HP, Foxconn to Jointly Build Servers for Clouds

The companies look to combine HP's server expertise and Foxconn's manufacturing capabilities to grow business among Google, Facebook and others.

Hewlett-Packard is hoping contract manufacturing giant Foxconn can help it gain traction in the market for low-cost, low-power servers aimed at large-scale cloud service providers.

The two companies, which already partner on a range of systems, including servers and PCs, announced a deal April 30 in which Foxconn will design and manufacture the systems and HP will add services atop the systems and sell them. HP officials hope the server will help the company expand its reach with companies like Google, Facebook, Amazon and eBay, which run massive hyperscale data centers that use huge numbers of small, energy-efficient servers to process small workloads.

The focus in these cloud-based environments is flexibility, cost efficiencies and customization. The traditional server makers like HP, IBM and Dell have had a difficult time breaking into these hyperscale data centers, with the organizations often choosing instead to build their own systems to meet their particular needs or dealing with small original design manufacturers (ODMs) out of Asia. The move to smaller, cloud-optimized systems also has led to open-source efforts like the Facebook-led Open Compute Project, where the focus is enabling the development of highly efficient data center infrastructure resources, including servers, storage appliances and networking technologies.

HP and Foxconn are looking to combine HP's server know-how with Foxconn's massive manufacturing capabilities to give Google, Facebook and others an alternative to the home-grown or ODM-developed systems.

"With the relentless demands for compute capabilities, customers and partners are rapidly moving to a new style of IT that requires focused, scalable and high-volume system designs," HP CEO Meg Whitman said in a statement. "This partnership reflects business model innovation in our server business, where the high-volume design and manufacturing expertise of Foxconn, combined with the compute and service leadership of HP, will enable us to deliver a game-changing offering in infrastructure economics."

The partnership is a good deal for both parties, according to Forrester Research analyst Richard Fichera.

"The motivation is simple underneath all the rhetoric," Fichera wrote in a May 1 post on the firm's blog. "HP has been hard-pressed to make decent margins selling high-volume, low-cost and no-frills servers to Web service providers, and has been increasingly pressured by low-cost providers. Add to that the issue of customization, which these high-volume customers can easily get from smaller and more agile Asian ODMs and you have a strategic problem."

Server vendors are building systems aimed at giving these large Web-based service providers greater customization capabilities and reducing their cost of ownership. For example, IBM is hoping system makers will embrace its Power processor architecture via its OpenPower program to build servers for this market. For its part, HP is building out its portfolio of low-cost, power-efficient Moonshot systems as part of its larger ProLiant family that will use a variety of processor platforms—including x86 from Intel and Advanced Micro Devices and ARM's 64-bit architecture—to give organizations choice in what they run.

HP officials see the new systems coming out of the Foxconn partnership as complementary to the Moonshot and other ProLiant systems.

"Cloud computing is radically changing the entire supply chain for the server market as customers place new demands on the breadth of design capability, value-oriented solutions and large-scale and global manufacturing capabilities," Foxconn founder and Chairman Terry Gou said in a statement, adding that the expanded partnership with HP will enable both companies to "capture growth in this emerging market."

Forrester's Fichera said the partnership with Foxconn could prove a boon for HP, which has been hobbled over the years by a product development and cost structure that has made it difficult to develop custom designs or compete effectively on price. With Foxconn's help, that will change.

"Life will get more difficult for competitors who compete on price alone, and with Foxconn's engineering holding out the promise of rapid turns for custom designs, the competitive advantage of fast-turn design capabilities is blunted," he wrote. "Potential customers in the high-volume Web services world will have a world-class duo of providers who can probably bid product, including customized designs, at prices previously only obtainable from smaller ODMs."