US downturn boosts European Unix sales

European users are buying more Unix servers at lower prices, thanks to the slowdown in the US economy.

Written by Bryan Glick, Computing

Computing, 29 Apr 2001

European users are buying more Unix servers at lower prices, thanks to the slowdown in the US economy.

The latest quarterly financial results from Sun Microsystems and IBM, plus a profits warning from Hewlett Packard (HP), confirm that a server price war is developing, as predicted by Computing.

Mike Lehman, chief financial officer at Sun, said the company has been forced to discount its products in response to deep price cuts from rivals.

The move led to a one per cent drop in Sun's gross margins and contributed to a 73 per cent reduction in profit, said Lehman.

Compared with the same quarter last year, US companies were spending 15 per cent less on Sun products, while European sales increased by 16 per cent.

Sun's overall revenue grew by just two per cent compared with the third quarter 2000, a huge drop on the first two quarters of its fiscal year, when revenue grew by 60 per cent and 44 per cent respectively.

The company also announced price cuts of up to 16 per cent on its older servers using the Ultrasparc 2 chip, reducing the cost of a 24-processor system by $100,000. The cuts follow the launch of its Ultrasparc 3-based Sun Fire range last month.

IBM, meanwhile, seems to have avoided the slowdown. Its first-quarter results showed that sales of the pSeries range (formerly the RS/6000) had increased by 33 per cent compared with the same period last year. Overall, Big Blue's results gave a boost to the technology sector, showing a 15 per cent increase in profit.

IBM chief executive Lou Gerstner said the company's diversity had protected it from rivals' problems. "Many in our industry have been a bit carried away over the last few years by the exaggerated expectations of the internet world," he said.

HP has been hardest hit. Chief executive Carly Fiorina said that revenue will drop by up to four per cent in its second quarter and that about 3000 managers will lose their jobs.

Fiorina blamed falling consumer spending on PCs, but said that HP's high-end Unix server business will see a slight improvement.