NW,
A quick note on DEC's operations legacy. MA remains a stronghold even wihtin the new CPQ organization. Nashua, Littleton and Royalston still represent the main decision hubs for Compaq Business Critical Server Group (BCSG). FYI, Compaq's Technical Computing and Zero Latency development is driven out of MA whereas the Non Stop Systems (Himalayas) development takes place in CA (former TDM locations). Also, FYI, the main hub of Compaq's Storage Product Division (SPD) remains in CO.
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IDC Opinion
What is Compaq Computer Corp.'s strategy for addressing the technical computing market?
Over the last three years, Compaq has developed an aggressive strategy to capture share and take a leading role in the technical systems and servers market. The company's strengths include strong corporate support, a highly scalable product line, and a tight focus on a few target markets. We believe Compaq is in a position to assume a technical leadership role in high-performance computing that would allow the company to maintain product
differentiation, continue to play in high-growth, high-demand markets, and maintain the support and confidence of the overall technical computing market.
Introduction
Compaq has made a determined effort to extend and solidify its position in the technical server market over the last three years. In 2000, these efforts allowed the company to obtain the market lead in revenue with over $1.3 billion in sales. Compaq's strategy has been to concentrate on a few high-value markets including the bioscience/chemical, engineering and product development, and education/government industries. To meet the demands of the market, the company has developed high-end capability products, created an extensive biosciences program, and worked with a variety of customers to implement high-end clustered solutions. Compaq is one of only three companies that sell into all segments of the technical systems and servers market. It is the leading supplier of divisional systems and is vying for the lead in the overall technical systems and servers market.
A Strategic Business for Compaq
In 1995, Compaq made a strategic decision to compete aggressively in the technical high-performance computing market with its Alpha-based technology.
This decision was made at the highest levels of the company, and Compaq's technical computing efforts have subsequently received continued corporate support. Interest in the market is derived from several factors, including:
Market size and potential. IDC estimates the 2000 market for technical systems and servers at about $6.1 billion. We expect this market to grow to over $8.5 billion by 2004. In addition to revenue from systems sales, the technical market generates significant pull through business in such areas as storage systems and services sales.
Strong historical position. Compaq's Alpha processor-based products have a long history in the technical market, with the company maintaining about a 20% share of revenue since the mid-1990's. Compaq captured the number 1 position in the technical computing market in CY00.
Market growth. Compaq has grown its technical computing business at about a 19.5% compound annual growth rate (CAGR) from 1995 through 2000. The company has recorded server revenue of over $1 billion for the last two years.
Technology advancement. Compaq recognizes the significant role technical computing plays in advancing the state of the art of computing technology. As such, the company believes that its presence in the technical market will pay dividends in keeping Compaq at the front of the technology curve.
Strategic Targets
Over the last few years, Compaq has crafted a strategy that positions itself to compete with all classes of computing systems, capture share in emerging markets, and leverage changes in the technology landscape. The company's strategy is based on maintaining a strong focus in three strategic markets:
Computational biology/chemistry/material sciences
Engineering simulation in new product development
Education and defense research and development
IDC estimates that these three areas represent approximately 70% of the total technical systems and servers market opportunity. For each target market,
Compaq has worked to characterize and benchmark key applications, identify specific hardware configuration requirements, obtain support from key independent software vendors, and provide integrated hardware/software/services solutions packages.
Recent Initiatives
Initiatives resulting from this strategy include entering into the capability market, becoming a leading player in the biosciences market, and supporting clustered systems technologies.
Capability Systems
In 1999, Compaq entered the market for systems configured and purchased to solve the largest, most-demanding problems with a combination of its SC series of high-performance servers and specially configured clustered systems. In less than two years, the company has gained double-digit market share, and the number 4 market share position. In 2000, Compaq won several high-profile bids, including:
French Atomic Energy Commission (CEA). Compaq is building a 5 TFlops SC-series cluster system to support nuclear stockpile stewardship-type applications. The system will run under the Tru64 Unix operating system and will include more than 2,500 processors.
NOAA Forecast Systems Laboratory (FSL). FSL has implemented a 300 GFlops cluster code named JET. The system is made up of AlphaStation XP1000s linked via a Myricom interconnect and running under Linux. FSL plans to upgrade the system to over 5 TFlops by 2002. It was developed by High Performance Technologies Inc. (HPTi), in cooperation with Compaq Computer Corporation, Patuxent Technology Partners (PTP), the University of Virginia, and Myricom.
Pittsburgh Supercomputing Center (PSC). PSC is implementing a 6 TFlops system as part of the National Science Foundation's PACI program. The proposed system will contain 2,728 Alpha processors when fully implemented. The CPUs will be organized into a 682-node SC cluster. Every node will have 4 processors, and 4GB of memory. The system will support 50TB of primary storage, and 300TB of secondary disk or tape storage.
