A failed Technology joint venture sets the tone of tech in coming years– HP shifting last of Itanium engineers to Intel
Balaji Reddy, Special Correspondent
December 16, 2004

The joint Itanium chip for servers’ projects just did not sell. It is a technical innovation and a commercial flop

Hewlett-Packard Co. and Intel Corp. on Wednesday ended their 10-year partnership to co-develop the Itanium chip for server computers, following disappointing sales of the product. HP's Itanium development team, with several hundred engineers, will be acquired by Intel and remain in Ft. Collins, Colorado, the companies said on Wednesday. HP will continue to use Itanium chips in its servers and will pledge $3 billion over the next three years in developing Itanium as a competitor in the $20 billion high-end server market.

Following more than a decade of joint development with HP, Intel released the first Itanium chip in 2001 to an unenthusiastic market. Years of delays on the project had meant that subsequent generations of other Intel chips offered superior levels of price and performance, many analysts have said. For Palo Alto, California-based HP, cleaving off the last of its Itanium design team frees it from concern that the close relationship between HP and Intel put HP's server rivals at a competitive disadvantage, said Rich Marcello, who runs HP's business critical systems group. "There was a disadvantage in terms of other (server manufacturers) feeling like the Intel-HP relationship was a little too close," Marcello said. "This kind of levels the playing field in terms of microprocessor development." HP is winding down its other microprocessor architectures and getting out of that business entirely, having settled on using Intel's Itanium, Xeon, Pentium and Celeron processors, as well as Advanced Micro Devices Inc.'s Opteron, Athlon and Sempron chips. 

With the announcement, HP will focus on developing high-end server systems, and Intel will focus on microprocessor development. "It's kind of a divide-and-conquer approach, if you will," said Richard Dracott, general manager of Intel's enterprise marketing and planning group. HP released its last upgrade of its own PA-RISC microprocessor this summer and sell systems based on that chip through 2008. In 2006, HP will stop selling servers based on its Alpha chip, which it acquired with its purchase of Compaq Computer. By settling on Itanium, and with the $3 billion investment in pushing its Integrity servers that use Itanium, the moves will allow HP to compete more aggressively with International Business Machine Corp.'s servers that use its Power microprocessors. About 75 percent of that $3 billion is earmarked for research and development, with the rest allotted for expanding the number of applications on the market that run on Itanium, and for sales and marketing, Marcello said. Of all Itanium-based servers, HP now holds about 60 percent market share.