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Is "IBMtel" the Next Winning Combo?

By Steve Hamm On Sept. 2, IBM (IBM) and Intel (INTC) made a strategic move to put themselves at the center of the small but budding computer-hardware industry known as blade servers.

The tech titans have been working together on blades for two years. Now they're opening up their technology so any other company can build products that are compatible with theirs. If this works, it could give them the kind of influence over blades that the combo of Intel and Microsoft (MSFT) has had over the PC realm.

Blades are ultrathin computers (hence the name), about the size of a keyboard, that are packed tightly like books on a bookshelf inside a computer chassis. They take up less space and require less wiring than traditional servers, and computing jobs can more easily be shifted from one blade server to another.

DIFFERENT STROKES. The market will never match the scale of PCs, but it's one of the few hot growth areas as the tech industry emerges from its long period of stagnation. Blade-server sales increased by nearly 100%, to $233 million, over the past four quarters, according to market researcher IDC, which forecasts that blades will make up 25% of all server shipments by 2008. Now they account for just 3% to 4%.

One of the factors holding back even faster growth for blades is that each of the dozen or so companies that makes them uses different technologies, and their products have different physical dimensions. Intel and IBM are trying to turn their technology into a de facto industry standard, so servers from different companies can be swapped in a single chassis. "The end game is to make our technology standard and to let other people develop on our platform," says Jeff Benck, vice-president of IBM's BladeCenter product group.

IBM was late to the blade game, but now it's the market-share leader -- a position that makes it attractive to other hardware makers that might want to jump on its bandwagon. Hewlett-Packard (HPQ) pioneered the market, having introduced its first products in 2001, 18 months ahead of IBM. But IDC projects IBM will hold a 43.8% market share in the second quarter based on revenues, vs. 31.9% for HP and just 3.3% for Dell (DELL). Sun Microsystems (SUNW) is the leader among server companies that use non-Intel chips.

BROADER APPEAL. In response to the IBM announcement, a spokesman for HP says it agrees that standards are important, but "one company cannot attempt to build an industry standard based on its product line alone, as appears to be IBM's attempt here." He said HP views blade technology as still rapidly evolving, and "it's premature to stifle innovation through various implementation standards based on initial products."

While analysts don't expect any of IBM's major server rivals to adopt the BladeCenter specification any time soon, they believe its move with Intel will broaden the appeal of blade servers. Analyst John Humphreys of IDC expects networking companies to create versions of their products compatible with BladeCenter for telecommunications and computer-security customers. "This will grow the market. It will be better for mainstream customers, smaller customers, and customers with specific needs," he says.

And who knows? The Microsoft/Intel combo came to rule the PC world, and to be known as Wintel for short. IBMtel doesn't flow off the tongue in the same way. But the partnership could be mighty lucrative nonetheless. Hamm is a senior writer for BusinessWeek in New York

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