June 13, 2002 12:05 PM PDT

Top-end server group comes home to HP

In the early 1970s, a Hewlett-Packard employee named Jimmy Treybig left the company and founded ultrahigh-end server maker Tandem Computers. More than two dozen years later, the company he started has returned to those HP roots.

Tandem--whose high-reliability servers can be found running the New York Stock Exchange's transaction system and America Online's login and e-mail systems--lost its independence when Compaq Computer acquired it in 1997. And now, with HP's acquisition of Compaq, Tandem has become HP's NonStop Enterprise Division. That works for Treybig.

"If you'd asked me in 1994 who I wished would acquire Tandem, it would have been HP...I loved HP," said Treybig, who left Tandem before the Compaq buyout.

The success or failure of HP's integration of what was once Tandem will be a litmus test for some of the advantages HP has promised from its $19 billion merger with Compaq. HP plans to move its NonStop servers to Intel's Itanium processor, hopes NonStop sales will tow along sales of lesser HP machines to prestigious accounts, and stands to benefit from NonStop services revenue.

Early indications of HP's integration approach will be visible Wednesday, when the company will announce new NonStop systems, the S76000 and S86000, sources familiar with the plan said. The new systems will come with faster processors, quadruple the memory capacity, and better networking abilities than the S74000 introduced in 2000.

NonStop servers, which can accommodate thousands of processors, handle some of the world's most demanding tasks--running the security systems of New York's three major airports, for example, and ATM networks for several major banks. Competition comes chiefly from rarefied systems such as Sysplex groups of IBM mainframes.

NonStop systems almost always cost more than $1 million, according to IDC analyst Jean Bozman, and in 2001, NonStop servers accounted for 8 percent of the $11.9 billion market for servers priced at those levels.

"It's always nice when the company across the street acquires you."
--Pauline Nist
General manager of HP's
NonStop Enterprise Division
The former Tandem's servers pulled in $1.2 billion in revenue in 2001--probably $1.5 billion including services--according to Pauline Nist, general manager of the 1,500-person division. That's a comparatively small fraction of the $81 billion in total revenue HP and Compaq collected that fiscal year, but NonStop servers give HP a foot in the door for new deals.

"We're always going through the customer list looking for cross-selling opportunities," Nist said, and now NonStop can take greater advantage of the fact that the systems are often paired with HP's Unix servers.

Geography will help. The Compaq division that Tandem became was, and is, based in Cupertino, Calif., right across the street from HP's Unix server group. "It's always nice when the company across the street acquires you," Nist said, adding that she relishes the fact she'll no longer have to fly to Compaq's Houston headquarters.

pauline nist And the NonStop could boost HP's other servers, products under fierce competition from Dell Computer, Sun Microsystems and IBM. HP and its inherited Tandem team have an "engineering simpatico," a heritage of building finely crafted, elegant machines, said Illuminata analyst Jonathan Eunice, and if HP is smart it will learn from the Tandem team.

"If HP is successful," Eunice said, "they will do the same thing IBM has done with bringing mainframe technology to its pSeries (Unix servers): They will adopt it and say, 'Please teach us how to do this.'"

Hoping history won't repeat itself
Treybig and others in the Tandem community believe HP will do a better job than Compaq in supporting and benefiting from the Tandem systems. "I think Tandem is better being a part of HP than Compaq," Treybig said, deriding early Compaq decisions such as using a PC sales force to hawk Tandem's gigantic systems. Under Michael Capellas, though, things got better.

Tandem under Compaq initially was a "disaster," said Gary Bonhiver, a 24-year Tandem consultant and president of GoodWinter Database Architects who has helped customers such as Safeway, Wells Fargo and John Deere use the systems. But HP has better prospects.

"Compaq just didn't know how to sell them," Bonhiver said. "HP, I think, has a much better reputation in the industry. It's not received just as a PC maker. They know how to market and sell major systems and already have connections within the large corporations."

