HP says "When in Doubt, Buy It Out" for Server Appliances

  • Written By: R. Krause
  • Published: February 2 2000

Event Summary

January 7, 2000, CNET News.com

A new deal between Hewlett-Packard and Procom, a maker of special-purpose servers, could give both firms a boost in the increasingly competitive server arena. Under the deal, HP will resell a high-speed file server for managing data storage developed by Procom with some input from HP. Procom chief executive Alex Razmjoo said.

"This is a brand-new relationship for us. Over the next three or four months, they will be getting shipments from us." The deal provides Procom with a new revenue stream and a high-profile business partner, while giving HP a product that counters offerings from Dell, and it also dovetails with HP's own server plans.

Procom, a 350-employee company based in Santa Ana, Calif., makes "server appliances," which are essentially networked computers designed for a specific job. Analysts have been praising these machines because the manufacturer can set them up in advance for the task at hand, making them simpler to use, less expensive or faster than their general-purpose cousins.

Increasing numbers of start-ups and established companies sell server appliances for tasks such as email, video streaming, data storage and encrypted network communications. The least expensive models cost less than $1,000, but specialized high-performance machines can cost more than $100,000.

Procom's business is aimed squarely at Network Appliance, one of the pioneers of the server-appliance market. Both companies build a type of server appliance called network-attached storage, or NAS, which is designed to plug into a network quickly and provide space to store files.

Part of Procom's product line provides access to CD-ROM and DVD-ROM disks, but HP was interested in Procom's other line, the NetForce high-speed file servers that compete with Network Appliance's products. At the same time, HP gets a product that can easily be used with both Unix and Windows NT servers from HP, Ahari said. Current low-end NetForce machines hold between 36 and 150 gigabytes of data, Razmjoo said. The high-end models hold a whopping 5 terabytes. HP will sell a customized version of a new midrange Procom file server due in March that holds between 100 and 500 gigabytes, Razmjoo said.

Procom builds its servers around Seagate and IBM hard disks and Intel chips, Razmjoo said. The machines run a proprietary operating system created by Procom. Procom's new midrange model will have an average price between $15,000 and $20,000, Razmjoo said. The high-end products cost between $70,000 and $100,000.

Procom's revenue declined from $112 million in 1998 to $101 million in 1999, the company said. At the same time, their 1998 profit of $5.4 million dipped to a net loss of $2.9 million.

Market Impact

By focusing on Network-Attached Storage (NAS) instead of "traditional" server appliance segments such as caching and web serving, HP has delayed going head-to-head against the other large general purpose (GP) server manufacturers (Compaq, Dell, IBM). With the exception of Dell, none of the other large Intel-based server makers has an NAS offering of note. However, Network Appliance is a far more dominant player in the NAS market than any of the GP server manufacturers are in theirs. In addition, the choice of ProCom is an interesting one: until recently, they were known more for their CD "farms" than for their NAS filers. In addition, ProCom's financials are less than stellar. We suspect HP chose ProCom as much for leverage (i.e. how much leverage they would have in a small company) as technology. We expect that HP's marketing muscle and customer base will work to ProCom's benefit.

Although the current Storage Area Network (SAN) market is significantly larger than the current NAS market, we expect the NAS market to grow quickly (80%-85% CAGR) in the coming years. HP's commitment shows that they also believe this, and are trying to get in at a relatively early stage.

User Recommendations

NAS is not for everyone, it is optimized and primarily used for file service. This makes it more amenable to segments such as ISPs, web serving, and search engines. Many users will find a SAN more appropriate for their needs, especially for things like database systems. For those users who realize they need NAS, this announcement bears scrutiny.

As with most "new" things, users should proceed with caution. Although HP's support gives ProCom instant credibility, it remains to be seen whether their products provide significant advantages over those of Network Appliance (NetApp). Pricing for ProCom's current line is similar to NetApp's, so significant performance benefits will be necessary. The lack of a Linux offering is a deficiency, although not a critical one to most customers. The proprietary nature of the OS for the upcoming model(s) is also a concern. Although ProCom's financial viability is a reasonable concern, we believe HP's support will lend stability. Users should therefore compare products primarily on price and performance bases, with viability as a secondary (although still valid) concern.

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