Don't write off the Unix server market just yet.
Sales for servers running the decades-old Unix operating system aren't growing as quickly as those that run on Microsoft's Windows and the open-source Linux. But recent maneuvers by large server vendors show that Unix is still a big business -- and showing new signs of life.
The $16 billion-a-year market, which comprises everything from workstations to high-end servers, has long been a three-way race between Sun Microsystems, Hewlett-Packard and IBM. The contest intensified over the last year as Sun tried to keep its footing, HP held its own and IBM gained.
Now all three vendors are looking for signs that recent bets they've made -- gambits the other two rivals call crazy -- will pay off this year:
IBM is counting on its Power line of chips to provide better bang for the buck than rival vendors. The firm controls every part of the process, from chip design to manufacturing. Rivals say IBM can't afford to do this for long.
Sun also designs its own chips, called Sparc. But it has been shifting some of that burden to partner Fujitsu to cut costs.
Also, it's giving away its flavor of Unix, called Solaris, including a version that runs on cheap Intel-compatible machines. It's a bid for market share, which it hopes will spur hardware and service sales.
HP is touting gains for servers powered by Itanium, a chip it developed with Intel. The chip is widely mocked by IBM and Sun, but HP says it's gained quickly on Sun's Sparc and IBM's Power families in several key measures.
"The Unix market is still a very competitive market," said Don Jenkins, who heads HP's Unix strategy.
This market is a confluence of two separate technologies: the Unix operating system, created by Bell Labs in 1969, and the RISC, or reduced instruction set computer, chip design created by IBM in the 1970s.
Like the combo of Microsoft's Windows and Intel's x86 family of chips -- often called Wintel -- Unix and RISC have worked so well together that the names are used interchangeably to describe their segment.
For years, Sun enjoyed a commanding lead in the market, which it helped commercialize in the 1980s. It cashed in on the segment's fast rise in the 1990s as firms looked to RISC machines running Unix to run their Web sites and power their most crucial operations.
Sun and the Unix market as a whole took a hit in the wake of the dot-com crash. As the market languished, HP took the lead in 2002, bolstered by its landing of Compaq.
Meantime, IBM had been gaining. Emerging from near bankruptcy, IBM's executives in the late 1990s decided to reinvest in its stagnant RISC chip lineup, called Power. At the same time, IBM set out to improve its version of Unix, called AIX.
The first fruits of these efforts appeared in 2001, with the launch of Power 4, a big upgrade from earlier Power chips. Power 5 came out in September.
IBM Powers Up
"Power 4 got us into the game," said Adalio Sanchez, general manager of IBM's Unix business. With Power 5, "we doubled down when the market was retreating."
HP led the Unix market in the third quarter, typically its strongest, according to market tracker International Data Corp. But the fourth quarter is usually IBM's biggest, and the firm expects to take the top spot when final 2005 numbers are in.
Others question whether IBM can keep investing in Power. Designing a chip is expensive, especially when it involves actual manufacturing.
"Every other vendor has come to the conclusion that it's too expensive to stick with proprietary chips," said HP's Jenkins. "Sooner or later, investors are going to ask them why they are spending so much money on something that doesn't matter to the consumer."
IBM executives disagree. Having its own chip has helped IBM stand out. And it's why IBM leads the Unix market, they say.
IBM can spread the costs by making versions of Power that run everything from supercomputers to game systems. Whether those chips will have enough similarities to create economies of scale is unclear.
Historically, all the server makers have built their own versions of RISC chips and Unix. That's expensive. Many companies have looked for ways to shift those costs elsewhere -- or exited the market.
"When I started covering this space in the mid-1990s, there were almost 15 Unix vendors," said Jean Bozman, an analyst with International Data Corp. "Today, it's down to a top five."
She adds that the top three -- IBM, HP and Sun -- account for 90% of the business.
HP dropped its RISC line in favor of Itanium, which was designed to become an industry standard. But HP remains its biggest user.
That has brought ridicule from rivals and some analysts. But HP says the Itanium business, barely three years old, is already catching up to Power and Sparc. Sales of Itanium systems are 34% of Power's and 47% of Sparc's, says IDC.
Those numbers include Itanium systems sold by other companies, including IBM. And Itanium systems can run on Windows and Linux, not just Unix.
Sun, like IBM, is sticking with its own chip design. But it's shifting some of that work outside.
By making an Intel-compatible version of Solaris, Sun is taking advantage of the economies of scale of outside chipmakers. Its low-end systems use Intel-compatible chips from Advanced Micro Devices.
Sun will keep in-house the design for its highest-end Sparc chips, which promise big brainpower that doesn't suck up a lot of electricity.
An even bigger gamble is Sun's decision last year to give away Solaris under an open-source license.
It hopes the moves blunt the rise of Linux, a Unix-like operating system that has hurt Sun more than other Unix vendors.
Linux has grown fast because it resembles Unix and runs on cheap computers. Many techies like Linux because it's free to use and tinker with.
The success of Sun's gambit will be harder to measure. Most market surveys tally operating systems sold with hardware. Because Solaris is free, Solaris may wind up on systems sold by other vendors.
Sun's bet is that many of those will like Solaris so much, they'll turn to Sun for support and other services.
"The business model is simple," said Don Graham, who heads Sun's services business. "The work is getting Solaris out there."