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Change In The Wind

The server hardware business isn't always as staid as it may seem; just over the past week, for instance, we've seen two companies in this sector that are looking to change their stripes, and servers may end up being very key to each of them.

One, of course, is Hewlett-Packard, possessor of such a big chunk of worldwide server market share. HP turned last week to NCR president Mark Hurd to take over the reins and decide what to do about the company's sprawling strategic initiatives. Hurd comes with two qualifications for the job in the eyes of HP's board. One is that he's a noted cost-cutting turnaround artist who pulled NCR out of long-standing doldrums. The other one is probably more important, though: He Ain't Carly. Hurd's low-key, at-his-desk style is the very antithesis of former HP head Carly Fiorina's high-profile, high-maintenance style; you aren't going to see this guy pushing for the cover of every business magazine, hanging out with world leaders or living on the corporate jet.

Right now, that's probably just what HP needs. Hurd will be charged with figuring out how to pare HP back down to some level of essentials, and what he chooses to do with the server business will figure very, very large in those decisions. Servers have been a profit center for the company just based on sheer volume. But the server market is also an intensely competitive business where margins are probably going to shrink rather than grow, because so many server boxes can be commodity items nowadays and the more specialized ones, such as blades, suck up a lot of R&D and marketing dollars before they pay off. Hurd will be under some shareholder and, maybe, board pressure to consider spinning off profitable HP operations. Does he make the move? We won't know for a while; stay tuned. This will be interesting.

The other company is Gateway, which is pulling itself out of the doldrums of its wildly diffuse all-things-to-consumers strategy in part by concentrating more on developing an enterprise line of servers and storage components. With the release this week of its 9415 entry-level server for midsized companies, the company says it has a pretty complete line and is ready to compete with all comers on both price and capability. Of course, that's just more competition in an already-cutthroat market. But Gateway has definitely steadied its ship since new CEO Wayne Inouye took over last year and started getting rid of the wilder ideas, and they've seen a couple of profitable quarters as a result. There's still plenty of server business to go around in the small and midsized company space, and naturally everybody wants it. But if enough of those firms see Gateway as more than a TV cow and a desktop line, they may find their niche there as well. This will be another story to check back on down the road.