Ahhhhh. Nothing like a RetailVision to sharpen the mind and soften up the kidneys. But that aside, just the personnel updates can be worth the price of admission. Indeed the merry-go-round has not stopped and in some cases it has sped up as both companies and people seem to be changing right before our very eyes. So, again, it's a good thing that we have things like RetailVision just so we can update our databases. (You're right though - that is an expensive data input strategy but how else would we be able to stay up-to-date on the always changing carousel. Ok, get the scorecards and update the latest changes, and btw, feel free to provide updates back to me if I missed anyone.

PRODUCT SPOTLIGHT

RHINOTEK

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Genuine RHINOTEK products will save your customers up to 48% on Printer Cartridges and are backed by a 100% Quality Guarantee. Rhinotek's INKJET and LASER cartridges always meet or exceed the performance of the Original Equipment Manufacturers for Brands such as; HP, Canon, IBM, Brother, Apple, Lexmark, Epson, and Memorex. Rhinotek offers great profit opportunities for reseller partners.

To become a RHINOTEK Partner please contact Larry Grella at rhinotek2000@yahoo.com, or visit our website at www.rhinotek.com.

PRODUCT SPOTLIGHT

Lexar Media

Digital Film Designed Specifically for the Professional Photographer
Today's professional digital cameras capture the highest-resolution images ever, at lightning-fast speeds. The large image files they produce, however, can load your camera's buffer and ultimately make you wait to take the next picture. For the professional shooter who needs immediate confirmation they've captured "the shot" or who wants to identify accurate exposure, levels, or bracketing range - Lexar Media's patented 12X and 16X write speed (1X=150KB/sec.) technology (1.5MB/sec. and 1.8MB/sec. transfer rate respectively) is critical. Ideal for fast-paced applications such as photojournalism, sports and fashion, Lexar Media's Professional Digital Film brings out the ultimate performance from your professional equipment.

Solid-state Design With Built-in USB Intelligence, 100% CompactFlash Compatible
Lexar Media's solid-state design provides the ultimate reliability in harsh shooting environments mandated by professionals throughout the world. With built-in USB functionality, Lexar Media's JumpShot connection kit can quickly transfer your large images to your computer quickly and easily - up to 25 times faster than a serial cable connection - providing you more shooting time. You also save camera battery life by eliminating inconvenient tethered downloads. Lastly, Lexar Media digital film is 100% compatible with the CompactFlash format, so it can be used with digital cameras and other digital devices that support the CompactFlash format, such as PDAs, video recorders and MP3 players.

Lexar Media Offers Great Profit Opportunities For Resellers Partners
Lexar Media is the only company offering a complete, end-to-end solution for digital photography. We are uniquely positioned in the marketplace, offering superior speed, capacity, ease-of-connectivity and guaranteed compatibility for all digital film types. Lexar Media products perform with all major digital cameras from leading manufacturers, including Canon, Casio, Epson, Fuji, Kodak, Nikon, Olympus, Sony and Yashica. Call today to find out how you can start making more profits with Lexar Media.

For information regarding becoming a Lexar Media partner, visit our Web site at www.lexarmedia.com, or call Tim Sullivan,(510) 580-2362, or email him at tsullivan@lexarmedia.com.

NEWS

Retail Vision RoundUp - The Coolest Products and Scoops!

RetailVision Spring 2002:
The first observations are that this show is a little smaller than days gone by. Same excitement, same smell of billions of greenbacks in the air, but less people, maybe a bit more exclusive. I think people and companies are staying away because they think they're saving money. Nothing could be further from the truth. When times are bad, winning companies increase their marketing and R&D investments.

I spoke with a few of the RetailVision folks and they say it was a little harder sales effort than in years past. Lots of companies waiting for the "turnaround" before committing to RetailVision. This is one more example of people using their best thinking to get them INTO a jam, rather than out of one. Waiting for the turnaround so that you can invest will always leave you behind the winners when it turns. There are some interesting new companies and products who are investing now, for the turnaround. Oh, by the way, the turnaround will happen. Lead-pipe cinch.

Now, on to what's hot.

Palm made a big statement for the third-party software guys. They must have figured out that they had ignored the software guys long enough. Declining market share will do that to you. Can they hold the market share they have, with Handspring moving into "communicators", Microsoft/Intel/TI launching a smartphone reference design later this year, and Compaq/HP becoming the real big corporate handheld player overnight with their merger? This looks morelike a defensive move by Palm. We were told that it was their first RetailVision in years. Crazy, they need to be at RV.

