But Wait, There's More

Gates Talks to CEOs About Tech

When you are the richest man in the world, and you ask a hundred or so of the richest people in the world to hang out with you and talk about technology and business, they tend to show up for the party. For the eighth year running, Microsoft's chairman and chief software architect, Bill Gates, hosted his CEO Summit in Seattle, with 130 Fortune-1000 class CEOs in attendance. Gates typically gives a wide-ranging speech about the future technology that Microsoft and sometimes even other IT vendors are going to try to sell to their companies. And this year was no different.

In the face of tough economic times and an increasingly skeptical business environment for IT, Microsoft's top brass, including Gates, have become calmer, humbler, yet more optimistic about how IT can change the business world. Gates went through a shopping list of technologies, like WiMax, Windows-powered cell phones with the attributes of PDAs and GPS units, RFID tagging, the ever-increasing network bandwidth available to us, blogging and the associated RSS protocol, speech processing, and the coming of age of X86-based 64-bit computing. While Gates said this is the year 64-bit computing will go mainstream, Unix and midrange shops would remind him that he must have been talking about desktops. Unix boxes have had 64-bit processors for a decade already.

HP, Bolstered by Weak Dollar, Beats the Street in Q2

Hewlett-Packard, like other major U.S.-based IT players with a large international customer base, said this week that a slightly improving spending environment, a weak dollar, and relatively strong foreign currency helped it show decent growth for revenues and profits in its most recent quarter. And it didn't hurt that HP is again chasing market share against its competitors, now that its customers are no longer sorting out the company's merger with Compaq last year.

For the second fiscal quarter ended April 30, HP reported sales of $20.1 billion, up 12 percent compared with the prior year. HP's chairman and CEO, Carly Fiorina, said that the company had double-digit revenue growth in every product segment except servers and storage, which experienced only an 8 percent revenue bump. After HP reimbursed the Canadian government $105 million for a disputed contract for goods and services that the Canadians said were never delivered, HP booked a profit of $1.1 billion in the quarter, up 77 percent compared with this time last year. (Fiorina said in a conference call with Wall Street analysts yesterday that HP intends to pursue the partners that did fulfill the contracts and get that money back in the courts.) Earnings per share were shaved by 2 cents because of this matter, with the company bringing in 29 cents per share after the settlement. That is still a 32 percent growth in per share earnings, which has to be making HP pretty happy.

But, as always, HP is balancing its optimism about its prospects with the realities of this difficult IT market. "Customers are very focused on value and on fast return on investment," said Fiorina. "Pricing remains very competitive." She said that HP would continue to focus on its "high-tech, low-cost, best customer experience" strategy in competing with Dell in the PC market and the low end of the server and storage businesses and with IBM across the IT spectrum. "We're gaining ground, despite the competitive rhetoric," declared Fiorina. Both IBM and Dell have been saying for the better part of a year that HP would be crushed between Dell's direct model and IBM's vast customer base and services orientation. Fiorina said that HP has been using pricing as a way to drive market share gains, and Bob Wayman, HP's chief financial officer, said that, as customers are shifting toward standard, low-cost components, he expects HP will continue to see pressure on profits. Like other IT hardware makers, HP is counting on having higher attach rates on servers, storage, and PCs, for other items like peripherals and services, in order to drive sales and profits. This is how HP plans to grow in an enterprise IT market that it skeptically has said will only grow by 1 to 2 percent this year, despite the better numbers consultancies and analysts are predicting.

HP said that the Technology Solutions Group, which was formed on May 1 and includes servers, storage, software, and services, accounted for $7.7 billion in sales in the quarter, up 11 percent, and posted an operating profit of $400 million, up $108 million from the second quarter of last year (if TSG had existed). The Enterprise Storage and Servers unit within TSG accounted for $4 billion in sales during the quarter, up 8 percent as reported, driven by a 15 percent uptick in ProLiant server sales. ProLiant volumes were up 32 percent in the quarter, according to Fiorina, who said that March and April set new record shipment levels for the company, and that blade server sales were double that of the second quarter last year. However, the product mix across the server lines is toward lower-cost servers and storage across all architectures, and combined with the deterioration in AlphaServer sales, it has been difficult for HP to grow overall server sales. (Think of the position HP would be in right now if it had not acquired Compaq.) She said that Itanium-based Integrity servers comprised 16 percent of sales and 26 percent of shipments in the Business Critical Systems unit, which includes HP 9000 and Superdome PA-RISC systems, AlphaServers, and Tandem NonStop systems. Fiorina said that Superdome orders and shipments set another record level, but, as always, she declined to be specific.

