To: Tony Viola who wrote (129438 ) 3/8/2001 9:57:13 AM From: Road Walker Respond to of 186894 H-P fights in Europe with server price cuts (UPDATE: adds company comments, details) By Jana Sanchez AMSTERDAM, March 8 (Reuters) - Hewlett-Packard Co. launched a new round in the computer price war on Thursday by cutting by 28 percent the price it charges European service providers for its newest computer servers. The U.S. computer and printer maker cited stiff price competition from rivals Sun Microsystems (NasdaqNM:SUNW - news) and IBM (NYSE:IBM - news) as well as the continuing and rapid price declines for such servers. H-P said the average base price of its LP1000r and LP2000r NetServers, launched in January and sold to Internet and application service providers (ISPs/ASPs) and telecom carriers, would drop to about $2,200 from an average of about $3,000. ``We've been driving the price cuts in Europe and the U.S. for six to nine months because we want to gain more and more market share in the front end of the service provider market,'' Alberto Bozzo told Reuters. Bozzo is the operations manager for H-P's NetServer Business in Europe. The front end of the server market are the computers that service providers' use to interact with their clients. For instance the servers that allow users to pull up Web pages or perform e-commerce functions are considered front end. ``The front end is moving quickly towards commoditisation,'' Bozzo said, adding the front end market was growing at about 200 to 300 percent each year, and is expected to reach $11.6 billion by 2004. More than 40 percent of HP's business-to-business revenue comes from or is related to the telecommunications or ASP/ISP sector. BACK END LESS PRICE SENSITIVE The back end of the server market, which are the servers that store critical data, however, is less price sensitive, Bozzo said. ``Hardware and services for the back end are driving up both the bottom and top line earnings,'' he said. ``The high availability is vital. An hour of downtime means the loss of millions of dollars and the permanent loss of clients who will never return to a Web site that is unavailable even temporarily,'' Bozzo said. H-P warned in mid-February that its full-year 2000/01 earnings were likely to fall short of expectations, blaming the declining U.S. economy. Last month, credit rating agency Moody's Investors Service said it had placed H-P's long-term credit ratings under review for a possible downgrade citing increased competition and profit pressure in personal computers, servers and other H-P markets. Bozzo would not say if these price cuts were already included in H-P's reduced calculations of earnings. The servers are Intel-based and can be run on Microsoft Windows NT (NasdaqNM:MSFT - news) or Linux operating systems.