There's a cool piece of software from Final Draft, for screenwriters and other writers. It's not new but they're now establishing a channel presence. You have no idea how many people write, with the hope of generating another "Rocky", or "Good Will Hunting". It's a really big hobby. And most of them use this product. Nichey, but very cool, with semi-broad appeal. Should be on most shelves in "A" markets.

These guys at Imation have the absolute killer gizmo, a whiz-bang 512MB removable DataPlay storage device about the size of a quarter for consumer electronics and PDAs! This is a fabulous new technology and will be revolutionary for MP3 players, digital cameras, eBooks, and digital camcorders. If that's not all, they have a Program Manager named Wayne Newton (yeah, he takes a lot of stuff about his name). Good guy. You channel players, watch for this one. Smoking hot. Oh, yeah, its going to street around $10 for 512MB. Big article this week about it in The Wall Street Journal - Walt Mossberg's column. Fanning the flames.

We also saw this Collabridge service that connects manufacturers with their resellers. ASP model, very hot way to build product-specific individual treatment. Real one-to-one marketing on the reseller systems. A great way to deliver the message and control the content from manufacturer to reseller…and to the end-user customer. They claim to be delivering an average 24% uplift for their partners.

The boys from J&R tell me that the hottest SKUs at retail are PAPER!! What's driving this? Color printers, another hot SKU. And driving color printers is the huge demand for Digital Cameras. J&R opened a new camera store in New York (after 9/11) to support customer needs.

Navman has a mix of GPS devices for handhelds and mobile computing. Really a great add-on. You resellers with a strong Compaq Ipaq, or corporate handheld business ought to look at this stuff. Tons of outside sales applications and contractor types buying this stuff. Larry Metz, longtime channel good guy is taking them to retail. Knocking them dead on the UK with a 25% attach rate. Beefing up average selling prices and margins for the resellers there.

Net Objects was at RetailVision as a re-start. The product has always been highly regarded, but now they've been purchased by a big company, with a real staff and some great ideas. These guys are serious about playing in the channel. With both guns blazing, they are taking on Microsoft Frontpage and Macromedia Dreamweaver for the top spot in web design software at retail. These guys have a chance, too.

Soundgear has the neatest piece here, though, a big win for a company new to retail. They are going to take on Polycom with a conference phone ideal for a desktop in an office, rather than a conference room. A tiny 5-inch footprint and great sound quality, together with a hot street price of $249 will make this puppy pop. Retailers, jump on this one. And they're based in Fresno. Who wouldn't want to help somebody from Fresno?

In all, there were lots of newbies at RetailVision. New vendor companies and new attendees. This phenomenon showed up in the surprising attendance at RetailVision University. The seminars were standing room only. On Wednesday, a room seating 50 people had 48 people at 10AM and 53 at 11AM. Suspicious that my chain was being pulled, I showed up and counted heads. I must have trust issues…

Some very familiar regulars were spotted, who are always there to support the channel. People like the Digital River team led by Jay Kerutis, and the team from Targus, who threw another one of their famous parties (Although not as crazy as the last one.).

Among the retailers, is there anyone nicer (or more savvy) than Amy Steindler from AOL or Geoff Westerfield from Computerware? And does anybody have drier humor than Steve Giblin of J&R? We all visited at the Ingram party. Smaller party than earlier years, but a fabulous headliner…this guy Wayne Brady was great. What a tremendously talented guy, improvisational humor, singing, impressions. A terrific package. Our host at the party, Ingram's Dave Nally, was gracious as ever.

And there were some conspicuous absences…the rebate brethren at Continental Promotions were AWOL, but Mike Metro and his team from TCA were there to take up the slack. Good rebate house, from my personal experience and that of my clients.

The marketing suppliers were all over the place as always…Ellen Miller, Richard Miles, Bruce Koenigsberg, Max Wurz, and all the other folks who grease the wheels of progress for both new and established companies.

Steve Cross, Greg Quick and Keith Newman were among the contributors to this piece. Did we miss some hot stories at RetailVision? Got a new product or offering for the challenge send us your elevator pitch (or something like that) to keithn@telocity.com.

