Server sales surge throughout federal market

Sales are off the charts in the federal server market.

At Zenith Data Systems, a company that entered the server market two years ago, sales have jumped from $2.5 million in 1994 to $11 million in 1995. "In 1996, we are projecting that in our federal world, sales be well over $60 million," said Ray McDuffie, director of marketing, public sector.

"Server sales for about the last two years have been growing by 50 percent every six months," noted Tim Seppi, territory manager for the Server Division of NEC Technology Inc. NEC manufactures Intel Corp.- and reduced instruction-set computing (RISC)-based servers.

"Most agencies coming to us want the high-end line," Seppi said. "We cannot give them enough power. We keep coming out with faster servers, but the customers keep gobbling up the CPU power." NEC servers are in use at the Internal Revenue Service, the Labor Department, the Air Force, the National Institutes of Health and Congress.

Gary Newgaard, director of federal sales for Compaq Computer Corp., which claims to be the most entrenched federal server vendor, also testified to the strength of current sales. "Servers are a real active market," he said. Sales of Compaq's ProLiant 4500 midrange server "have been phenomenal." Compaq's server gear is featured on the General Services Administration schedule and such indefinite-delivery, indefinite-quantity contracts as the Navy's PC LAN+.

Just what qualifies as a server may be fueling - possibly inflating - the reported sales figures. Some workstations, for example, can be used as print and file servers.

Servers run the gamut from Pentium and Pentium Pro machines to top-end symmetric multiprocesing (SMP) machines. A purchase at either end of the server spectrum requires a significant investment.

The popular ProLiant servers offered by Compaq on the GSA schedule start at just more than $11,000 for the company's new Pentium Pro-based 5000 line, which was announced early this month. At the higher end, powerful servers such as Digital Equipment Corp.'s 300 MHz 64-bit AlphaServer 8400 SMP server can run up to $1 million, depending on configuration.

Growth Factors

Server sales of the magnitude now reported in the federal market are a new phenomenon. Industry and government executives report a number of factors behind the surge:

* The consolidation of servers supporting single applications into a single machine.

* The demand for Internet servers.

* The government's continued push into network-based applications.

"Servers are the heart of the network," said Dave Balleweg, program manager for Telos Corp.'s Army Small Multiuser Computer II (SMC II) contract, which offers Zenith Data Systems servers. "They can hold applications and not burden end-user systems with memory that utilizes every component," he said. If the trend toward this type of architecture continues at the current pace or "shifts quicker, sales may increase to a 50-50" server-to-desktop ratio.

Howard Epstein, director of systems integration for NCR's state and federal team, pointed to server consolidation as a trend.

"Server sales are going to be accelerating, as we are moving out of the initial phase of pure client/server arrangements with application interfaces on workstations," Epstein said. "We'll see a trend through the end of the century where workstations will be getting smaller and smaller, and applications will start to move away with more deployment to servers which provide scalability and are more economical," he said. NCR holds the Treasury Department's Treasury Multiuser Acquisition Contract (TMAC), which carries servers.

Federal user John Luckett, manager of the LAN Systems Group at the Federal Reserve Board (FRB), said this is indeed the trend within his operation as well as among many of his counterparts at other agencies.

"We have a number of servers at the FRB, and we use servers for all types of applications, from file servers to print servers and applications servers, such as database servers, electronic-mail servers and CD-ROM servers," Luckett said. "These are what we call application servers, and they are just for storing network applications, such as Lotus [Development Corp.'s] Notes and [Netscape Communications Corp.'s] Netscape. We are really trying to centralize applications."

Luckett's organization uses servers from Compaq and Dell Computer Corp.

More and more servers are being sold for just this type of use. "There has been dramatic growth over the last 24 months among departmental or workgroup servers," said Mike Hewitt, director of the Direct Marketing Division for Oracle Corp. The company views this trend as an opportunity to market its database products, which reside on a range of server platforms.

Alan Bollinger, technical director for Digital's federal operations, agreed with this assessment. Bollinger views the server market as composed of three server types based primarily on application: high-end scientific servers, mid-range database and dedicated application servers.

Servers in the latter two categories are being snapped up throughout the government, Bollinger said. "Virtually every agency we are selling to has midrange requirements."

But even at the high end, federal demand is brisk.

"The marketplace for SMPs is exploding at the moment," said Mark Seager, an assistant department head at the Energy Department's Lawrence Livermore National Laboratory.

"The cost/performance numbers are some of the best in the marketplace." The laboratory runs database servers, file servers and application servers, he said.

Another niche in the server market is what Sequent Computer Systems Corp.'s Dan Twomey called "business communications" servers. "These are messaging or Web servers that came out of a desire to give more people access to information," said Twomey, who is manager of business development at Sequent. Sequent's servers are used at the Federal Aviation Administration and at the Treasury and Justice departments.

"Internet servers are big," added Digital's Bollinger, whose company last month introduced a midrange, RISC-based 4100 AlphaServer, which starts at a fraction of the cost of Digital's 8400 - $44,500.

This price buys a 300 MHz Alpha processor, 128M of memory and a 2G disk. Digital is marketing the 4100 as an application server, network file system server or Internet server.

Compaq's Newgaard agreed that server sales involving Internet applications are growing rapidly. "But the most explosive area we are looking to capitalize is not Web sites but internetwork server sites. As we package database products and Internet operating systems, we are making it easy for a customer to bring that solution up and tune it for his environment. That is where the appeal is for the customer."

Demanding Market

Although server sales are explosive, selling servers involves a lot more effort than pushing desktop devices. Servers have a lot riding on them; the average machine supports 50 to 200-plus users. "If the server goes down, everybody is down," McDuffie said, "so people are sensitive about making a server choice."

ZDS is forging into the server market with its Z-Server MX symmetric multiprocessing server series. The company's server products are available through the Army's SMC II and other vehicles.

In addition, federal users are not comfortable enough with the technology to purchase servers as a commodity. As a consequence, they are demanding a great deal of engineering and overall hand-holding when they purchase servers.

"Server sales don't tend to work like, 'Oh yeah, send me 40 of them.' It's not like PCs," Balleweg said. "Most agencies are building enterprise groups, putting together a number of different workgroups of 40 to 50 people."

Mark Miraglia, director of federal sales at Sequent, agreed. "Sequent's point of view is that many customers, when faced with a large engineering job, don't want simply a vendor but a partner that brings a lot to the table."

"Compaq has worked hard to integrate solutions onto a platform as opposed to lofting technology into the marketplace," Newgaard said.

Sales in the lower end of the server market, however, get a lot closer to the ways of desktop markets than do high-end server sales, said Everett Dyer, a vice president of Pyramid Technology Corp. "In terms of procurement, the midrange to lower end of the server market has more commodity practices, like those seen with workstations and Pcs."

The last two years have also brought changes to the way the government buys and uses high-end servers, Dyer said. "We are deeply installed in the IRS," he said. "And we are seeing them go to an IDIQ-oriented procurement system because they believe they pay too much in single-source, value-added procurements."

Pyramid has sold more than 300 server systems to the IRS, many under TMAC, which contains the company's Nile 100 and 150 series.

In all, the IRS has purchased 987 server-class machines, according to an IRS spokesman.

"One of the major trends I see is a move from total solutions from a single source. Those days are gone forever. Solutions are too complex, and there are too many choices for anyone to be the single source on any technology," Dyer said.

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Jones is a free-lance writer based in Arlington, Va.