`Superservers' May Make Someone Superrich

By the time Saatchi & Saatchi Advertising Worldwide got 850 personal computers plugged into its office network, the New York agency was having big problems. Transmitting messages and ad layouts between PCs was taking too long. So was managing Saatchi's 17 "file servers." These were ordinary PCs crammed with data and programs for all of the network's computers to share. In the past, replacing them with a mainframe or minicomputer would have been the answer, but that expense seemed prohibitive. Instead, Saatchi got the job done with just three "superservers" from NetFRAME Systems Inc.

Call them PCs on steroids or mainframes on a diet: Superservers use inexpensive PC technology to focus near-mainframe power on maintaining shared files and running big programs for large networks of PCs. Most such networks rely on standard PCs that have been upgraded with large-capacity disk drives. But that's like using a Hyundai to haul entire trailers of Hyundais. Superservers do far better at moving chunks of data around networks because their internal designs mimic mainframes--specifically, by employing data pathways, or "buses," that shuttle data at far higher speeds than PCs can achieve. Although superservers sell for as little as $11,000, or about half the price of the smallest minicomputers, they have the power to make PC networks the backbone of corporate information systems. "Our company's business runs on these things now," says Saatchi Vice-President Stewart Riegler.

That's a big change from when the first superservers came out in 1989. Then, with little software available for the machines and few PC networks big enough to need them, sales were slow. Now, superservers finally seem poised to take off. The software is there, and local-area networks (LANs) can easily include hundreds of PCs, printers, and other devices. The number of PCs connected to LANs will jump sixfold by 1995, to 55 million, predicts WorkGroup Technologies Inc., a Hampton (N.H.) market researcher (chart). That will push superservers to a $1.7 billion business in 1995, says market researcher International Data Corp.

WAKE-UP. Such predictions are fueling the hopes of superserver startups such as NetFRAME Systems in Milpitas, Calif., and Tricord Systems Inc. in Plymouth, Minn., as well as PC maker Compaq Computer Corp. Says analyst Peter J. Rogers of Robertson Stephens & Co., a Tricord investor: "The superserver business is the last great opportunity to build a computer systems business."

Only first, the startups have to take on established computer makers, who also are waking up to the new opening. Until recently, the big guys avoided selling servers built from the same mass-produced Intel Corp. microchips used in PCs. Instead, IBM, Digital Equipment, and Hewlett-Packard argued that their minicomputers and mainframes were faster and offered better software. They still make that argument. But because growth in sales of such "big iron" is less than 5% a year, they're also eager to enter new markets. DEC and American Telephone & Telegraph Co.'s NCR Corp. unit, for example, now sell superservers based on Intel 486 chips. In June, IBM's Personal Systems Div. bought a minority stake in superserver startup Parallan Computer Inc. IBM will sell Parallan machines with the IBM logo.

Ultimately, superserver companies would like to be in the vanguard of the "downsizing" revolution, which seeks to off-load major chunks of work from mainframes to LANs. That's a key thrust of workstation maker Sun Microsystems Inc.'s server effort (box).

`TOUGH TIME.' Customers, however, are still wary of betting critical tasks on unproven computers. IBM and DEC are rushing to reprogram their large machines as servers while emphasizing the big machines' proven reliability. Says IDC analyst Susan T. Frankle: "Startups are going to have a tough time."

The biggest winner so far is Compaq. Last year, it sold about $200 million worth of its SystemPro servers. Though analysts consider some SystemPro models little more than souped-up PCs, Compaq plans to introduce more powerful servers this fall. The startups, meanwhile, are riding steep acceleration curves. NetFRAME, which raised $30 million in venture capital, followed by $21 million from an initial stock offering in June, reported that sales for its second quarter, ended July 3, had more than doubled over last year's--to $9.1 million. Profits were $508,000, compared with a $1.2 million loss. Tricord, which recently withdrew its $36 million IPO, citing a soft market, saw first-quarter sales, ended Mar. 31, jump 273%, to $7 million.

New software designed for specific business problems should give superserver sales a kick. Mainframe software houses, including Dun & Bradstreet Software and IMRS Inc., along with smaller companies such as PeopleSoft, now sell mainframe-class general-ledger, accounting, and personnel packages just for PC LANs. The emergence of such programs, says NetFRAME President Enzo Torresi, signals "the end of an era"--the age of high-priced, centralized mainframes. Now, it's up to the superserver startups to fight for their place in the new era of networked computing.

Before it's here, it's on the Bloomberg Terminal.