RETAIL DIGEST

Amazon, Microsoft, DVD sales trends, Ritz, Digital River, AMD, BestBuy
By ChannelMedia Staff

Up and Down: Amazon.com said sales increased 21 percent from last year but a net loss of $23 million, or 6 cents a share, compared with a net loss of $234 million, or 66 cents per share, in the year-ago quarter. Net sales for the first quarter were $847 million, up 21 percent from $700 million a year ago. The company, which posted its first net profit of $5 million in the fourth quarter, easily beat analysts' expectations for this quarter.

Talk to the Hammer: Microsoft and AMD will work together to ensure Windows supports AMD's Hammer family of processors - a key step if AMD's winning share away from Intel-based PC and Server products.

Rent: Consumers rented more DVDs in the first quarter of 2002 than they did in the entire year of 2000, according to figures released on Tuesday by the Video Software Dealers Association, an industry trade group. The DVD format accounted for a total of $633.7 million in rental revenue during the first quarter of 2002, up 126 percent from the $280 million in revenues for the same period last year and surpassing the total DVD rental revenue of $569.8 million for the entire year of 2000. DVD's share of the home video market, which includes the VHS format, is now 29.2 percent, up from its 12.4 percent market share in the first quarter of 2001. For more see www.vsda.org.

Silicon Valley's Newest Solution: Drop Off Used, Working Computers Destined to the World's Poorest Schools. 'PC's for Peace' -- the first public event hosted by the World Computer Exchange (WCE) gives Bay Area residents a convenient and tax-deductible way to contribute their used computers to support students in Asia, Africa and Latin America. WCE seeks caring Bay Area residents and companies to support 'PCs for Peace' to help the world's poorest youth bridge the disturbing global divides in information, technology and understanding. Details and event location maps are provided on www.pcsforpeace.org. Computers must be working and at least 50 MHz so that the schools can use them to connect to the Internet. Individuals interested in volunteering to help should contact Bala Aryan: baryan@worldcomputerexchange.org or 650/867-5069. Address other inquiries to Anne-Catherine Yon, WCE's Bay Area Coordinator: Ayon@WorldComputerExchange.org or 650/387-3781.

SONICblue hired Greg Ballard as executive vice president of marketing and product management, reporting to Ken Potashner, CEO and chairman, SONICblue. Ballard served as chief executive officer at 3dfx, where he grew revenue from $4 million to a run-rate of over $400 million over a three-year period, and subsequently served as chief executive officer at MyFamily.com, a successful subscription based Internet service.

Ritz Interactive, which runs RitzCamera.com and WolfCamera.com, recently acquired one of its major competitors PhotoAlley.com. "We look forward to maintaining the strong community aspect that has made PhotoAlley.com such a popular destination, while considerably increasing the product selection and e-commerce functionality," said Fred H. Lerner, president and CEO of Ritz Interactive. According to Lerner, the PhotoAlley.com branding and URL will remain the same in order to leverage the Web site's well-established brand and existing customer base. This is the second major acquisition for Ritz Interactive within the last year. In October 2001, the Irvine-based company acquired WolfCamera.com (www.WolfCamera.com), the Web's number two photo specialty e-tailer. Ritz Interactive's flagship site, RitzCamera.com (www.RitzCamera.com) is widely recognized as the number one online shopping destination for photographic products and accessories.

Digital River has acquired certain assets and related liabilities of CCNow.com from a wholly owned subsidiary of Innuity, Inc., a privately-held, single source provider of e-commerce services to small businesses and channel partners. Digital River expects the acquisition to be neutral to the company's earnings in the first quarter of 2002 and accretive to earnings commencing in the second quarter of 2002. The acquisition further expands the company's e-commerce presence in the small to mid-sized enterprise (SME) market. "This acquisition is a continuation of our strategy to build critical mass in the SME market, adding thousands of clients to Digital River's e-commerce platform," said Joel Ronning, Digital River's CEO. "As we execute against our acquisition strategy, we've demonstrated that we know how to drive revenues and volume through our e-commerce system while maximizing efficiencies and resources both for Digital River and our clients. This is a business model that works because it's built to scale and it's based on an outsourcing proposition that makes strong financial sense."

