IBM plays price war game with Dell

IBM is launching two Intel servers Monday squarely in the stronghold of Dell Computer and Hewlett-Packard, using the aggressive pricing strategy that proved effective against Sun Microsystems.

The two-processor-capable x235, with one 2.2GHz Xeon processor and 512MB memory, costs 14 percent less than a comparable product from Dell, IBM said. IBM also began selling the four-processor-capable x255, IBM's first model that automatically can fire up spare memory if a primary component fails.

Price wars can be bruising, especially against the formidable efficiencies of Dell. The PC maker used the strategy to wrench market share away from Compaq Computer, a company which still holds the top spot in the Intel server market. IBM is in third place after HP, which acquired Compaq's ProLiant Intel server line, and Dell.

But price wars can play in IBM's favor, especially with its push toward more powerful Intel servers and its Global Services division to smooth over revenue gaps. In the higher end of the server market, IBM successfully used deep price discounts to regain market share from Unix server top dog Sun Microsystems.

About $4.6 billion was spent on Intel servers worldwide in the first quarter of 2002, according to IDC.

IBM's new servers are good for lower-end server tasks such as hosting e-mail or sharing files over a network.

Both IBM's new servers use chipsets from Broadcom subsidiary ServerWorks, IBM spokesman Tim Dallman said. The systems come with Microsoft Windows or Linux.

A lower-end version of the x235 costs $3,724 with one 2.2GHz processor, one 18GB hard drive, 512MB memory and redundant power supplies. A version with two processors, three 36GB drives, 2GB of memory and other features costs about $7,800.