ASCI-Q. The U.S. Department of Energy's National Nuclear Security Administration (NNSA) selected Compaq to build the latest system in its Advanced Strategic Computing Initiative (ASCI). The 30+ TeraOPS system, which is code-named "Q", will be installed at the Los Alamos National Laboratory as part of a $200 million contract. It will initially consist of approximately 375 AlphaServer GS320 systems (approximately 12,000 Alpha processors) with EV68 CPUs running in excess of 1,250MHz under the Tru64 Unix operating system. The system will support over 600TB of storage based on Compaq's StorageWorks Array storage systems. The NNSA has options to upgrade to future generations of Alpha processors (EV7 and EV8). The system will be used for nuclear weapons stockpile stewardship applications.
Biosciences
Both end users and competitors place Compaq in the top tier of vendors supplying computers to the biosciences market. Compaq has targeted this market as a strategic growth opportunity and has moved quickly to establish itself. Major initiatives and system placements include:
The Sanger Centre. A research center focused on mapping and sequencing the genomes of humans and other organisms, the Sanger Centre is located near Cambridge, England. It was established by the Wellcome Trust and the British Medical Research Council and is a leading institution in the Human Genome Mapping Project. It operates a cluster of over 300 AlphaServer and Alpha workstations running under Tru64 Unix to support mapping, sequencing, and functional interpretation of human and other genomes.
Celera. The company that first assembled the human genome, Celera uses a network of Compaq systems, and the company's computer architecture is continually growing. In July of 2000, its configuration was valued at over $50 million and included one AlphaServer GS160 system, 10 GS140 systems, and a cluster of 150 ES40 systems. All of the systems run the Tru64 Unix operating system.
Biosciences investment program. Compaq has developed a program to invest $100 million in early-stage biosciences companies in the areas of genomics, bioinformatics, and related market disciplines. The program involves a mix of direct investment in companies, and investment in venture capital funds targeting these areas. The goal of the program is to spur the growth of discovery in life sciences companies through a combination of financial support and early access to Compaq's technology.
Support of Sandia National Labs/Celera initiative. Compaq is the technology provider for a joint project between Sandia National Laboratories and Celera Genomics to "develop next-generation software and computer hardware solutions that will be specifically designed for the demands of computational biology as well as a full range of life sciences applications." Compaq and Sandia will collaborate on the development of system hardware and software with a project goal of providing computing capability in the 100 TeraOPS range.
Clustered Systems
In the last few years, Compaq has worked with a variety of customers to implement high-end clustered solutions using both Tru64 Unix and Linux. In addition to the systems already mentioned, Compaq has placed large clustered systems at:
The Theoretical Physics Department of the University of Wuppertal in Germany
The Center for Advanced Computing Research at the California Institute of Technology
The Center for Atomic-Scale Materials Physics (CAMP), a research center at the Technical University of Denmark
The Center for Scientific Computing, the Laboratory of Physics, and the Laboratory of Computational Engineering at the Helsinki University of Technology
Compaq has also moved to provide basic programming and applications development tools for Linux running on Alpha platforms. The following applications are currently available:
Compaq Fortran for Linux Alpha
Compaq C for Linux Alpha
The Compaq Portable Math Library (CPML)
The Compaq Extended Math Library (CXML)
Compaq is also porting its C++ compiler from Tru64 Unix to Alpha Linux, and the company is working with partners to extend Linux capabilities on Alpha. For example, the University of New Hampshire is working to provide a peer support program for Alpha Linux developers. Also, SuSE, a Linux solutions provider based in Germany, has implemented a 64-bit version of Linux that can support up to 2TB of memory.
Compaq's Position in Technical Computing
Compaq has grown its revenue in the technical market from $539 million in 1995 to over $1.3 billion in 2000. In the last year, it grew its revenue by about 21.7%, or a net increase over 1999 of about $239 million. Table 1 provides a five-year history of Compaq's technical computing revenue, market share, absolute, and percentage revenue growth. Figure 1 presents Compaq's revenue from 1995 through 2000.
A Player in All Segments
Compaq is one of only three companies that sell into all segments of the technical systems and servers market. Figure 2 presents the distributions of the company's $1.3 billion in revenue for 2000 across IDC's competitive market segments. Segment performance highlights include:
Capability segment. Compaq has competed in the $1.1 billion capability market (the segment at the very high end of system performance, technology innovation, and system price) for the last two years. In its first year, the company placed eight systems for an impressive $56 million in revenue. In 2000, shipments nearly tripled to 22, while revenue more than doubled to about $107.5 million. Compaq garnered double revenue share and the number 5 position in this market for systems generally selling for over $2 million.