Advanced Micro Devices said its mobile AMD Athlon XP processor will be the first AMD processor manufactured on its state-of-the-art 0.13 micron technology. "Extending the award-winning AMD Athlon XP brand name to our mobile lineup conveys the overwhelming success our flagship AMD Athlon processor family represents," said Ed Ellett, vice president of marketing for AMD's Computation Product Group. "AMD has always focused on providing what matters most to business and home consumers: leading-edge software application performance and an exceptional computing experience. AMD's transition to 0.13 micron technology allows us to provide a roadmap to higher performance and lower power options." Sharp Corporation has announced notebook PCs in Japan based on the new mobile AMD Athlon XP processor. Other computer manufacturers, including Epson Direct and Packard Bell, are expected to offer new notebook PCs featuring the mobile AMD Athlon XP processor later this quarter. The mobile AMD Athlon XP processor based on the 0.13 micron technology maintains Socket A and pin compatibility with AMD's mobile processors manufactured on 0.18 micron technology, while adding a 266MHz front-side bus option to enable greater data throughput. In addition, a low power version of the mobile AMD Athlon XP processor, with a new micro Pin Grid Array (uPGA) packaging, is sampling now and expected to enable AMD to address the thin-and-light notebook market. "The launch of the mobile AMD Athlon XP processors based on 0.13 micron technology on Socket A consolidate the company's position in the consumer market, and the upcoming mobile AMD Athlon XP processors based on the micro Pin Grid Array packaging position AMD for a strong thrust into the mobile corporate market," said Shane Rau, PC semiconductor analyst at IDC.

Is Best Buy going fishing? Rumors are swirling that Best Buy is looking to acquire Kingfisher's two electrical goods chains - Comet in Britain and Darty in France. A sale to Best Buy could generate enough cash for the debt-laden British group to buy full control of French DIY chain Castorama, in which it holds a 55% stake. Last month, new chief executive Sir Francis Mackey told investors the group was "reviewing key strategic issues, in the best interests of shareholders and employees". Sir Geoff noted there was "significant potential" in Castorama. "We'll make decisions as soon as we can." Fair enough.

Supercart announced the national introduction of its full size all-American shopping cart made of high impact plastic. http://www.newstream.com/cgi-bin/display_story.cgi?5558.

Channel Media Q & A

Q. Digital River is emerging as a winner from the e-commerce shakeout. What are you doing right?

A. Digital River provides a scalable, reliable e-commerce solution combined with leading-edge, expert e-marketing services and consultative account management proven to grow companies' businesses. We are doing a lot of things right within this effective and unique business model:

We offer a strong value proposition: We help clients develop e-commerce operations that generate revenue, decrease expenses and improve customer satisfaction for a fraction of the cost of building and maintaining an in-house solution. For instance, clients that use our outsourced systems avoid the financial risk of building their own e-commerce capabilities and save up to three quarters of the cost it would take to develop and implement the capabilities internally. In addition, we can bring them to market in weeks, rather than months, and we operate at 99.9 percent uptime.

We are the e-marketing leader in revenue-generating tactics and data analysis: Our expertise at making the technology behind e-commerce work and our focus on our clients' growth really sets us apart from the competition. Clients who use our e-marketing services grow their online revenues up to four times more than clients who do not use these services.

We have proven track record of success: Companies are looking for sound, experienced partners. We currently serve more than 32,000 e-commerce operations for clients that include Fortune 2000 organizations and a majority of the largest software publishers. On a daily basis, we manage 35,000 to 40,000 Internet transactions for our customers and we annually process about three quarters of a billion dollars in online revenues. We also have a seasoned management team and we are disciplined in adhering to sound business fundamentals.

Q. Maintaining growth is harder than it seems. What are your growth goals?

A. In 2002, we expect revenues to total $72-75 million, an increase of more than 25 percent over 2001. We also expect to generate earnings per share of $.23 to $.25, prior to the amortization of acquisition related expenses and certain charges.

Q. How are you planning to get there?

A. Our growth plans are driven by four key strategies:

• Executing revenue-generating e-marketing campaigns: Approximately one-third of our revenues are generated by the internal e-marketing efforts we execute on behalf of our clients. Our e-marketing programs include personalized e-mail campaigns, site merchandising, and reporting and analysis.
• Acquiring companies: The market is ripe with companies looking for exit strategies. Over the past three years we have acquired 11 companies, which enabled us to grow our client base, expand our presence in the small to mid-sized enterprise markets and enhance our current technologies.
• Winning new clients: Many companies are abandoning their current e-commerce platforms because they couldn't get ROI and are looking for outside expertise, and there are still plenty of newcomers to e-commerce.
• Taking advantage of organic Internet growth: Industry analysts project continued strong growth for B2C e-commerce and tremendous potential for growth in B2B e-commerce, as well as an increased trend toward online software purchasing.

