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VARs: Nehalem will boost server market, the question is when

Intel's Nehalem processor may boost server sales, but VARs don't expect it to happen in the near future.

The past year has been tough for all businesses, but the IT industry has taken an especially big hit. Server sales, in particular, have been on the decline.

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Gartner Inc. reported that server shipments decreased by 11.7% year over year from the fourth quarter of 2007 to the same quarter in 2008.

A IT survey showed that nearly 70% of data center managers faced budget cuts, and one-third of 235 respondents were dealing with budget reductions of up to 20%. IT managers cut budgets first by cutting jobs and then spending on servers, application software and systems management tools.

Despite these depressing numbers, things could be looking up. Research firm IDC reported that worldwide server shipments actually grew by 2% in 2008 hitting 8.1 million units, cracking the 8 million units shipped number for the first time. (Wordwide revenue for the year declined, 3.3% however, to $53.3 billion.)

VARs hope server sales will get a boost as more Nehalem-based servers come online.

Intel Nehalem processor's impact on sales

VARs are split on whether Intel's new Nehalem chips will spur sales in the short term. Some say that pent-up demand and Nehalem's performance are good enough incentives for people to spend their money now. Others say IT buyers are still keeping their purse strings tied tight.

Either way, Nehalem is creating a lot of buzz.

Todd Swank, the vice president of marketing at Nor-tech, a systems builder based in Burnsville, Minn., is optimistic. "It's a great CPU. The market has been waiting for it." Swank said he believes people want to write checks and there is great demand for such a high-performance server.

"You can replace six servers you bought in 2004 with one you buy in 2009. It's more powerful service, it's what customers need," Swank said.

Timothy Aguilar, CEO of Calculated Research & Technology Inc., based in Orem, Utah, disagrees. While he acknowledges Nehalem's high performance appeal, he doesn't believe it will do much for sales, at least not right away, and that Intel may have rushed the product a bit.

"People will jump in and take a look, but I don't think it will be huge. I see the fall of 2009 being stronger than any [other] year. And in 2010, we should [be] running at a much faster pace," Aguilar said.

Steve Kleynhans, vice president of the client computing group at Gartner Inc., agrees that the timing of Nehalem is a bit off, and it probably won't make much of an impact this year.

"You have the release of a great product at a time when people are retrenching. That doesn't really bode well for the product," he said. "The real push on Nehalem will probably wait until 2010."

Intel Nehalem processor performance review

Despite the differing viewpoints on Nehalem's economic stimulation, VARs seem to agree that performance-wise, Nehalem is one of the best processors around. One of Nehalem's biggest assets is its fast performance.

"Additional speed is always good -- mobility requires speed," said Amy Rutt, president and CEO of Ciracom Inc., a Fairfax, Va.-based solution provider.

Nehalem is also creating a lot of buzz because of its fit with virtualization. Tim Aguilar said most companies are beginning to realize that virtualization just works better, and that could be really good for Nehalem.

"This is really a fantastic play for virtualization," said Paul Shoberg, director of sales for Works Computing LLC, a Hewlett-Packard Co. partner based in Bloomington, Minn. He said Nehalem-based servers could advance the use of virtualization in more companies and also help them cut energy costs.

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