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October 20, 1995

BRITISH TELECOM’S $90M BUYS 27,000 PCS

By CBR Staff Writer

On August 21, Compaq Computer signed the biggest PC deal anyone has ever inked in Europe. For the tidy sum of $90m, Compaq will give British Telecom’s end-users some 27,000 desktop PCs and servers over the next three years. The obvious question to ask about the deal, and one that both Compaq and BT shied away from, is what is BT going to do with all those PCs? The truth is no one is quite sure. But the main idea is that new applications that would have otherwise been developed on centralised systems (which may or may not have been accessed by end users via PCs) are now going to be developed on independent departmental servers. The BT story is not unique in its scope even if it is in its scale. The PC desktop business is booming and the PC server business is no slouch, either. Like two bulls in a glass house, both the client and server ends of the PC business will have dramatic effects on IBM and its AS/400 base. As it stands, about half of the machines in the BT deal will be Compaq Deskpro workstations. All will have Pentium chips ranging in speed from 75MHz to 133MHz this year and even faster clock speeds in the coming years. The Deskpros will run Windows 3.1 until next April, when BT expects to upgrade them to Windows95; BT wants to wait until the bugs are shaken out of Windows95 before it makes the jump. OS/2 is not one of BT’s planned operating systems. The desktop machines will be networked to Compaq ProSignia and ProLiant servers that are also being purchased as part of the deal – some 13,000 servers all told. Half of the servers are expected to be low-end ProSignia models, the other half will be high-end, rack-mounted ProLiant servers. These are AS/400 9406-class machines, though they often have price tags that are a third to a half those of similarly pow ered AS/400s. Some of the Compaq servers will run Novell NetWare 3.11 as their operating system, others will use Windows NT. Most of the servers will initially run NetWare, but the split is expected to be pretty even by the end of the contract term. Deals like this go a long way toward legitimising distributed client-server computing. It also explains why vendors such as IBM are pushing so hard to become the pre-eminent vendors of servers. IBM’s internal market analysis shows that the company expects the PC server business to continue to grow at a phenomenal rate this year and next.

Big bucks

IBM’s marketeers have estimated that the number of personal computer servers sold worldwide will increase from under one million units in 1992 to over 2.5m units in 1996. However, with server prices dropping at a steady rate, it has gotten harder for server vendors to rack up the big bucks. Total worldwide revenue for the PC server market will only double from $4,500m to $9,100m over the same time frame. The AS/400 processor business has not grown at the same rate as the PC server business. Unit AS/400 system sales typically range from 45,000 to 60,000 systems a year. AS/400s are, on average, a good 10 times as expensive as PC servers (and usually worth it, too), so IBM can rake in between $3,000m and $4,000m a year just on processor hardware alone. This is a very good business, one that DEC, Sun and Hewlett would kill for. But these vendors are not the real threat to IBM and its AS/400 franchise. Creeping serverism is. Vendors like Compaq, Dell, Gateway 2000 and Micron Technology are figuring out how to build reasonably stable servers and they are also figuring out how to build them cheaply. So is the IBM PC Company, for that matter. Customers who want to create applications to enhance existing businesses or to support new ones, as BT is doing, are going to look at all their options. They will most likely do exactly what BT has done. BT didn’t think expanding its IBM and ICL mainframe data centres to support these new applications made a lot of sense, either technically or economically. Neither will other mainframe shops or a lot of AS/400 customers in similar situations. The AS/400’s saving grace is that IBM has attempted to make it a more friendly, ope

n and robust server than systems that run Windows NT, NetWare or Unix. Only time – and customers unlike BT who can justify doing new work with systems like the AS/400 – will tell if IBM has been as successful as its press releases and product announcements would lead us all to believe. – Timothy Prickett

Both items from the September 1995 issue of The Four Hundred, written by Timothy Prickett and published by Technology News Ltd, 110 Gloucester Avenue, London NW1 8JA, phone 0171 483 2681, facsimile 0171 483 4541. (C) 1995 Technology News Ltd. All rights reserved.

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