Q. What are your biggest obstacles?

A. The economic slowdown and the related delays in IT spending have presented some challenges. However, we believe outsourcing is a particularly strong model for this market. Businesses that use our hosted solution can enjoy the benefit of our proven platform and leading-edge technology, without the significant time and expense of creating an e-commerce operation from scratch.

Q. What is the biggest misnomer that people have about Digital River?

A. I think there has been some confusion between e-commerce providers and dot.coms, and sometimes people confuse us with the latter. I also think that many people aren't aware of the breadth and depth of Digital River's offerings, such as e-marketing, customer service and fraud prevention, and the tremendous value proposition that we offer.

COMMUNITY

The Secret's in the Data
By 6 Degrees

I was having lunch with a colleague last week, another scar-tissued technology marketer talking about the current development of our systems. We were discussing a recent McKinsey article on the relative impacts of technology on productivity. What was interesting was they were struggling to identify many cases of significant returns on investment from technology. This got us onto the subject of a friend's current system implementation, which was not going terribly well, relative to the internal expectations and high-price tag associated with the software. What we got down to was that for what they were trying to achieve there were simpler and better solutions. What they bought was the proverbial "laser to kill a gnat". Will it do this? - Will you buy it if does?

Sometimes simpler is better. The difficulty of many technology rollouts is that they forget to realize where the real secret lies - invariably it's in the data. The better the data strategy, the better the rollout. From experience this seems to hold whether it's a financial system, a demand management system or a marketing database. A coherent data strategy requires investment and not a little senior management decision-time. Companies often leave significant dollars on the table by not fully understanding effective stewardship of the data.

A few of examples may clarify. We were working with one of the major banks on their on-line marketing efforts. One of the first questions was what systems were they using. Two hours and 15 phone calls later we were led to understand that each division had purchased one of the major data management tools and were busy getting them to work with differing levels of success. By failing to aggregate any of the data and abdicate a little of the ownership they were destined to have sub-optimal performance at significantly higher cost, as opposed to fully leveraging the economies of scale of an organization their size.

Another client we work with was so encumbered with differing factions claiming ownership or access rights to the data that the inertia this caused meant that any vendor or hosted solution was destined to fail.

The third example of compromised technology rollout was one that happened quite a while ago when breweries were rolling out computerized measurement of overaqe on beer barrels. Which as this happened in England was a particularly significant issue! The breweries couldn't understand why the technology was having high breakage in the field. A few visits and some gentle probing found out why. The "right" of the landlord was to the overage, so they were bound and determined that the system would break. The pub landlords undertaking their own tests such as disconnecting the system, leaving it in cold store etc, helped this. Remember the system is only as successful as the users desire to implement it!

In an age when technology can be rolled out over the browser and the data can be managed centrally the key is understanding what one wants to achieve and taking a measured and iterative approach to getting there. A critical component of this is understanding what folks in different functions need operationally and determining how to link this back to the cross-functional needs of the organization. The improvements between system interoperability and data interplay mean that the future lies in more in our ability to craft effective working relationships, through the better availability and use of data, than in any single technology or application. This becomes even more critical given the proposed external inter-operability between companies and consumers in both the .net and mono models.

COMMUNITY

Developing a Channel Perspective
By Steve Cross

To a hammer, everything looks like a nail. To me, everything looks like a channel. As a channel guy, I have a channel perspective. Years ago, I was National Sales Manager for Insignia Solutions' retail products. It was a nice line of software, fairly successful. Insignia also had an OEM group that sold software to partners like HP, SGI, and others. The OEM guys were very old-school, big company, adversarial types. Each OEM client was handled like some sort of "friendly enemy". Together, the retail team and OEM team discussed channel approaches. I felt like they could be much more effective if they used channel management techniques on each of the partner accounts, transforming them from friendly enemies to individually managed third-party channels.

A lobbied-for price reduction on the retail software from the Board of Directors came down, driving a sales surge of about 300% over the next 6 months. Looking at this success, I suggested applying that reduction to the partners using a channel pricing approach. The OEM contracts were locked in for 1 year, except for unilateral price reductions. The big job was convincing the partners to pass on the price reduction to customers, by talking about attach rate.

Luckily, the first partner approached was HP, who was very responsive to the pricing change, and immediately saw how they could profit from the price reduction. The Insignia OEM team then used marcom and promos to sell the reduction to HP's sales force, just like you would do a price roll-out in the channel. Of course, the idea of MDF for a partner was a little too radical for these folks. Even so, using channel management techniques, the OEM team at Insignia was able to nearly double their attach rate.

