IBM Server Goes After Dells PowerEdge

Big Blue claims its new dual-processor eServer x235 beats Dell's PowerEdge 4600 in both price and performance.

IBM, seeking to rekindle sagging sales, today launched a new server with an unusual promotional effort that may mark the first salvo in a price war against one of the industrys most formidable low-cost competitors, Dell Computer Corp.

In hailing its new dual-processor eServer x235 today, IBM took the bold step of emphasizing that the product "targets the sweep spot of Dells server line," specifically dual-CPU platforms, and touted the server as costing 14 percent less than a similarly configured Dell PowerEdge 4600.

"The x235 beats Dells system on price, it beats them on performance," said Jim Gargan, vice president of IBMs xSeries product group.

The new IBM product is capable of handling up to two 2.4GHz Intel Corp. Xeon processors and is targeted primarily for use as a file, print or e-mail server.

In touting its cost advantage, IBM compared the x235 and PowerEdge 4600--both tower-based servers--configured with one 2.2GHz Intel Xeon, 512 DDR (double-data-rate) memory, redundant power and a 18GB hard disk drive. Based on prices posted on Dells Web site on Friday, the PowerEdge server costs $4,347, or $623 more than IBMs x235 at $3,724.

As for performance, the x235 topped Dells throughput score on the Microsoft Exchange 2000 Messaging Benchmark, delivering the highest two-way server score to date. The benchmark result was 11 percent better than that posted by Dells 4600.

IBMs aggressive attack on Dell mirrors similar tactics it used last year to draw business away from Sun Microsystems Inc. in the Unix server market. However, IBM faces a much stiffer challenge in trying to undercut the prices of Dell, traditionally the leader in low-cost hardware among top-tier computer makers.

In addition, IBMs current earnings are well off the companys relatively strong showing last year, making a potential price war, which can significantly erode profit margin, all that much more damaging.

Just last week, the company warned that it would take up to a $2.5 billion charge to cover restructuring costs, including the ongoing layoffs of more than 5,000 workers. At least one market analyst, Jay Stevens, an analyst at Buckingham Research Group, publicly speculated that Big Blue could post its first money-losing quarter in years.

Despite its sagging profits, IBM apparently is gearing up to take share in the Intel-based server market, where worldwide sales amounted to $4.6 billion for the first quarter alone, according to market researcher International Data Corp. While IBM currently garners more of its earnings from selling Unix-based hardware, sales of Intel-based servers are expected to increase at about three times the pace of Unix sales over the next few years, making the market segment crucial to the companys future success.

Currently, Hewlett-Packard Co. is the worlds largest seller of Intel-based servers as a result of its buyout of Compaq Computer Corp. last month. Dell is second and IBM is third, according to IDC.

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