Technical enterprise capacity segment. Capacity markets include systems purchased to support technical applications in production/throughput-oriented environments. The Enterprise segment includes systems priced at $1 million or more and accounted for about $860 million in 2000. With over $112 million in sales, Compaq grew revenue in this space in 2000 by over 71%, based on the strength of its GS 320s and high-end clustered systems.
Technical divisional capacity segment. The divisional segment includes systems priced from $250,000 to $999,999. Divisional systems sales account for about 30% of the total technical systems and servers market. Compaq was the clear leader in this $1.7 billion market, contributing over 34% of its revenue. The company addresses this market with its GS 60s, 80s, 140s and 160, as well as its midrange clustered products.
Technical departmental capacity segment. The departmental segment systems sold for under $250,000. This segment is the largest, representing over 40% of the total market. Compaq saw strong sales of departmental systems in 2000, accruing over half a billion dollars in revenue from sales of its ES 40s, and the DS product line.
Traditionally, Compaq has been a steady but quiet player in the technical computing space, basing its sales strategy on strong technology and an installed base that can date its lineage back to DEC PDP and VAX systems. IDC believes that the company has developed a much more aggressive strategy over the last three years to capture share and take a leading role in the industry. This analysis considers Compaq's strengths for implementing its strategy, the challenges to its strategy, and the potential paybacks for success.
Technical Computing Strengths
IDC sees three major strengths in Compaq's strategy for addressing the technical high-performance market:
Strong corporate support. Under current market conditions, significant concern exists about vendors' long-term commitment and ability to support technical computing requirements. Compaq's corporate-level commitment to technical high-performance markets provides end users with the assurance that the company will both provide new technology in the future and continue to support existing installations. In addition, the continued support of Compaq's High Performance Technical Computing (HPTC) group has allowed it to develop and execute a longer-term business plan.
Highly scalable product line. Compaq's AlphaServer product line ranges from the DS 20, supporting one or two processors, to the SC, which is currently capable of supporting up to 512 processors in off-the-shelf systems and much larger configurations in special projects (e.g., Compaq's ASCI solution will comprise some 12,000 processors in a single SC). In addition, the company supports a range of clustered solutions using AlphaServers as base systems. The scalability of its product line has allowed Compaq to compete in all markets and to theoretically address virtually all of the computing requirements within individual sites.
Strategic focus. Compaq has made a conscious decision to focus on the "fat part" of the market in terms of revenue potential, and in the case of the life sciences market on a segment with very-high growth potential. This focus has allowed the company to concentrate its investments in solutions development (e.g., staff hiring and training, third party software partnerships, and requirements analysis).
Market Challenges
Today's technical systems and servers market is typified by major computer systems vendors selling scalable systems into as broad a range of markets as possible, with a few companies developing and fielding specialized architectures for the very high end. These market conditions present significant challenges to all players including Compaq. Major challenges include:
Product differentiation. Compaq is competing against RISC-based scalable product lines with its own RISC-based scalable product line. Although we believe this is a sound approach to the market, it creates a product-differentiation challenge for all players. Compaq can, and has, advanced its servers based
on the strength of its Alpha processors, which have received uniformly good reviews from end users. However, we believe that the company's overall strategy for solutions sales for target markets may prove a greater differentiator over the long term.
Maintaining momentum in a Moore's Law world. The nonlinear growth of computer systems performance described by Moore's Law creates a tendency for computer systems to outpace their markets. Simply put, price/performance increases faster than end-user requirements, allowing applications to be run on
ever smaller and more generic systems, which is a challenge for all parts of the industry. We believe that computer systems vendors are addressing this challenge by identifying and nurturing new markets with a combination of financial support, such as Compaq's life science investment program, and working with existing customers to help them expand their applications. The technical computing market is unique in that it holds the potential to expand requirements as fast, or faster, than Moore's Law growth in computer system capability.
Maintaining end-user confidence. Compaq has succeeded in obtaining a high level of confidence from the technical computer market. However, over the last four decades we have seen computer vendors enter the market, only to exit again when other opportunities seemed more profitable. Technical users are thus wary of vendors' long-term strategies.
Conclusion: Meeting the Challenges
IDC believes that Compaq has implemented a strong strategy for addressing the requirements of the technical computing market. The company has a long history as a major technical computing systems supplier, and it is currently vying for the market share leadership position. More importantly, we believe that Compaq is positioning itself as a technical leader in the industry and a company that is actively advancing the field in such areas as:
Developing next-generation technical computing environments
Working to create new applications
Bringing new hardware and software technology to market
We believe that advancing to a technical leadership position will allow Compaq to maintain product differentiation, continue to play in high-growth and high-demand markets, and maintain the support and confidence of the overall technical computing market. |
