HP Spurns Intel

@ 2004/09/28
By Seth Jayson (TMF Bent)

Add a chapter to the sad tale of Intel's (Nasdaq: INTC) sorry 2004. Today, longtime partner HP (NYSE: HPQ) admitted it would be dropping the beleaguered, 64-bit Itanium chip from its workstation lineup. Instead, HP will sequester Itanium chips to its high-end servers. At the lower end, it will use a mix of AMD's (NYSE: AMD) 32-64 bit combo Opterons and the similar, backwardly compatible Intel chips.

If that sounds like a small indiscretion to you, remember that HP spent years shacking up with Intel to work on this very chip. HP will continue to use it, but the decision to play the field on this particular line of machines sounds like the beginning of a long, messy affair.

The writing was on the wall some time ago, when AMD's 64-bit chips began selling like crazy because of not only their earlier appearance on the market but also their compatibility with the existing 32-bit software that still dominates the market. In other words, buying Opteron meant businesses didn't need to switch all their system software right away.

In explaining the HP decision, a spokeswoman told The Wall Street Journal that customers prefer this approach. As they say on the playground, "Well, duh."

The Itanium's reception was so frosty that Intel was forced to copy AMD's approach back in February, but by then, server makers such as IBM (NYSE: IBM) had already decided to start using the AMD chip. And it's a good thing, since Microsoft's (Nasdaq: MSFT) 64-bit Windows won't be arriving anytime soon.

While an Intel spokesperson countered today that the workstation market was never that important for the Itanium, it sounds a bit like doubtful, self-soothing posturing of the spurned. After all, in addition to servers, IBM, Sun Microsystems (Nasdaq: SUNW), and others currently offer workstations built on the Opteron.

Intel has already bulked up inventory while watching AMD gain market share. So the financial fallout from today's announcement may be minimal, but investors need to wonder whether the litany of goofs, gaffes, and the recent revenue whiff will be stopped anytime soon.

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