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Opinion Ten Reasons Why HP’S Itanium-Based Servers Have Reached the Point-Of-No-Return

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Opinion Ten Reasons Why HP’S Itanium-Based Servers Have Reached the Point-Of-No-Return Opinion Ten Reasons Why HP’s Itanium-based Servers Have Reached the Point-of-No-Return Executive Summary Hewlett-Packard (HP) refers to its HP Integrity and Integrity NonStop Itanium-based servers as “business critical systems”. In Q4, 2007, HP sold over $1 billion of these business critical systems. But, since then, due to a number of factors, Itanium-based server sales have declined significantly. Over the past year, business critical systems sales have hovered in the $400 million range per quarter, an almost 60% decline as compared with the 2007 high-mark. From our perspective, HP’s Itanium-based servers have now achieved a form of stasis (a medical term that refers to an inactive state). We expect a rise in Itanium business this quarter (due to pent-up demand for the new Itanium 9500), but we also expect that – within in a few quarters – underlying, dogging problems will again drive Itanium business downward. These problems include HP’s financial woes; increased competition (particularly from Intel x86-based servers); market factors (such as the market move toward Linux and a market preference for x86 architecture); a broken ecosystem (where HP has actually had to take legal action to get a business partner to keep supporting its independent software on Itanium-based platforms); an ill-founded Itanium recovery plan known as “converged infrastructure”; and more (in fact, we list a total of ten reasons why we believe HP’s Itanium-based servers have reached the point-of-no- return on page 2 of this Opinion)… In this Opinion , Clabby Analytics describes why we believe that HP’s business critical Integrity servers have now reached the point-of-no-return. The HP Integrity Situation Back in 1989, HP engineers decided that they could design and build a new superscalar micro- processor that could take the computing world beyond 32-bit computing. This new design would be able to process instructions of variable length — 32-bit, 64-bit, or more, or less — enabling information technology (IT) buyers to address huge amounts of memory (32-bit processors were limited to about 4 gigabytes at the time). This new design would ultimately be named “Itanium”. Unfortunately for HP, it took years to bring this new processor to market (over a decade elapsed between the first design meetings and the first product release). Further, successive releases of Itanium continually dropped planned functionality (see here ) while constantly missing release target dates. Customers waited for years for new versions of Itanium (see here ) ― and when these new designs finally arrived, they sometimes offered only marginal performance/functionality improvements (see here . And note, we have not yet found performance benchmarks for Intel’s new Itanium 9500 series. Will this be another case of performance deficiency?). No wonder the press dubbed the Itanium project “the Itanic” (a play on words about another catastrophe ― the sunken, colossal cruise ship “Titanic”). To HP’s credit, despite constant delays and dropped functionality, HP managed to build an Itanium ecosystem that included HP infrastructure and management software as well as applications offered by hundreds of ISV partners. HP channels and business partners also promoted Itanium ― driving Ten Reasons Why HP’s Itanium-based Servers Have Reached the Point-of-No-Return HP’s Itanium-based Integrity servers to their zenith in 2007. Since 2007, however, Itanium sales have steadily declined, due in part to the worldwide economic downturn that occurred in the 2007- 2008 timeframe (this downturn constricted IT budgets) ― but other factors such as increased competition and the withdrawal of key vendors from the Itanium ecosystem also played a huge role in the decline of Itanium-based system sales. Today, HP’s recovery plan for its Itanium-based servers involves converging Itanium with x86 systems using a “converged infrastructure” to glue the two architectures together (this plan assumes that HP customers want Itanium and x86 glued together – a market demand we do not see. For more on this perspective please read this report ). Further, Intel (the co-designer/manufacturer of Itanium processors) is sharing common processor design elements and create a common socket for both the x86 and Itanium lines (we see this as an ultimate phase-out program for Itanium). Ten Reasons Why Itanium Has Reached the Point-of-No Return In a speech marking the end of his career, a late U.S. general took a line from an old army ballad that exclaimed: “old soldiers never die, they just fade away…”. Such, we believe, will be the case with Intel’s Itanium processor. We expect that HP and Intel will not “kill” Itanium, but rather blend it with x86 architecture over time, thus letting Itanium fade out of existence. As we look at HP’s Itanium predicament today, we see ten reasons why