Intel chips a tastier option for Compaq servers

Compaq is pulling out of the processor business, with Intel stepping in to provide chips for its future server offerings.

Current Alpha development projects will continue, but the division responsible for developing the 64-bit server chip will be transferred to Intel, complete with staff, equipment and intellectual property.

Compaq will continue to build new Alpha-based servers until 2003. The company will continue building NonStop Himalaya systems based on chips from MIPS until 2004, at which point it will shift to processors based on Intel's Itanium chip

The news is part of an overall strategy, outlined in an internal memo from chief executive Mike Capellas, revealed by news site The Inquirer, to reorganise the company and focus on delivering services.

The company has set aside money for acquisitions, but other departments are also likely to face the axe as the company focuses on its new mantra - simplification.

The combination of Compaq's Tru64 Unix operating platform with SANworks - its strong offering in the storage area - and Intel's Itanium chip should be a compelling offering, says analyst Phil Dawson, programme director at the Meta Group.

"A chip is a chip at the end of the day," he said. "It's more about operating systems and applications, and other services. If Intel can address the issues better than others, then it makes sense to use [Itanium]."

The move will require an expensive migration for existing Alpha users, who in most cases will have to recompile their applications - a process which can potentially take months and cost millions of pounds. Compaq will have to manage the transition carefully if it is to keep hold of users during the changeover.

The company is committed to producing the EV7 version of the processor, but if a mass exodus of users begins now, there may not be any customers left by the time EV7 ships in 18 months' time.

The Intel alliance also strengthens the opposition to Sun, which will be the main competitor to Intel in the high-end server market.

Dawson foresees a further consolidation in the Unix server market, with only two major platforms in three years - Intel and IBM.

"The Compaq offering won't be the technical best on the market, but it will be the commercial best," said Dawson. "The techno-religious guys are going to be pretty annoyed, but the business guys will be happy."

"Intel must be smirking," he added.