With 2004 fast approaching, now seems the perfect time to look ahead at what the new year will bring. So we gazed deeply into our crystal ball, only to have it spit out a "blue screen of death" that left us unable to reboot. We then turned to our trusty, and manual, Magic 8-ball. Ever reliable, it responded "REPLY HAZY, ASK AGAIN LATER." When pressed further for a comment, it responded "SIGNS POINT TO YES."
While that might seem vaguely positive, the outlook for changes to the enterprise hardware landscape amounts to more than a simple yes or no question. So we looked inward and spoke with vendors and analysts to come up with what believe will be the 10 underlying trends for the server hardware landscape in 2004.
1. More Servers in the Rack, Virtually: Dickens aficionados (or those who recently endured a meager holiday meal) may recall Tiny Tim's optimistic attempts to turn a single pea into a full-course family meal. Virtualization aims for the same magic, dividing CPU power between resource-hungry tasks. In 2004, virtualization will be used to optimize a wider array of applications, according to Mike Mullany, vice president of marketing for VMware. This year, the technique was applied primarily to file, print, DNS, and DHCP servers. With new capabilities available in virtualization products, says Mullany, in 2004, CIOs will deploy virtualization en masse in a wider general IT infrastructure, virtualizing a diverse assortment of products from Exchange servers to business processing and ERP applications.
2. Viruses and Spam in One Convenient Package: Viruses and spam set new records in 2003. They will not abate in 2004 and instead will begin coordinating their efforts. According to Chris Belthoff, senior analyst at Sophos, the recently enacted CAN-SPAM Act will have little luck canning spam, but it may have the unwanted consequence of pushing virus authors and spam senders into closer cahoots. "The convergence of spam and viruses will likely continue in 2004," says Belthoff, "with more and more attempts to use viruses to set up networks of machines capable of sending out the spammers' messages." Belthoff believes spam's new status of illegality may cause Hotmail and Yahoo! to crack down, forcing increased spammer reliance on viruses (e.g., trojans) that transform increasing numbers of innocent machines into unwitting spam servers, which Belthoff grimly refers to as "spam zombies."
3. Cost Cutting to Survive "Upturn": A continued lack of spending enthusiasm may have vendors thinking it's the CIOs who have become zombies. Signs of economic optimism, like IDC reporting two consecutive quarters of increased server sales, will not dramatically increase 2004 hardware spending. Cost cutting measures like increased virtualization and Linux deployments are on the rise, and a wider outsourcing trend is developing, as evidenced by recent moves like IBM's $600 million ING outsource contract. And with 2006 now the projected release date for Longhorn, administrators who time upgrades with new Microsoft releases may focus on making more with what they have in 2004.
4. Linux to Continue Its Growth Spurt: Precluding a swell in sales of alpha versions of Longhorn on the black market, the new Microsoft operating's far-off release date provides another shot in the arm for Linux. Red Hat's faster release cycle may prove a valuable edge over Microsoft. If the popular Linux vendor can continue to shake off SCO's legal challenges, Linux will likely score major victories in the operating system turf wars looming for 2004. CIOs are increasingly granting the open source operating system their trust, as evidenced by IDC's report of 49.8 percent growth in factory revenue and 51.4 percent growth in unit shipments year-over-year for the third quarter. Red Hat's new 2.6.0 Linux kernel will better serve multiprocessor and 64-bit server environments, which will increase its general appeal, as will Linus Torvalds' recent official blessing on the 2.6.0 kernel.
5. IT Will Matter for 2004 (and Beyond): Some would downplay the overall importance of market changes of this kind. Nicholas G. Carr sparked debate in May when he suggested that "IT Doesn't Matter" in an article published in the Harvard Business Review. We believe his assertion that IT will increasingly assume the characteristics of commodities, like railroads or electric power, is mistaken, as it belies the complexity lurking under the blanket term "IT." Evolving business models require IT innovation, pure and simple, and commodity-leaning trends (like outsourcing and on-demand computing) will remain pieces of the overall complex IT pie in 2004.
6. More Blades Round Out the Arsenal: Commodity visions like Carr's also ignore the micro-level diversity inherent in the server room. Server blades are a great example of this. Gartner predicts that by year-end 2008, blades will achieve standardization on the major component level (e.g., chip sets, power supplies, fans, and backplanes). However, an overall interoperable standard for blades isn't yet on the road map. Such standards run contrary to the business needs of major vendors as they allow too-cheap competition into the arena. For 2004, Gartner, anticipates reductions in premium pricing, increased clarity for heat generation and power consumption issues, and blade virtualization capabilities that will push blades out of their niche market status.
7. Intel to Further Box Out Sun SPARC: Based partly on server blades' reliance on its x86 technology, it's not a big stretch for us to believe that Intel will further consolidate its market advantage over Sun SPARC in 2004. According to IDC, Intel-based server sales are up 8.3 percent, and x86-based shipments are up 21.4 percent. Meanwhile, Sun's market growth is down 9.3 percent, and its Unix sales are down 10.1 percent. Sun's 17.4 percent increase in unit shipments, when matched with these sales figure reductions, demonstrate an abandonment of a SPARC-centric strategy as Sun looks to develop its x86 standing. The 2005 scheduled release of Montecito should provide future icing on Intel's growing cake.
8. Appliance Computing to Continue Its Decline: Sometimes even the most confident predictions can prove wrong. Sun's recently completed demolition of its Cobalt line marks the end of the not-long-ago highly touted appliance computing trend, which demonstrates the industry's wider acceptance of the low, but not quite that low, end x86 market. Sun's confident end-of-lifing of the line for which it traded around $2 billion in stock more than hints at Auld Lang Syne for appliance computing.
9. More Modular, Less Mainframe: Mainframes may be moving toward being another "old acquaintance" best forgotten. IDC's 2003 third-quarter report showed small and midrange servers revenue increasing as high-end revenue declined. Trends toward utility computing and outsourcing amplify this, as the room for error in pay-as-you-go models may be too small for questions like "Will we need to lease another mainframe this quarter?"
10. Boxing Out the White Box Market: As server appliance failures demonstrate, thinking modular is no guarantee of success. The focus on low-end servers for companies like Dell, Sun, and Gateway will continue to edge out white box vendors in 2004. Dell's revenue growth of 11 percent in the third quarter of 2003, as reported by the IDC, shows this strategy in successful action. Sun's third-quarter sales improvements also clustered in the entry-level server area. Meanwhile, revenue growth in IDC's "Other" server category declined 4.4 percent, delineating a decrease in overall white box sales. This trend will intensify as industry players endeavor to ensure that overall cost cutting measures don't cut them out.