the market. ATA IDE drives, which are used in PCs, are a much less expensive alternative to the SCSI disk drives commonly used in higher-end servers. With even entry servers coming with integrated RAID 1 mirroring and RAID 5 parity/striping data protection, even ATA drives that are not designed to handle the same duty cycles or deliver the same bandwidth as the current Ultra320 SCSI disks can be ganged up and made reliable and fast enough for small businesses to do real work on. This is why even these entry machines now have IBM's Server RAID 7e controller built in as a standard feature.

IBM has not yet released the full technical details of these new machines, but they both support Pentium 4 processors and up to 8 GB of main memory. The tower xSeries 206 costs $499 in a base configuration and the rack-mounted xSeries 306 costs $1,339. The xSeries 205, the predecessor to the new xSeries 206, supports the latest Pentium 4 chips and costs $499 in a base configuration, but only goes up to 2 GB of main memory and does not have hot-swap ATA drives. The xSeries 305 supports the Pentium 4 processor as well, like the xSeries 306 it replaces, but it maxxed out at 4 GB of main memory and cost $1,016 in a base configuration.