Intel Corp. is gearing up its marketing machine for the launch of Itanium 2 this summer, hoping to ignite demand for the chip among buyers of 64-bit servers, the most lucrative computer market segment, where prices often exceed $1 million a server.
While Itanium has suffered from sluggish sales since introduced last year, Intel remains optimistic that the chip will become a major source of revenue for the company in a few years, offsetting decreasing profit margins and slower sales growth of its PC processors.
In many ways, Itanium 2 is a vastly superior product compared with its predecessor. While the second generation of the chip comes with only a slightly faster clock speed, 1GHz vs. 800MHz for the current model, it features several design enhancements that enable it to perform twice as fast as the original.
But in order to challenge entrenched competitors, Intel will rely on more than just pure performance power.
In a daylong briefing with industry reporters Friday at the companys headquarters in Santa Clara, Calif., Intel marketing executives outlined its strategy to promote the adoption of Itanium. In general, the chip maker will seek to leverage the collaborative strength of its partnerships with leading hardware and software vendors.
Intel will count on the joint promotional efforts to spread its Itanium message to enterprise customers, tapping the resources and business connections of such key industry players as Hewlett-Packard Co., which co-developed the chip; IBM; Dell Computer Corp.; and Microsoft Corp.
The chip maker will also seek to build upon its existing relationships with enterprise customers, many of whom currently rely on 32-bit servers featuring Intel chips. In fact, 88 percent of servers sold during the first quarter of this year featured Intels Pentium or Xeon processors, according to market researcher International Data Corp.
However, while Intel dominates in low-end servers, its virtually non-existent in the high-end server market, which accounted for 60 percent of server revenue during the first three months of this year, according to IDC. Even amid last years harsh economic climate, companies spent nearly $50 billion buying servers.
Displaying a chart showing the breakdown in server sales and revenue, an Intel executive admitted the companys desire to tap into the money spent on high-end systems.
"While weve got 88 percent unit share, theres a lot of money to be made in that last piece of the pie," said Lisa Hambrick, director of enterprise processor marketing for Intel.
To take a bite out of that last slice of the market, Intel executives said the company has worked in recent years to align itself with a variety of hardware makers, application developers, system integrators and service providers. Obtaining their support for Itanium gives the new chip a solid business ecosystem that could ease customers concerns about adopting the unproven product.
To underscore its broad backing, Intel said that at the launch of Itanium 2, more than 40 computer makers will announce systems based on the chip, with more than 10 offering complex, high-end servers featuring eight or more chips.
Intel contends that the biggest selling point for Itanium will be the performance advantages of its new architecture, called Explicitly Parallel Instruction Computing (EPIC), thatll enable the chip to outperform RISC-based processors, such as Sun Microsystems Inc.s UltraSparc III.
For example, Intel claims Itanium 2 offers greater than 50 percent higher transaction performance than Suns chip.
"Customers dont care too much about a 10 to 20 percent cost advantage, but when you say 50 percent they begin to take notice," said Bill Swope, vice president and co-general manager of Intels software and solutions group.
Indeed, the strongest focus of Intels promotional efforts will not be the technical aspects of its chip, but its relatively low cost for competitive performance.
While Intel has yet to reveal pricing for Itanium 2, it disclosed at the briefing Friday that it expects a four-processor 1GHz Itanium 2 server with 32GB of RAM to sell for about $41,000. While that price tag is far higher than the average selling prices for Intel-based systems, it is well below that of similar systems offered by its rivals.
Another major boost for Itanium is the unflinching support from HP, the worlds second largest seller of 64-bit computing systems. In fact, HPs backing virtually guarantees Intel significant market share in a few years, as the computer maker has pledged to phase out its alternative PA-RISC and Alpha processors and consolidate all of its high-end servers on Itanium.
Despite Intels securing of major industry support for its chip, Itaniums success is not assured, one analyst said. To underscore uncertainty about the chip, he noted how Sun and IBM have backed away from earlier plans to port their popular proprietary Unix-based operating systems to Itanium.
"When Intel first started talking about their 64-bit chip in the mid-90s, they said it was going to blow away all the RISC processors," said Tony Iams, an analyst with D.H. Brown Associates Inc. in Port Chester, N.Y.
But after Intel pushed back the chips release from 1999 to 2001, he said, IBM and Sun revved up the performance of their chips, eliminating much of Itaniums edge.
"As a result, Itanium didnt leapfrog everyone in performance as vendors once feared it would," Iams said. "That took the pressure off Sun and IBM. Now, they are taking a wait-and-see approach to see how successful the platform is."
For its part, IBM will sell Itanium systems, but only with Linux or Windows, having backed off plans to port its popular AIX OS to the chip. As such, IBMs established 64-bit customers are more likely to continue purchasing the computer makers own Power4 systems to run their AIX-compatible business applications.
Another obstacle that could turn off potential Itanium customers is the lack of software applications optimized to work with the new chips architecture. While Intel claims more than 100 software vendors are working to deliver Itanium versions of their applications, that number pales in comparison to Suns Solaris OS, which has thousands of applications already designed for the platform.
Intel also will face competition from an unlikely source when PC chip rival Advanced Micro Devices Inc. releases its first 64-bit server chip, named Opteron, early next year. Analysts say AMDs product, which is fully backward compatible with existing 32-bit applications, might lure away sales from Itanium.
While Intels chip can run 32-bit Windows-based applications, its performance drops off dramatically in such cases, making Opteron a potentially more attractive solution for companies seeking to run 32-bit and 64-bit Windows-based applications.
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