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January 4, 2005

RLX exits blade server biz, focuses on software

In a somewhat surprising move just before the Christmas holiday kicked off, blade server pioneer RLX Technologies Inc announced that it would discontinue making blade servers and focus its efforts on trying to be the neutral party in the blade server management software market.

By CBR Staff Writer

The odds heavily favor RLX inking a partnership with server maker Dell Inc, which is re-entering the blade business but lacks management software.

The news that RLX is exiting the server business will probably come as a big shock to customers who just bought its iron, particularly those who were lining up for the company’s sixth generation of blades, which were announced in November 2004.

For a couple of years now, RLX has sold two lines of blade servers, one that is designed to deliver the highest individual processor performance, and another one that delivers more physical processors per rack. RLX’s latest blades, which are based on the 64-bit Xeon processors from Intel, are of the latter kind.

Four years ago, RLX had a vision of green computing, and endorsed the Crusoe low-power processor from Transmeta Corp. While the Crusoe X86 clone and its kicker, the Efficeon chip, had great power management features, they did not offer high performance of the kind that many corporate and technical computing environments want, so RLX had to fork its line and add regular Xeon-based blades, too.

And after a few years of trying to sell blades against the volume leaders, IBM Corp and Hewlett-Packard Co, RLX last year came to the conclusion that it needed to sell regular 1U and 2U rack-mounted servers to compete. Having tried that for a while, the company has decided to toss out the whole hardware business and concentrate on its blade management software, which can be used to manage any kind of server.

At a server conference in New York on December 17 hosted by brokerage house UBS, Doug Erwin, RLX’s CEO, hinted that something was afoot. While RLX has 115 employees, more than 500 customers, revenue growth of a factor of five or six in 2004, and $119 million in venture capital backing, Erwin kept saying that RLX’s Control Tower management software was the secret sauce and that the hardware didn’t matter that much.

When Erwin said at the conference that RLX was planning for sales to double in 2005 from 2004, it seems likely that he meant with RLX shipping servers as well as software. He said that RLX was looking for partners to adopt its Control Suite software, which manages server provisioning, patch management, and other system administration functions, and given that Erwin spent a lot of time talking about how Dell had just re-entered the blade server market and was not intent on making money (yet), but on taking away market share from IBM and HP, which have the lion’s share of blade server shipments, tongues were wagging at the UBS conference during a coffee break after Erwin’s presentation that RLX might try to entice Dell and others to use its software and might even exit the hardware business entirely.

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Something must have happened in the week between the UBS conference and the announcement by RLX that it was exiting the hardware business, because Erwin said that RLX and the rest of the industry would eventually deliver truly stately computing blades, without on-blade networking or storage, to simplify designs and further compress the servers.

RLX did not elaborate on the reasons behind its decision to get out of the hardware business. Customers choose RLX because of our ability to manage servers better than anybody else, Erwin said in a statement. Today’s servers have to be dynamic, able to be repurposed on the fly, managed from a single console, and handle mundane task automatically. Control Tower is the enabler behind these and many other key features that support the industry’s move toward a lights out data center. We at RLX are dedicating all of our resources and efforts behind continuing to make server management a reality for customers on any platform.

That Erwin is more focused on software than hardware makes a certain amount of sense. Before he was named CEO at RLX in April 2003, Erwin was founder of PentaSafe Security Technologies, a maker of server security software that was acquired by NetIQ for $255 million in October 2002.

RLX says that it will continue to provide hardware support to its existing blade server customers and that it will honor all warranties for gear that was sold directly or through its reseller channel. The company says that existing blade server customers will also get updates for the Control Tower software in accordance with their support contracts.

As it abruptly transitions to being a software-only company – you cannot buy RLX servers any more from the company’s Web site – RLX will be working with all of the major blade server and regular server makers to get Control Tower certified for their platforms.

How long this will take is unclear, but it stands to reason that RLX was already preparing for this transition many months ago. Even if it had not made the decision to exit the hardware business, it seems likely that Erwin and the rest of the RLX team had come to the conclusion that RLX needed to get the company’s software certified to run on as many different platforms as possible.

The server market needs a management tool that spans blade, tower, and rack servers and that can act as a Switzerland. For blade servers in particular, when you buy into a particular vendor’s blades, you have to buy into their chassis (which is incompatible with all other chasses) and their management programs (which are all different).

Exiting the blade hardware business, particularly if IBM, HP, and Dell are getting ready to start a price war, and focusing on spanning all of the different servers are two smart but not of a necessity related moves. By doing both, however, RLX gets a tighter focus, and that usually means easier sales and more profits in the long run. RLX will also get to cut some costs in the short term in hardware engineering and sales through layoffs, but it will probably also need to hire more software engineers to certify its software to work on a much broader number of servers and their peripherals.

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