VMware, IBM Extend Alliance

IBM and the VMware unit of EMC announced last week that Big Blue has extended its strategic alliance to resell and support the VMware server virtualization products for the next three years. IBM and VMware entered a partnership in 2002 as IBM figured out that it needed a way of providing partitioning on its xSeries and BladeCenter server lines. IBM offers its own implementation of logical partitioning on its Power-based pSeries and iSeries line and has long since offered partitions for VM, MVS, Linux, and other operating systems on its mainframes.

The VMware unit, acquired by EMC earlier this year after quashing the idea of going public, says that the IBM deal demonstrates that VMware has managed to remain a neutral IT supplier even after being purchased by one of the fiercest rivals that the server makers, on which VMware depends, have in the market.

EMC Launches NetWin 110 NAS Gateway

Disk array maker EMC has announced a new network-attached storage (NAS) gateway called the NetWin 110. The device, which is based on Microsoft's Windows Storage Server 2003, is a front-end for attaching EMC's Clariion NAS arrays (which are also resold by Dell) to corporate networks. The gateway is particularly useful for linking remote offices and data centers into central corporate networks. The NetWin 110 gateway has a list price of $6,100, considerably lower than the NetWin 200 gateway that EMC and Dell are selling for $17,200. EMC will next month launch a companion Clariion array, code-named "Pirhana," that actually provides the data storage for the NetWin 110 gateway. EMC pre-launched the NetWin 110, it seems, just to get some airplay from Microsoft's TechEd show in San Diego this week. By the way, Dell is not a reseller for this device, but Avnet, Arrow, Tech Data and a few other smaller distributors will be reselling the product in their channels.

String Bean Software Announces WinTarget iSCSI Disk Software

Storage management software maker String Bean Software last week announced that it has created WinTarget, a piece of systems software that implements the iSCSI protocol for Windows-based servers, allowing them to use normal Ethernet networking to attach storage devices to servers. In the iSCSI scheme, there are targets (machines that act like storage devices such as arrays) and initiators (machines that request data from such machines). While Microsoft has created a driver to let Windows Server 2003 to talk to iSCSI devices, String Bean has written software that lets Windows servers act like iSCSI targets, which are functionally storage arrays. Hence the name, WinTarget. String Bean has had 250 beta customers putting WinTarget through the paces. And now it is ready to sell. WinTarget costs $250 per server that links into the target machine, with a maximum of 10 servers being charge. After that $2,500, each additional initiator can attach for free.

IDC Says Grid Sales to Hit $12 Billion by 2007

That is why IDC has taken a stab at sizing up the grid market. Chris Willard, the analyst who follows the workstation and high-performance-computing markets for IDC, says the company thinks the grid computing market will grow to $12 billion by 2007. While that may sound like a lot of money, the entire IT industry was about $1.1 trillion in 2003. So this is just a small trickle of business. It also should be noted that IDC counted the value of any server or device connected to a grid as revenue for grids. So this is not simply the value of the software and other devices that go into making up a grid. This is a reasonable way to calculate the value of the grid market, to be sure, but it is not the same thing as counting money in the pockets of grid vendors; this number will be a lot smaller.

Offshoring Grows Quickly in 2004, but Analysts Say It Won't Last

IT analysts at Gartner and Forrester Research released new reports on offshore outsourcing last week that highlight some interesting changes underway in the burgeoning global market for outsourced services. Gartner says offshore business process outsourcing (BPO) of IT-intensive jobs will increase by a whopping 65 percent this year, amounting to $3 billion in spending by the end of this year. Gartner says, however, that the market will not be able to sustain such high revenue increases in the coming years. "Offshore BPO is an emerging, but immature, opportunity," said Robert Brown, principal analyst for Gartner's sourcing group. "There will be slower adoption of offshore BPO through 2007." Meanwhile, Forrester last week bumped up its projections of American job losses over the next 18 months by 40 percent. Forrester originally projected that 588,000 U.S. jobs in the services sector would be outsourced by the end of 2005, but last week the company said new research indicates the figure will be closer to 830,000. Forrester said it bumped up its projections because of accelerating outsourcing activities, which it attributes to recent publicity given to the trend, from new services available from top-tier Indian outsourcing providers, like Satyam Computer Services, Wipro Technologies, and Infosys Technologies Limited, and from a rapid expansion in offshore outsourcing facilities by U.S. vendors IBM and Accenture. Forrester barely boosted its outsourcing projections for the long term. It now says about 3.4 million U.S. services jobs will be lost by 2015, up from its previous estimate of 3.3 million.