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To: pgerassi who wrote (138650)	7/5/2001 2:24:29 PM
From: Mary Cluney	Read Replies (2) \| Respond to of 186894

Pete, <<<It is actually worse than Dan noted:>>> Nice response and well stated. However, it doesn't seem to add up. Some of the assumptions that you imply are obviously wrong. <<<That $60 billion in annual IBM server revenue probably contains between $300M and $1B in main CPU chips.>>> This has nothing to do with the $60B cited as the market value for the 4M servers shipped annually from manufacturers factories. <<<Most went to IO processors, memory, disk, printers, tape libraries, and infrastructure. One year of maintenance was buried in the contract as the warranty. The ongoing 24-7 maintenance was about 50% of the cost annually.>>> I am not absolutely certain, but I don't think most of what you describe above goes into what the industry include as part of their server revenue projections. Most often, these sales are not made directly through the manufacturer (with the exception of IBM) and the integrator and/or manufactory may bundle some of their sales. However, I don't think that is the way the computer industry report server sales. (If you have sources to the countrary, I then need to be corrected). <<<The rest is n-way PC CPUs and Mainframes whether RISC or Legacy. Those mainframes, the 3090s, 4300s, and other such systems, are mostly composed of IO processors with a few main CPUs doing the directing and heavy number crunching. Here the CPU cost is less than 1% of the total. The main CPU portion of one $10M server was less than $100K in one bid I saw broken down to true costs (do not believe that customers, especially big ones, do not know the true costs of these things). Most went to IO processors, memory, disk, printers, tape libraries, and infrastructure. One year of maintenance was buried in the contract as the warranty. The ongoing 24-7 maintenance was about 50% of the cost annually. It is an old true saw that most mainframe companies could give you the mainframe for free, if you pay for 5 years of maintenance, just like the elevator manufacturers. For a company like IBM, figure at least half of their annual server revenue is derived from just maintenance (some estimates are much higher).>>> If this is true, then Itanium is going to do quite well in this market. I think that is what the excitement is all about. Taking what you and Dan are telling us at face value, I come up with the following: The low end server market makes up 80% (your estimate) of the 4M servers sold @ ASP of $5000 (from Dan - that includes memory, disk drives, software, support, services and help desk) gives that end of the market a value of $16B. The Mid range server market makes up 10% (your estimate) of the 4M servers sold @ ASP of $50,000 (more or less from Dan) gives the value in the segment of the makret of $20B. The high end 10%(your estimate) or 400,000 servers has a value of (($60B - (16 + 20)) = $24B. The ASP in this market is therefore about $60,000. Okay, so it doesn't add up. I admit however, there is a lot about this market that we don't understand. We need a lot more information before we can make any statements with the kind of finality that some of us tend towards making. Mary