Gateway Delays Server Shipments

As a born-again Gateway Computer continues on its quest to return to profitability by next year, one way it hopes to do so is by going against the herd.

August 6, 2004

4 Min Read
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As a born-again Gateway Computer continues on its quest to return to profitability by next year, one way it hopes to do so is by going against the herd.

The company has done as much this week when it opted to delay shipments of its servers with the new Intel E7520 and E7350 chipsets, code-named Lindenhurst, which are designed to provide improved I/O, memory and bus technologies on the new Xeon processors released in June. Gateway rivals Dell, HP and IBM moved new Xeon servers out the door Monday in tandem. Also defying its rival server vendors, Gateway, like Dell, is reticent to follow their lead in jumping into the 64-bit AMD Opteron camp, either, despite AMD's best efforts, Gateway officials told VARBusiness.

It is not the wrath of Intel that has kept Gateway from embracing Opteron, officials insist, pointing out that the company already offers AMD-based PCs. Rather, the company is not convinced there's a big enough market for Opteron at this juncture. At a time when the company is still in the red, it can ill afford to place any risky bets, says Tim Diefenthaler, Gateway's director of enterprise and server products.

Right now, Opteron's key niche is high-performance computing and specialized niche solutions, Diefenthaler says. Until there is evidence of growing use for horizontal solutions suited for midsize enterprises with 2,500 seats and fewer, Gateway doesn't plan on rolling out Opteron-based products. "If AMD can grow some share on the business side, there's certainly an opportunity for us," Diefenthaler says.

Now that Microsoft's 64-bit extensions, which were expected to ship next quarter, will likely not ship until next year, the urgency has lessened. But it's not for lack of trying. AMD has persistently tried to convince Gateway to roll out an Opteron-based server. "They have a good sales pitch, they say, 'Look, Intel gives Dell the [MDF] money, Dell grows market share. Where's your market share going?' " Diefenthaler says, noting he is monitoring the progress of Opteron and is open to revisiting the issue. "We're more than willing to talk to them about possibilities."As for its decision to delay shipment of the new Xeon-based servers, Diefenthaler says releasing them despite the fact that the chipsets might not recognize all PCI Express adapters would only lead to consternation by customers and channel partners that could surface a year or two down the line as customers add new adapters. "With the support nightmare that we would incur, we decided it wasn't worth it," Diefenthaler says.

Colin Lacey, director of strategy for industry-standard servers at HP, defended his company's decision to roll out the new Xeon-based servers, noting its tests have not found any PCI Express cards that are not compatible with its systems. But to ensure customers don't encounter problems down the road, HP has coded instructions into the systems' BIOS that would prevent a server from booting should an incompatible PCI Express card be found.

"We expect to see very little nonsupported configurations actually happening in the marketplace," Lacey says. While the systems won't be upgradeable to address the bug fix, Lacey is hopeful that the benefits of the new servers--higher processor frequency, a faster front-side bus, improved management and cooling, and better availability and redundancy--will outweigh the PCI Express issue.

Meanwhile, Gateway is preparing to release what could be the first new PC based on Intel's new BTX architecture. Designed with a new air-flow module designed to keep virtually every component cooler, the chassis has 2 120-mm fans that run at 40 percent of the speed of its ATX-based counterpoints. "And they are a lot less noisy," concedes Ken Loyd, Gateway's director of business marketing. The system will ship next quarter. The company has not disclosed pricing.

Overall, company officials say they have a plan to return to profitability next year by putting in place much of the supply-chain and manufacturing efficiencies employed by eMachines, the company Gateway acquired last year. While consolidating overlapping product lines, eMachines will be Gateway's retail product line while the Gateway brand will be used to further its presence in companies with 2,500 and fewer users. The plan also calls for expanding its push into the channel. Currently, channel partners represent 15 percent of sales, but given its SMB push, the company is looking to grow that, says Tiffani Bova, Gateway's senior director of SMB channel sales and marketing, who just joined the company last month. "My No. 1 goal is getting the foundation built," she says.Key product areas will include notebooks, desktops, servers and storage, primarily on the Windows platform. While Diefenhaler hasn't ruled out a bigger push into Linux next year, it's not top of mind for now.

"Gateway has to become profitable," he notes. "The focus is, let's sell the core technology that our sales team is comfortable with."

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