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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Joe NYC who wrote (123270)	12/18/2000 9:57:50 PM
From: Elmer	Read Replies (2) \| Respond to of 186894

Interesting article on Unisys Servers: biz.yahoo.com Forbes.com How A Server May Shift The Balance Of Power By Lisa DiCarlo For the better part of the 1990s, Unisys was a company that zigged when everyone else zagged. Always a few steps behind competitors in capitalizing on what customers wanted when they wanted, it missed the PC and Internet revolutions. Now, however, its own fortunes and that of much larger companies may change due to a server computer it invented called the ES7000. Why is it so important? The ES7000 is the only server that runs up to 32 Intel (Nasdaq: INTC - news) processors on Microsoft's (Nasdaq: MSFT - news) Windows 2000 Data Center edition operating system. That's important for ``Wintel'' (a contraction of the words Windows and Intel) because it offers a long-absent and crucial proof point that their products can scale up to the level of systems sold by archrival Sun Microsystems (Nasdaq: SUNW - news), which has staked out a solid position as the leading server provider for some of the world's largest corporations. Unisys' (NYSE: UIS - news) development is also important for Compaq Computer (NYSE: CPQ - news), Hewlett-Packard (NYSE: HWP - news) and Dell Computer (Nasdaq: DELL - news), which need to have a high-end, standards-based server to ward off competition from Sun. So important, in fact, that Compaq and HP are already reselling modified versions of the Unisys ES7000, which start at $250,000, under their own labels. Dell will start selling the server early next year. ``If we don't have [something like this] customers are going to go to Sun,'' says Paul Santeler, vice president of enterprise servers at Compaq. ``It doesn't have to be a volume play [in terms of the number we sell] but the margins are good.'' But no company has as much riding on the ES7000 as Unisys, a $7.5 billion company (1999 sales) in the midst of a major restructuring that includes divestitures and thousands of layoffs. With sales of its mainstay ClearPath mainframes flattening, Unisys badly needs a home run. And with the ES7000, it clearly was ahead of the curve, zigging at just the right time. If the ES7000 gains enough traction--and early indications are it will, with $100 million in sales since its March debut--it will take the wind out of Sun's sails and give the Wintel architecture (and the companies that sell it) much-needed credibility in mission-critical data centers. The ES7000 project dates back to 1994. The Blue Bell, Pa.-based company wanted to build a system based on the standard Windows software and Pentium processors but with the horsepower and reliability of million-dollar mainframes. The project was ambitious and costly. Unisys executives won't put a price tag on it but say it's a ``significant'' portion of the company's $400 million annual research and development budget. At the time, Unisys had a hard time convincing Intel and Microsoft to work with it on the project, mainly because it was a small player. ``It was hard to talk to Microsoft [because] we were a nonplayer in their environment,'' says George Gazerwitz, executive vice president at Unisys. ``We're not out there selling millions of notebooks and desktops with Windows on them.'' Eventually Microsoft came around, after realizing that there were no computers beefy enough to run its highly-touted Windows 2000 Data Center edition software. No computer means no sales of the operating system. But Unisys had other problems, not the least of which was the lack of a large sales force to sell the ES7000 in volume, and questionable strength of its brand name. If the company set out to sell the system on its own, would it sell enough to offset its substantial investment? The conclusion it came to, after major debate, was no. ``There was a whole culture change here,'' says Gazerwitz. ``The old Unisys would have kept the technology to ourselves [but] we can't continue to operate that way and be successful. We need a volume sales play to maintain the investments needed to keep [development of] the product going.'' So, by March 2001, Unisys will be selling its technology through Compaq, HP and Dell, which collectively account for about two-thirds of the Intel-based server market. Unisys says it will triple sales of the ES7000 to $300 million next year. This year, indirect sales of the ES7000--sales through other computer companies or resellers--will be 30%. Unisys says the mix will be 50/50 within a few years. There are problems selling products this way. After all, Unisys will be in the position of competing against its own sales partners for business, and because it's selling the architecture through better-known brands, Unisys probably will not be recognized for the breakthrough. Still, it's a tradeoff Unisys must make to stay relevant to the marketplace. And there are side benefits like peripheral sales. For example, Dell won't sell an ES7000 into an account unless they agree to buy Unisys services for the product, says Michael Lambert, senior vice president at Dell. It's a tradeoff Unisys finally seems willing to make to zigzag ahead of everyone else, providing the company with the potential to penetrate the most hallowed glass houses.