Yves Rouchou, chairman of the ITUG user group for NonStop customers, saw Compaq's efforts change for the better. "At the beginning with Compaq it was very difficult, but they improved after one or two years," he said. "We think the new HP understands the needs of the big enterprise."

Rouchou has more than passing curiosity for the success of the server line: He runs a NonStop 74000 system at the heart of the Euronext stock, bond and commodity trading system for France, Belgium and the Netherlands.

Rouchou has been working with Tandem systems for more than a decade, but many NonStop community members have been around longer than that.

The early years
Treybig got the idea behind Tandem while still working at HP, where he became a salesman for HP's first 2116 computer systems after joining the company right out of Stanford. His boss was marketing chief Tom Perkins, who left to form pioneering Silicon Valley venture capital firm Kleiner & Perkins, now Kleiner Perkins Caufield & Byers. Perkins is also Tandem's former chairman and was a Compaq board member.

Treybig followed Perkins, and became Kleiner Perkins' fifth employee, spending two years there working on the Tandem idea. At HP, Treybig saw customers lash two HP servers together so one would take over if the primary system failed. These customers would replace the standard operating system with custom-built software, causing all sorts of support problems. Treybig thought such a setup could be created with standard computer hardware and software, replacing these exotic one-off systems.

"You could build an operating system that wouldn't fail and would be standard software," Treybig said. But to make the idea feasible, the systems had to be designed with the goliath input-output capabilities of mainframe computers, he said.

"I used to dream Tandem failed and HP put me in a cage in its front entryway."
--Jimmy Treybig
Tandem founder
Treybig launched Tandem in 1974, with half the first 18 employees coming from HP. He also hired three gurus to design the system. Mike Green had also been at HP, where he had created its first time-sharing computer, a system that could work on several jobs simultaneously by quickly switching between different tasks. Jim Katzman, too, had been at HP but had become head of mainframe maker Amdahl's input-output work. And Davie Mackie had been working on custom systems for discount retailers in Europe.

"The three of them put together the architecture of the Tandem. There's still nothing like it," Treybig said.

Indeed, Illuminata's Eunice said, Tandem succeeded at an extremely difficult task, one nobody has yet been able to do as well. Tandem's technology can simultaneously distribute a gigantic database across numerous independent processors while supporting high volumes of transactions.

"Tandem's the only one who whacked at vastly parallel databases and was able to do online transaction processing at the same time," Eunice said.

But Tandem couldn't sustain its early growth. By the mid-1990s, revenue had flattened out at about $500 million a quarter, and Tandem had undergone rounds of layoffs, cutting hundreds from a staff that had grown to 9,500.

"In the early days," consultant Bonhiver said, "Tandem had much better growth because there were so many different kinds of (computer systems) out there, it didn't stand out as this weird, niche platform. Now everything is all Sun or (Windows) NT and some mainframe."

Hewlett-Packard never offered to buy Tandem, but it's clear HP was always in the back of Treybig's mind. In fact, recurring visions of HP would come to Treybig in his sleep.

"I used to dream that we failed, and (HP) put me in a cage in the front entryway," Treybig said. "It was my nightmare."

Treybig initially proposed a buyout to Compaq, thinking Tandem couldn't survive on its own and that Compaq's thrust toward services and direct sales matched Tandem well. But Compaq wasn't interested at the time, and Treybig left Tandem in 1996, the year before Compaq changed its mind. Treybig now is a partner at Austin Ventures in Texas.

The next phase
The products coming next week were developed during the Compaq years, but HP will oversee a much bigger product launch as the NonStop servers are rebuilt around a new processor.

The S76000 and S86000 coming next week will both use the MIPS R14000 processor, a chip designed by struggling server maker SGI. Future systems, the S78000 and S88000 due in 2003, will use a faster MIPS chip, HP said.

