High-End Servers Battling to Win Financial Firms

Both IBM and Sun Microsystems have recently announced new high-end servers that mimic mainframe functionality, that hold promise for the financial services sector, but given the mood on Wall Street, their timing could have been better, experts say.

Sun announced its Sun Fire 15K server-also known as Starcat-on Sept. 25, and IBM quickly followed up with the Oct. 4 release of its new Regatta server, officially known as the P690.

The negative effect reverberating in the economy since Sept. 11 will cost manufacturers sales in the near term, said Ed Broderick, an analyst at the Robert Frances Group. “The computer vendors didn’t do a lot of sales activity in the last two weeks, no matter who they are,” Broderick said, referring to the two weeks immediately after the attack. While “when you go out and replace machines [after a disaster], you replace them with the newest stuff that you can get,” still the net effect on sales from the disaster will be negative, he said. “I don’t think Wall Street lost as many machines as sales that will be lost through the downturn in the economy.”

Merrill Lynch analyst Tom Kraemer is also concerned about near-term demand issues. “Nobody is going to swap a mainframe right now to put in a Sun server because the budgets are under huge pressure.”

But there is an argument to be made that switching from mainframes to servers could save money for Wall Street firms by enabling them to replace custom-built legacy applications with new, off-the-shelf systems that are cheaper to maintain while providing new functionality. Keeping a mainframe running also involves licensing fees and maintenance, both of which could also be reduced by switching to a high-end server.

Also, a company could consolidate server operations, using the new servers for data centers and the old, smaller servers for other applications, according to David Littlewood, Sun’s director of worldwide financial services.

But a major sales driver for both IBM and Sun-and, possibly, Hewlett Packard-is Wall Street’s ongoing push for straight-through processing and T+1.

Despite the ailing economy, STP spending is still up significantly over last year, said TowerGroup analyst Dushyant Shahrawat, and he expects it to recover quickly from the effects of the Sept. 11 disaster and the current spending slowdown.

“A lot of the sell-side firms are hurting because commissions and spreads have declined,” he said. “In this environment, automation for the sell side is absolutely key in maintaining profitability.”

This opens an opportunity for servers.

“Mainframes aren’t necessarily designed for real-time processing,” said Sun’s Littlewood. Decimalization and STP are also expected to further increase transaction volumes, said Eric Mathre, Sun’s financial industry technology manager. “The need for this kind of system is going to be even more important.”

The Starcat features 106 processors, the reliability of a mainframe, and three times the through-put of any competitive system, according to Sun. By comparison, IBM’s Regatta has 32 processors, and HP’s Superdome, released at the beginning of this year, has 64.

During the past few months, as service providers and dotcoms have been cutting back on systems purchases, the financial industry has become a top target for server marketers, according to Gordon Haff, an analyst with the Aberdeen Group. “Financial industry customers place a particular premium on attributes such as availability,” Haff said. The Starcat system, he said, has redundancy built in, so that no single failure can bring down the system, which becomes more important as systems get bigger.

“If there’s a large mainframe-based transaction processing system, somebody isn’t going to go in overnight and port that application to a totally different architecture like a Unix server,” he said. “But what you do see happening is old custom applications being replaced by next generation applications and moved over to Unix systems such as the Starcat.”

The IBM Regatta also provides mainframe-like reliability and even “self-healing” technology, company officials said. “Our focus is to keep running,” said Joel Tender, IBM’s program director of technology assessment. And IBM maintains that its processor is more powerful than its Sun equivalent.

“Without a question in my mind, we’re faster than they are,” said Tender. Analysts confirm that IBM is strong when it comes to its new chip technology. “Sun no longer writes the rules and the competitive landscape has been leveled with IBM’s Regatta,” said UBS Warburg analyst Don Young.

The release of new systems by Sun and IBM, as well as the confusion surrounding the impending merger between HP and Compaq, might signal that HP is losing ground in this high-end server war. But HP executives insist that they remain competitive. They point to the Sept. 18 release of a new PA-8700 processor for its Superdome server, which, the company said, will double productivity gains in industry benchmarks.

“Their processors, while they’re Sun’s latest generation, are a generation behind what we offer in Superdome,” said Mark Hudson, HP’s marketing manager for HP servers. “When you talk about high-end systems, you’re also talking about the human side-the support and services capability. That’s an area where HP has shined, specifically compared with Sun.”

And IBM’s new system requires new operating systems and new applications, he said, not all of which will be immediately available.

“Customers buy the server to run an application, to solve a business problem,” said Hudson. “If the applications aren’t there, it will pose a challenge for them as to how quickly they can ramp up their business.” By comparison, he said, since HP’s Superdome shipped this past January-and the operating system shipped even earlier than that-the applications and the ISPs are there for customers to use and rely on.

That’s not a real issue, argued IBM’s Tendler. The Regatta’s operating system merely adds functions-such as the ability to run Linux on individual partitions-enabling existing operations to continue to function. Those applications have to be tested for compatibility, he agreed, but said he expects all the major vendors to be online when the Regatta starts shipping later this year.

HP also reacted to the Sun and IBM announcements with a program to entice its customers to move to the HP platform by adding an additional 10 percent to trade-in offers.