HP FoxConn Deal Could Elbow Out Cloud Server Rivals

Hewlett-Packard’s (HPQ) recent deal with FoxConn to make cloud servers aimed at service providers could help the systems giant to elbow out white-box makers also engaged with the Taiwanese manufacturer selling to the likes of Amazon (AMZN), Facebook (FB), Google (GOOG) and Rackspace (RAX).

The U.K.’s Register reported that HP now believes its Scalable Systems lineup is too feature-rich for service providers who don’t require bells and whistles but instead prefer sleek, custom-built white-box systems. Essentially, service providers want raw power delivered in large volumes at favorable prices.

The Register quoted Iain Stephen, HP EMEA Servers vice president, as saying, “The service providers at the top end see no value in that [unnecessary] technology."

HP is setting itself up to tussle with a cadre of Asian ODMs, such as Compal, Quanta and Wistron, who command as much as 80 percent of the cloud server market—building white boxes for as many as 20 service providers globally, most of which operate in the United States.

It’s business from these service providers, led by heavyweights Amazon, Facebook, Google and Rackspace, that HP wants to get more in on. And, the motivation behind the FoxConn deal is to supply HP with more leverage to compete against Taiwan assembly lines cranking out machines for server farm customers, the Register reported.

"This deal with Foxconn gives us the ability to capture some demand with the right products at the right cost in a faster way than we could, and at a scale most of our enterprise customers can't comprehend," Stephen said. "Unless you can address the SP [cloud service provider] opportunity in volumes and without losing money, it is a fairly significant threat to the traditional vendors over the next three to five years."

The strongest cloud server market opportunity for HP may reside with delivering cloud servers through channel partners to second- and third-tier service providers in Europe, Stephen said. Reportedly 50 percent of HP’s server business to second- and third-tier service providers in Europe goes through the channel.

"This is very important for Europe because most of our service providers there are tier two and [tier] three," Stephen said.