The big change will come in 2004, when NonStop releases systems code-named "Yosemite" using Intel's new Itanium family of processors, a product line HP invented before handing the design to Intel to commercialize. In 2005, the Yosemite systems will be upgraded so the operating system takes advantage of the Itanium's 64-bit design.

The Tandem machine has had a rocky road when it comes to switching to a new processor. In the 1990s, the Tandem team had planned to switch to the Itanium line and was actively helping Intel settle design requirements. But things changed under Compaq, which directed a switch to the respected Alpha processor when it acquired the Alpha along with Digital Equipment in 1998.

But when Compaq deep-sixed the Alpha a year ago, the remnants of the Tandem team had to abandon their years of Alpha development work and dust off the old Itanium plans.

"It's a bit of back to the future," the NonStop division's Nist said. Fortunately, though, Intel preserved the features that the Tandem machine needed, including the ability for two processors to run in lockstep, checking each other's work.

Much of the HP advantage will come through the Itanium connection, Nist said. HP is building Itanium Unix servers and has critical technology such as the ability to run Java server programs and "compiler" software--software that translates human-written programs into instructions computers can understand.

"We've been lusting after their compilers for years," Nist said. "On Sept. 5, the day after the merger was announced, my compiler people wanted to go across the street" to talk to the HP compiler teams.

And with HP's clout, the NonStop née Tandem team also will have more sway in persuading Intel to build features it needs into Itanium processors, Nist added.

Itanium holds the promise of systems that use more standard hardware, thus permitting more standard software and lowering overall prices. But some fear there could be performance problems.

"Itanium will definitely lower the cost per transaction," said Thom Birdsell, president of FTS Unlimited, which has for 20 years connected Tandem programmers with companies needing work done, more recently branching out to sell some types of Tandem systems. But Birdsell has concerns that Itanium won't work as well as the Alpha in large systems.

"If you'd asked me in 1994 who I wished would acquire Tandem, it would have been HP."
--Treybig

The Itanium NonStop systems will be phased in gradually, with HP selling the S78000 through at least 2005 and supporting the MIPS-based systems through at least 2010, HP said. And the new Itanium systems will run older software with no changes, a strategy Tandem employed when it moved to the MIPS line in 1990.

Other server components are changing as well. The "ServerNet" technology that links processors with one another and input-output systems will be improved with each generation of new systems. Storage systems also will be able to use the StorageWorks line that HP sells with its other server lines.

The ZLE challenge
Another challenge for HP will be grappling with the "Zero Latency Enterprise" initiative spawned at Compaq to use a Tandem system to stitch together a large company's other databases--letting a change made in one be reflected instantly in another. ZLE could join formerly disparate databases for projects involving manufacturing process control, customer buying records, product support or Web site sales.

"There's been a lot of confusion out there in terms of what exactly ZLE is," Birdsell said.

Airline reservation company Sabre Systems and retailer Target both have used ZLE, and Nist said the idea's potential helped to sell many systems, even if customers haven't yet used it.

"I would say ZLE was probably to some significant degree responsible for our ability to grow the business" in 2001, in which revenue increased 4 percent when the overall server market shrank dramatically.

And the pressure is on for NonStop to continue to deliver. Overspending in the manic dot-com years has punished its two biggest markets: financial services and telecommunications companies. Birdsell says he now sees offers for about five Tandem jobs per week compared with about 25 a week in the late 1990s.

ZLE has been aimed chiefly at telecommunications and retail companies, but HP will push it into manufacturing companies now, Nist said. The poster child for the effort will be HP itself, which is dovetailing HP and Compaq manufacturing systems with a single NonStop server.

How well HP manages tough business decisions will be crucial to its merger success, Treybig said, speaking from personal experience.

"Hopefully (Carly Fiorina) knows how to fire," he said, referring to HP's plan to cut 15,000 jobs as a result of the merger and the limping economy. "Basically, you've got to get your costs to your revenue level. Some CEOs see that and do it, and some don't. If you don't, you fail."

 

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