Intel, Hewlett-Packard Bet on Itanium 2 for Server-Market Gains
By Cesca Antonelli
Santa Clara, California, July 4 (Bloomberg) -- Intel Corp. engineers spent the July 4 holiday of 1999 in a lab in Santa Clara, California, just finishing the design of the new Itanium server-computer chip as fireworks from nearby Great America amusement park blasted outside.
Three years later, the world's biggest chipmaker is hoping the second version of that processor will arrive on the market with a bigger bang than its predecessor, which failed to attract corporate customers. Intel has said the chip will go on sale this month.
The new chip, code-named McKinley, may unlock a profitable new business for Intel: huge systems that can manage databases and cost more than $1 million each, a market dominated by Sun Microsystems Inc. and International Business Machines Corp. Even after the debut of the first Itanium in May 2001, Intel chips run only about 10 percent of all high-end servers, the company said, citing IDC.
``That's where we see our weakest penetration,'' John Crawford, an Intel veteran who led the design of the 386 chip and was one of the first people on the Itanium project, said in an interview. ``That's where we're looking for McKinley to take us.''
Crawford and Jerry Huck, an engineer at Hewlett-Packard Co., which co-developed Itanium, said McKinley will make up for previous shortcomings and win more interest from businesses that have been reluctant to open their wallets.
Counting on Servers
Investors, who have seen Intel shares slide 41 percent in the past three months, have reason to be skeptical. The Santa Clara- based company needs the new processor, formally called Itanium 2, to take off in order to quiet critics and lay the groundwork for future chips.
``The Itanium probably hasn't lived up to expectations,'' said John Spytek, whose Balyasny Asset Management owns Intel shares and manages $300 million. ``This second iteration should be more successful. It really drives their technology going forward.''
Intel, which gets more than 80 percent of sales from personal- computer processors, has been counting on servers to jump-start earnings. Analysts say server chips are 50 percent more profitable than its Pentiums for PCs, and estimate Intel spends at least $500 million a year developing Itanium.
Hewlett-Packard has tied its future to the chip. The world's second-biggest computer maker is phasing out processors designed in-house in favor of Itanium. The company's stock has dropped 26 percent this year as sales slipped and its PC and corporate- computer businesses posted losses.
Sales of the first Itanium, codenamed Merced, were lackluster because computer makers considered the chip crude compared with rival processors from Sun and IBM.
``We hoped it was going to be a lot more capable than it was,'' said Huck, who worked on Palo Alto, California-based Hewlett-Packard's PA-RISC chips before Itanium.
`Forget Merced'
Parts of Itanium 2 have been redesigned from scratch and others have been improved so the new chip runs software applications twice as fast as the first one.
An Itanium 2 processed 720 electronic-commerce transactions a second in a benchmark test, while the earlier model handled 344. Sun's UltraSparc III chip did 69, Intel said.
``I want people to forget about Merced and view McKinley on its own,'' Huck said. ``It's significantly faster. A lot of people say, `Oh gee, this Itanium must not be good because the first one wasn't very good.' I want them to see it on its own.''
Chip designs rarely turn out as planned. Crawford crafted Intel's 386, which handled data in 32-bit chunks -- considered hefty at its introduction in October 1985. The company viewed that chip as a way to break into sales of servers and garner more business from corporations.
Instead, a startup called Compaq Computer Corp. sold millions of them in its desktop PCs when the processor came out.
386, 486, Pentium
Crawford, who spent five years at Intel working on software, designed a program that helped Intel push Motorola Inc. out of the processor market. He switched to hardware and led work on the 386, 486 and initial Pentium chips, which all debuted within eight years.
When Crawford started work on the 386, analysts and engineers expected the project to fail. Many now credit Crawford with saving the design, and say it outperformed Intel's favored product at the time, the 432.
``He took this design that everybody else at Intel said was crippled and came up with a way to extend it, so it would not only survive but surprise everybody,'' said Nathan Brookwood, an analyst at Insight 64.
Crawford and Huck began creating a blueprint for Itanium when Intel and Hewlett-Packard agreed to be partners in June 1994.
``There were a lot of tradeoffs between what was great for Intel and what was great for H-P,'' Huck said. Hewlett-Packard wanted high performance, and Intel needed something it could mass- produce cheaply, he said. Intel expects other computer makers such as IBM and Unisys Corp. to use Itanium 2.
The men are taking new roles now that Itanium 2 is ready for release. Crawford will help debug Madison, the follow-up Itanium chip due next year. Huck is designing chipsets that work with both Hewlett-Packard's RISC processors and Itanium.
``We're in a real exciting time for McKinley,'' Crawford says. ``Things are falling into place nicely.''
Investors will have to wait and see if he's right. |