Sometimes a nail really is a nail.

Steve Cross works with mid-sized high tech companies to evolve their businesses. Since 1997 his clients have included Pinnacle Systems, Visioneer, Dazzle, Network ICE, Margi, Aladdin, Outpost.com. He was formerly sales vice president at Connectix. Contact: steve@crosschannel.com 408-528-7211

RESEARCH

The Rise and Fall of PC Prices - Just Where Are PC Prices Headed?
By Toni Duboise, Desktop PC Analyst

The beginning of the second quarter of 2002 marks a truly turbulent time for PC manufacturers and PC consumers alike. Rising component costs foreshadow an era of rising PC production costs and, ultimately, PC prices. Nevertheless, Dell and Gateway continue to tout renewed commitments to low-price leadership. These juxtaposed and apparently irreconcilable markers have necessarily resulted in a chaotic cavalcade of industry speculation. Predictably, industry pundits are split on whether to anticipate yet another PC price war or bank on a minimum ten-percent rise in PC pricing.

In support of the price war, and associated drop in PC prices, is the dynamic duo of direct vendors donning the pugilistic belt of competitive pricing strategies. After a calamitous fourth quarter, Gateway resuscitated its most revered mantra - "we are, we will and shall always be the low-price leader." Gateway's newly re-stated initiatives, as summarized by the company's Senior VP Bart Brown at the company's Analyst Conference last February, requires the company to be consistently priced within five points of the competition and its low-end 300 series, midrange 500 series, and high-performance 700 series all have select models priced below industry leader Dell. The company's strategy was most recently evident in its latest TV spot highlighting the competitively $1,499-priced 500XL Music PC with Gateway's CEO Ted Waitt, accompanied by his trusty bovine, singing a duet of Devo's "Whip It," a campaign designed to emphasize distinct PC applications, coupled with the company's transition to a more "techno" image.

In tandem with Gateway's renewed push, Dell vowed to stay its course on pricing leadership at a recent analyst conference held in New York City. Competitive pricing tactics have been Dell's forte for the past year and a half, and the cornerstone of its ability to increase market share and, ultimately, overtake the top spot as the number one PC manufacturer worldwide despite beleaguered PC market conditions. Admittedly, Dell has not been as aggressive on desktop PC pricing since the beginning of this year, but the fact remains that the direct manufacturer has the where-with-all to reverse that trend at the flip of a light switch.

Of course, much of Dell's past price advantages derive from its proficiency in passing declining component costs directly to the consumer. With Dell's efficient supply chain business model, reductions can be posted on its website without delay since Dell does not have to wait out a dearth of the higher priced component inventories before implementation. This was particularly effective for Dell last year when component prices plummeted as a result of oversupply in an under-performing PC market.

Now, however, component pricing has taken a new turn - upward, that is. The current projection is characterized by speculative PC price increases driven by climbing component costs. Component prices began to rise at the end of last year as inventories started to clear. With the exception of Apple and NEC, which publicly declared PC price increases just recently, there has been no hard empirical evidence of price increases. For the most part, PC manufacturers have been absorbing escalating costs. This is particularly true with DRAM pricing, which rose from approximately $1 to $5 for a 128MB DIMM within a very short time span.

The increased production costs, in practical terms, place an unbearable strain on the desktop manufacturer's ever-shrinking margins. To make matters worse, covering costs did not reward PC makers with an increase in demand. Yet, the most recent market intelligence has component prices leveling off again, meaning that any system price increases implemented now could be offset by a tough competitor like Dell who is positioned to make most of the opportunity by cutting prices to the bone - while still maintaining profitability.

This type of competitive pressure will, in the end, keep PC manufacturers in check, and likely result in a stalemate. While it is highly unlikely that the market will experience another PC price war any time soon, given the overall market condition and component pricing issues, there is undoubtedly more hype about impending price increases than there is execution. The result is a unique conundrum where being first to market might actually be detrimental in light of the competitive nature of the PC industry.

However, PC price increases appear inevitable in order for PC manufacturers to preserve precious profitability, but implementation will most likely surface sporadically in select market segments (such as the high-end consumer and commercial PC markets where performance outweighs price as a key differentiator). In other segments, manufacturers will simply pare down the boosted performance configurations currently offered. Increased prices are most successful when paired with an increase in demand. With consumer demand still lagging, the best strategy for manufacturers is to tread softly where pricing is concerned.

