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Intel launched the second version of its Itanium processor Monday, trying once more to carve out a business for itself in the lucrative market for high-end workstations and servers.

Intel officials say at least 20 vendors will offer Itanium 2 systems in the coming weeks and months--including Hewlett-Packard, IBM, Unisys, and Unisys Fujitsu Siemens Computers--along with operating systems including Microsoft's Windows, HP's HP-UX, and Red Hat Linux.

But cracking the high-end server market, where RISC (Reduced Instruction Set Computing) chips from Sun Microsystems, IBM, and others hold sway, won't be an easy task. Business customers in particular are wary of new technologies, and need to be convinced that the systems and software being offered are stable and reliable enough to run their critical applications, analysts say.

Because of that, and because many of the systems and software products will be rolled out gradually in the coming months, analysts predict a gradual uptake for the new chip.

"The primary issue is having something that's stable and trusted," says Dean McCarron, president of Mercury Research in Scottsdale, Arizona.

First Impressions

Intel's first 64-bit chip, launched in May last year, for the most part failed to impress. It was released behind schedule, its performance was lacking, and systems and software being offered were too new to inspire confidence among end users, analysts say. Moreover, server vendors were wary of designing servers around an architecture that was expected to change a year later with the release of the current chip.

This time around the story looks more compelling. Thanks to several design improvements, Itanium 2 should perform from as much as 50 to 100 percent better than its predecessor, according to Intel test results, although those have yet to be verified independently. Intel applied the lessons it learned with the first chip and, "as a result, Itanium 2 is a significant improvement," McCarron says.

The software also has had time to mature a little, notes Nathan Brookwood, an analyst with Insight 64 in Saratoga, California. Vendors including Microsoft, IBM, Oracle, and SAP offered versions of their software that ran on the first Itanium and have had a year to improve the performance and stability of those products, other analysts say.

Nevertheless, "this is not like shooting fish in a barrel," Brookwood says. Because the chip is new, Intel needs to demonstrate that systems based on Itanium 2 can offer the performance, reliability, and scalability that customers demand from servers that are priced from $20,000 to $1 million or more. "In theory they do, but they need to get some customers out there using these products and then circulate the success stories," he says.

Lending Support

Some Intel partners were enthusiastic. Microsoft sees Itanium 2 as key to its own efforts to reach into higher-end markets with its products, says Velle Kolde, lead product manager for Windows Enterprise Servers. Later this month the software maker will release Windows Advanced Server Limited Edition 2.1, which is tuned for the new chip, he says. And later this year it will release two versions of Windows .Net for Itanium 2, one of which will run on up to 64 processors and support up to 128 gigabytes of addressable memory.

Other vendors expressed confidence in Itanium 2, but don't expect a fast payback from their investment.

The 64-bit version of Windows .Net "is what everybody is waiting on," says Frank Reichart, director of Intel server marketing at Fujitsu Siemens Computers, which will offer a 16-way Itanium 2 server. Since the Microsoft software won't be available until the end of the year, "the majority of software vendors will not be out with applications until mid-2003, and I don't see the Itanium 2 market take-up until then. We are releasing systems earlier so larger organizations can evaluate them."

The market for Itanium 2 systems "will be a small market in 2003, with some potential in 2004," he says.

On Hold

Indeed, Kevin Krewell, general manager at In-Stat MDR in San Jose, California, says some customers may wait for the next version of Itanium, code-named Madison, which is due in mid-2003. That chip will offer further performance enhancements, including a 6MB memory cache, or double that of Itanium 2, Intel has said.

For Intel the stakes are high. Almost 9 out of 10 servers sold today use Intel processors, according to research company IDC, in Framingham, Massachusetts. But those systems account for only about 40 percent of server revenue, since RISC-based servers such as those made by IBM, Sun, and HP tend to command higher prices. Intel hopes to snatch a piece of that higher-end business away from its rivals.

Intel officials expressed confidence that Itanium 2 will succeed. Among key improvements, the chip features a large memory cache of up to 3MB that is tightly integrated with the main processor, along with a faster system bus that increases data throughput from the 2.1 gigabits per second of the first chip to 6.4 gigabits per second. Those enhancements should boost the performance of large databases, business intelligence software, ERP (enterprise resource planning) applications, engineering design programs, and other software, says Mike Graf, Intel's product line manager for Itanium 2.

The chip was launched in three versions: a 1-GHz chip with 3MB of Level 3 cache carries a list price of $4,226; a 1-GHz chip with 1.5MB of Level 3 cache priced at $2,247, and a 900-MHz chip with 1.5MB of Level 3 cache priced at $1,338. Those prices are similar to those of the first Itanium, and are "the going price for this kind of chip," according to Brookwood.

Product Plans

HP, which is one of Itanium 2's biggest backers, has already tuned a version of its HP-UX operating system for the chip and will offer a server with two Itanium 2 processors and up to 12GB of memory priced from $6,730. A system with four processors and 48GB of memory will be launched in August starting at $21,000, HP officials say.

The price-performance combination offered by Itanium 2 servers, particularly in four- and eight-processor systems, will put pressure on RISC server vendors, and particularly on Sun, which has no plans to offer Itanium 2 systems of its own.

"It will in the long run be Sun's worst nightmare, but that's not something that plays out over the next 6 months," Brookwood says. "It begins to play out over the next 18 months--and in 5 years, unless Sun makes some substantial changes in its strategy, it's going to be a big problem for them."

Sun maintains that it will take years for Intel-based servers to become as scalable and reliable as its own Unix servers, which come packaged with an array of management and administration software. And like IBM, Sun has cut prices on some of its own Unix servers to compete more effectively.

Waiting and Watching

Support for Itanium 2 wasn't unanimous: A spokesperson for Dell Computer says the company has no immediate plans to offer an Itanium 2 server, and will wait to see how demand for the systems shapes up from customers.

Dell's specialty is to sell relatively low-cost systems in large numbers, whereas Itanium 2 is aimed at more-expensive servers that will sell in lower numbers, notes McCarron. So while Dell may be the world's largest server vendor, its absence from the ranks of Itanium supporters is just a symbolic setback for Intel, he says.

"In this computing space the volumes are relatively small and development times are quite long, so I wouldn't expect the absence or presence of any one vendor to dictate how Itanium 2 is going to fare," McCarron says.

Martyn Williams, Peter Sayer, John Blau, Ashlee Vance, Laura Rohde, and Matt Berger all of the IDG News Service contributed to this report.

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