This Year, Servers Will Be King

PCs are everywhere. Now the spotlight is on machines that can link them

For more than a decade now, the computer industry has been driven by a vision of giving everyone his or her own computer. Large organizations have rushed to put a PC onto every desktop and stopped expanding their budgets for mainframes. Engineers switched in droves from sharing minicomputers to running their own workstations. Families have scooped up millions of PCs, too, for use in home offices and to entertain the kids.

Now, with personal computers seemingly everywhere, the spotlight is shifting back to larger computers--the kind that can do work for many different people at once. Collectively known as network servers--everything from souped-up PCs selling for $10,000 to mainframes and supercomputer-class systems costing millions--big iron will be in for the most technical change and competitive action during 1996 and the following few years. "Servers are regaining their place as the fulcrum of business computing," says Gregory Garry, analyst at Dataquest Inc. "They're the centerpiece of the network."

Servers also remain the sweet spot of the computer market, offering gross margins of 30% to 50%, vs. the 15% or less seen in PCs. "Servers are clearly the healthiest segment of the computer industry," says Laura Conigliaro, computer analyst at Prudential Securities Inc. In corporations, small servers store files and move E-mail for departments. Giant servers can act as data warehouses--massive libraries of detailed product, sales, and financial information gathered from across an organization's many other computers. The World Wide Web, with close to 100,000 servers in place and hundreds more being attached every week, is also a major contributor to server demand.

PRICE-CUTTING. All told, International Data Corp. (IDC) estimates that shipments of servers based on PCs--machines using Intel chips or souped-up versions of Apple's Macintosh--will grow 35%, to 1.05 million units, from 777,000 in 1995. Shipments of servers based on proprietary hardware designs, from companies such as Hewlett-Packard Co. and Sun Microsystems Inc., will increase about 15% in 1996.

At the same time, PC sales will remain strong. Dataquest estimates that U.S. consumption of PCs in 1996 will hit 25.6 million units, up 16% from 1995 (chart). Worldwide consumption will grow by 19%, to 68.7 million units. Price-cutting will stunt growth in dollar terms: IDC reckons total U.S. spending on PCs will be up only 12.6% over 1995.

The news in other categories is mixed. Workstation shipments are projected to grow from 847,000 units in 1995 to 982,500 units in 1996. Sales of IBM-compatible mainframes will fall, from $7.5 billion in 1995 to $7.1 billion in 1996, as a line of cheaper machines based on microprocessors grows more popular.

THE PREFAB FOUR. Although booming, the server market may be in for some jarring changes in 1996, thanks to Intel Corp. Along with its new top-of-the-line P6, or Pentium Pro, microprocessor, Intel has launched a complete circuit board containing four P6 chips. This Quad P6 board is designed specifically as a building block for low-cost servers. Like the prefabricated motherboards from Intel that helped relatively small Packard Bell and Gateway 2000 beat IBM and Compaq to market with the first Pentium-based PCs, the Quad P6 board could put lots of new players into the server business overnight and change the market's economics. Bottom line: Margins will begin to resemble those of the cookie-cutter desktop-PC market.

Intel's Quad P6 won't just affect the low end of the server business. Companies such as Sequent Computer, Chen Systems, and Data General plan to gang as many as a dozen of the boards together to produce systems that can outperform traditional mainframe computers for a fraction of the cost. PaineWebber Inc. computer analyst Stephen K. Smith figures that P6-based servers will sell for less than half the price of proprietary servers at the same performance level. It's "one of the most significant hardware developments to impact the computer industry since Compaq cloned the IBM PC," he says.

Luckily for HP, Sun, and other companies making non-Intel-based servers, Quad P6-based machines won't start shipping in volume until late 1996, and there will be a lag before software can be readied to take advantage of them. But the warning shots have been fired for another major battle in an industry that seems to thrive on turmoil.

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