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December 16, 2004

Revelation: Why HP’s commitment to Itanium is unwavering – really

The IT press has been having a field day as rumors were circulating about that a staff of chip designers that Hewlett Packard Co has had stationed in Fort Collins, Colorado assisting with the design of the Itanium chips with partner Intel Corp had been moved to Intel. The interpretation of what this small move meant was nearly uniform - that HP was in back-handed way washing its hands of Itanium.

By CBR Staff Writer

There’s a reason why those Colorado chip creators have been moved to Intel, and while neither HP nor Intel will come out and say why, this is very likely the reason: Intel has no choice but to take them as part of the complex and secret contract between HP and Intel that created the Itanium chip.

Everyone has been thinking that HP was the dupe in the Itanium partnership, but as time passes, it is becoming clear who will be getting the short end of the stick in this relationship going forward. And it isn’t HP. It is Intel, which would have probably killed off Itanium a year or two ago (we surmise) if it were not for one fact: Intel has a contractual arrangement that forces it to supply HP with Itanium chips, probably so long as HP desires them. And with HP-UX and now OpenVMS ported to and soon to be only available on Itanium, HP most definitely wants those Itanium chips for its Integrity-based servers. If Intel kills Itanium, then HP will sue it for breach of contract.

This is the only explanation that makes sense. And when the idea was ran past Don Jenkins, vice president of marketing for HP’s Business Critical Systems unit, he said that this was absolutely correct. Yes, absolutely, Intel has a long-term commitment to supply the Itanium, he said. And when pressed further with the suggestion that a commitment can be broken a lot easier than a contract he said that there is absolutely a legal contract that assures that Intel has to supply HP with chips.

As to the precise term of the contract, he was not sure. But presumably it is at least out to 2008, which is the term of the new $3 billion Itanium investment plan that HP recently announced. HP’s commitment to Itanium, regardless of all the naysayers, is precisely as strong as the unavoidable fact that its HP-UX, OpenVMS, and NonStop operating systems are only going to be available on Itanium chips in Integrity systems in the not-too-distant future. In early 2005, HP will roll out production versions of OpenVMS for Itanium, and later in the year it will follow with variants of the NonStop servers running on Itanium.

The fact that HP is no longer paying engineers to work on Itanium and is expecting Intel to pick up the tab for their salaries is a payback of sorts, at least to a cynical eye. As the first-generation Merced chips were delayed for two years, HP definitely took it on the chin, since its Integrity servers were supposed to be able to support both Itanium and PA-RISC chips. The second-generation McKinley Itanium 2 chips offered better performance, but there were still a lot of naysayers when it came to Itanium.

When Intel rejiggered the Xeon and Itanium roadmaps several times in the past two years, culminating with the advent of the 64-bit variants of the Xeon chips, HP was left in a position of constantly justifying its investments in Itanium – and continually re-investing in Itanium. The deal, it seems, cuts both ways, as most partnerships do.

That is why when Intel announced that the HP Itanium team was moving over to Intel (following a similar move by Compaq to sell off its Alpha chip intellectual property and chip designers just before HP bought Compaq in late 2001), HP the next day announced that it was going to spend that $3 billion over the next three years to pump up the Itanium ecosystem and build future Integrity machines. Those investments are going to be necessary for HP to accomplish its goal of making Integrity servers represent 50% of BCS sales in calendar 2005, growing to 70% by the end of 2006.

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Intel and HP didn’t disclose the financial terms of the deal that will move those HP engineers over to Intel, but HP did talk about where that $3 billion will be spent. Jenkins said that this sum represented the R&D of system components for the Integrity line, including chipsets and system designs that will push Itanium machines better into the $6,000 to $10,000 price range. HP is also establishing dedicated development teams for the Windows and Linux platforms, complementing its existing teams for HP-UX, OpenVMS, and NonStop.

The company will also be spending a lot of money fostering ISVs, and hopes to boost the number of Itanium applications (across all platforms) from 2,900 today to 4,500 by the end of the year. That money will go into analyzing the key financial services, telecom, public sector, HPC, and manufacturing markets where HP plans to push Integrity machines and ensure that the right collection of applications are available for the most likely Integrity customers. Some development funds will be used to create better virtual partitions for all of the platforms HP supports on Itanium.

Jenkins says that when the Merced project was launched, Intel lacked the systems expertise that HP brought to the table, but now that the Itanium architecture is established and that Intel has the Alpha experts, it only makes sense to move the original HP team that was so critical to the Itanium design under the same roof at Intel. By letting go of Itanium development, HP loses one key advantage – getting its way with future Itanium designs – but it gains a little, too, since other server makers will be less inclined to think that HP is getting favorable treatment.

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