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Virtualization, multi-core will cut server sales, force changes on channel

VARs and vendors say while IDC's forecast that virtualization and multi-core technology will reduce x86 servers there'll be plenty of work as a new infrastructure takes hold.

Virtualization and multi-core technology are doing more than changing the way corporate servers are used – they're changing the way customers buy servers, and forcing value-added resellers and vendors to adapt, according to a new study.

An IDCstudy published two weeks ago predicts that virtualization and multi-core technology will reduce x86 shipments by more than 4.5 million units, representing $2.4 billion in consumer spending between 2006 – 2010. The forecast also shows that x86 shipments that were projected to increase by 61% in 2010 will now only grow by 39%.

Nevertheless, VARs like Mainline Information Systems of Tallahassee, Fla., are moving forward with both technologies, assuming they will create plenty of market opportunities to explore.

"When you squeeze on a balloon the air pops out somewhere else," said Bill Colestock, Mainline's vice president of Storage sales.

Colestock's interpretation of the IDC numbers is that while the industry will be selling fewer x86 servers, it will be selling servers with higher compute requirements and that will force VARs to train on new technologies to build a better infrastructure for their customers.

"I don't see compute requirements going down and I don't see storage requirements going down," Colestock said. "You may see some smaller VARs going out of business or consolidating with the larger VARs because they may not have the technical support necessary to sell the larger devices or customer sets," Colestock said.

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Colestock's predictions are in line with other IDC forecasts that advances in multi-core technology will result in growth of 25% per year in the number of effective processors sold. The report also predicts the number of virtual servers will rise at a CAGR of 40.6 % between 2005 – 2010. By the end of this period more than 1.7 million physical servers shipped will be running at some level of virtualization.

Although MTI Technology Corp. of Irvine, Calif. does sell servers when a customer design warrants it, John Maxwell, vice president of marketing for MTI said with margin erosion affecting the server space his company has never been focused on x86 servers as a primary selling item. Yet the IDC figures are a salient reminder of virtualization's important to VARs.

"This is a huge opportunity for VARs to focus on the V in VAR, by providing services around virtualization. Server and storage consolidation are happening because of real-life constraints on power, floor-space, manageability and costs," Maxwell said. "Our focus is on the value add of services built around design, implementation, training and support of information infrastructure, including virtualization," Maxwell said.

On the vendor front, companies like Hewlett Packard Corp., a top seller of x86 servers, are careful to note that while they see trends shifting, the shift has not begun to affect their bottom line.

"HP has seen the x86 server market shift that IDC discussed in this report. We have seen increases in the average unit prices (AUPs) of x86 servers in the last year, especially with electrical power constraints becoming an increasingly important factor in the purchasing equation," an HP spokesperson said.

The spokesperson also said HP customers are looking to utilize multi-core processors and virtualization solutions more often.

"These more robust systems increase AUPs, but allow customer to make more efficient use of their server investments. Despite this trend, however, we are finding that this is not having an impact on our volumes. HP continues to be No. 1 in x86 server market shipments quarter after quarter," the spokesperson said.

Over at Sun Microsystems Inc., executives aren't looking so much at a decline in x86 servers as much as they are viewing virtualization and multi-core technology as a shift that offers much higher computer utilization which plays to Sun's products like it's Solaris operating system.

"In the last month to six weeks I've received a lot of e-mails and phone requests around running Solaris 10 in a virtualized environment and that tells me that more customers as well as supplying Solaris on the metal, are also deploying it virtualized," said Tony Kay, Sun's systems virtualization manager.

Kay agrees with several other observations in the IDC report such as the conclusion that while server revenue growth rates will decline, they will be somewhat offset by shipment growth rates as deployment of richly configured systems consisting of greater memory, disk and I/O to balance the increase in processing and server utilization will occur, the report said.

According to Kay, Sun's SV 8000 blade platform as well as its Galaxy product line of x64 servers which run on AMD Opteron processors and the Solaris 10 OS and offer on-chip virtualization will fit well into the new enterprise infrastructure that multi-core and virtualization will bring.

"Anything that pushes the market towards more enterprise type platforms is very good for Sun," Kay said. "Multi-core is climbing. We've just shipped out $500 million worth of our T1000 and T2000 series servers and those are 32 thread processors. We see tremendous growth in these multi-core systems," Kay said.

IDC analyst Jed Scaramella, said one example of Sun's ability to think ahead was the introduction of its blade technology that was larger than the average blade because they recognized that blade technology in the past was a drive for density.

"While that's still important, they realized that with limited real estate in the server, to put in sufficient memory you're going to have to go to a much higher priced dense memory so they purposely designed a blade that is looking out into the future with enough real estate for memory as input output," said Scaramella.

Scaramella also said IBM with its high end mainframe experience and HP which is starting to look more holistically at the data center are all realizing that its about adjusting to an adaptive enterprise.

In the meantime Rob Sauerwalt, IBM's global brand manager, client server virtualization, wonders about the speed of virtualization adoption.

"Virtualization is today a small portion, say four-to-five percent of the x86 marketplace. The affect on any unit account is really dependent on the speed of its adoption," Sauerwalt said.

And what about the VARs role in this new datacenter evolution?

"I think it makes VARs even more valuable. Every time there's a shift in the infrastructure architecture those that have the skills are needed to educate those that don't," Sauerwalt said.

MTI's Maxwell agrees and said that as channel partners prepare for the change vendors should: "help them diversify into services, software and complementary hardware such as storage. Even if virtualization weren't impacting x86 shipments, the pure economics dictate that VARs and integrators change their business models," Maxwell said.

Let us know what you think about this story; email: Nicole Lewis, Senior News Writer.

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