Itanium servers will not be around for the long haul. They are: 1. The broken ecosystem; 2. Increased competition; 3. The market migration trend from HP/UX to Linux on x86; 4. The cost of continued development; 5. Margin pressures; 6. Lack of volume manufacturing; 7. Unclear workload definition; 8. Customer disinterest (as manifest in the Itanium the sales stasis pattern described earlier); 9. Strategic directions (spending on unneeded programs such as HP’s converged infrastructure environment, HP’s Project DragonHawk, and HP’s Project HydraLynx”); and because 10. There is Itanium end-of-life plan in place (a good indicator that Itanium will phase out). The following subsections examine each of these points in more depth. Broken Ecosystem Probably the biggest reason that Itanium will cease to exist over time is related to its broken eco- system. IT buyers buy solutions ― the hardware choice can be considered incidental. And with major vendors pulling support for Itanium, combined with fewer independent software vendors (ISVs) signing-on to host their applications on Itanium-based systems, fewer and fewer key industry solutions are being made available on Itanium-based servers. Fewer solutions = fewer sales… In previous Clabby Analytics reports we described how numerous important vendors have either pulled support for future software revisions on Itanium, or have refused to offer their software products on Itanium architecture. We have noted that Microsoft pulled future Windows support for Itanium a few years ago, as did Red Hat more recently with future Linux revisions. We also pointed out that EMC’s VMware made a conscious decision never to offer its products on Intel’s Itanium architecture. More recently, we described how Oracle’s decision to pull support for Itanium would drastically and negatively impact Itanium sales. February, 2013 © 2013 Clabby Analytics and IT Market Strategy Page 2 Ten Reasons Why HP’s Itanium-based Servers Have Reached the Point-of-No-Return For the record, we forecast that Oracle would pull future support for its products on Itanium over a year before Oracle did so. However, a California court has forced Oracle to keep supporting its products on Itanium. This situation, however, actually reinforces our point about how badly the Itanium ecosystem is broken. If HP has to sue its business partners in order to keep certain ISV offerings in the Itanium portfolio, then clearly something is wrong with the Itanium ecosystem… Increased Competition One of the early goals for Itanium architecture was to make Itanium the defacto standard for 64-bit computing. Accordingly, Intel developed its Pentium and Xeon lines as 32-bit only architectures, reserving 64-bit computing for Itanium. But, in 2003, AMD forced Intel to respond to competitive pressure by introducing a 32/64-bit hybrid x86 architecture ― thus providing x86 users with a path to 64-bit computing without having to adopt a completely new architecture in Itanium. This mean that AMD customers had a clear path for existing ISV and custom applications to migrate upwards to 64-bit computing ― while Intel did not. It took Intel a year to respond to this competitive pressure, but ultimately Intel introduced a 32/64-bit hybrid x86 microprocessor, followed by a 64- bit Xeon x86 architecture. To us, Intel’s introduction of a 64-bit version of its x86 microprocessor was the beginning of the end for Itanium architecture. Since Xeon went 64-bit, there have been fewer and fewer compelling reasons to adopt Itanium as the 64-bit computing defacto standard. Since 2004, Intel has improved reliability, availability and security on its x86 processors ― and has also introduced multi-core architectures that can challenge Itanium from a performance perspective. Further, other rivals ― especially IBM with its POWER architecture ― have raised the bar in microprocessor and systems designs, increasing competitive pressure on Itanium-based platforms. In fact, we argue that IBM’s POWER architecture has been years ahead of Itanium, especially in the areas of virtualization and security (for more on IBM Power Systems advantages over Itanium, see this report ). With increased x86 and RISC (reduced instruction set ― such as IBM’s POWER design) competition, Itanium-based servers experienced significant pressure in the quest to become the 64-bit defacto standard ― and have essentially lost this battle. Market Migration from HP/UX to Linux on x86 Over the past decade the Linux operating system has become more robust, more reliable, and more secure. And, as Linux has improved, it has encroached on the Unix operating environment’s stranglehold on mission-critical computing deployments. In today’s market, the Unix operating environment market is static (not significantly growing nor losing revenue), while Linux is experiencing solid growth (examine Linux supplier Red Hat’s financial statements for proof of this growth. Note that in 2012 Red Hat reported that it is now a $1.13billion dollar ISV ― and 2013 results are due out next month and should be equally positive).
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