Toni Duboise -- Research Analyst, Desktop PC Industry
As the Desktop PC Analyst at ARS, Toni Duboise tracks and provides analysis for both the desktop PC and Internet Appliance markets. Prior to joining ARS, Toni spent seven years with ZD Market Intelligence, a subsidiary of Ziff-Davis, providing research and analysis for the IT market. During her tenure at Ziff-Davis, she also worked as an analyst in the personal computer industry publishing news articles for ZD Net's Infobeads.com website. At ARS, Toni has published numerous articles addressing trends in the PC and Internet device markets and has received wide recognition for her insightful approach to the market. Her work is often referenced and quoted by media publications such as PC World, Business Week, CNet, and U.S. News.
Contact: tduboise@ars1.com 858-551-0008

New Chips Spawn Growth in Server Market
By Steve Greenberg, ARS Server Analyst

PC vendors are betting that Intel's new server chips will help them win the jackpot by gaining market share and boasting new opportunity and growth in the server market. As technology takes large steps forward and prices continue to fall to all time lows, the server market has turned into a true buyers market.

Competition in the PC-server industry has been quite active recently, a result largely due to Intel's new MP and Xeon chip releases combined with other technologies allowing improved management and reliability. Although the new processors alone set new performance benchmarks for Intel based servers, manufacturers must employ other strategies such as improved system management features, a focus on TCO (Total Cost of Operation), partitioning, and improved hot-swappable components, which boost system reliability and hardware capabilities, to distinguish a competitive advantage in the market.

Although competition in all server segments, including the low-end, midrange, and high-end segments, has been quite heated, the mid-range and high-end market segments are the areas with the most growth opportunity and are the center of attention for PC vendors. Not only have the new chips given Intel based server manufacturers such as Dell, IBM, Compaq, and Hewlett-Packard new platforms to compete amongst themselves with, but the chips have given them leverage to use Intel based solutions to fight Unix competition from Sun and other vendors. In fact, Sun Microsystems, the overall leader for Unix servers in 2001, was pushed out of the top spot in the fourth quarter by IBM, which has revised its product lines to use Intel's new high-end Xeon chips. For a long period of time, RISC-based servers were the dominant choice for Unix applications, but Intel's new chips clearly have widened this gap.

The recent buzz in the server industry is due to the new Intel MP Xeon and Prestonia Xeon chips based on the Pentium 4 core architecture. The Intel MP Xeon chip is designed for multiprocessor servers running four or more chips, while the Prestonia Xeon chip is for use in servers running single or dual processors. Intel's new Xeon MP chip runs at clock speeds nearly doubling that of the chip it replaces, the 900MHz Pentium III Xeon chip. In fact, the MP processors are offered ranging in clock speed from 1.4GHz, 1.5GHz and 1.6GHz, while the Prestonia runs at clock speeds of 1.8GHz, 2GHz and 2.2GHz. By utilizing the Pentium 4 architecture, Intel was able to attain these significant boosts in clock speeds. Compared to the Prestonia chip, the MP packs a few more features geared specifically for servers, including an on-chip Level 3 cache of up to 1MB. For resource intensive applications, such as online transactions, Intel claims the higher clock speed and memory associated with the new Xeon MP processors will help systems offer as much as a 40 percent performance improvement, compared with a Pentium III Xeon with 2MB of Level 2 cache.

Another enhanced feature of both chips is hyper-threading technology, which allows a single chip to execute two applications or processes at the same time. Hyper-threading almost makes a single CPU system act as if it were a dual processor system. One of the benefits to using the hyper-threading technology is that servers with a single processor will be able to get some advantage out of applications that have been designed to run on two processor servers.

However, there is also a down side to the performance; there is still only one patch of high-speed cache memory and one connection to the rest of the computer. A true dual-processor server doesn't face this problem. A clear benefit of hyper-threading technology is its ability to lower TCO in some instances due to software charges that are often based on the CPU count. Although hyper threaded chips are not an equal replacement for dual processor machines, they are much less expensive. Servers equipped with a single hyper-threaded chip differ from dual-processor systems in that two applications can't take advantage of the same processor simultaneously, rather only one application can be performed at a time. Scientific and business applications requiring large resources and high-performance will see the largest benefits from single hyper-threaded chips.

Vendors have taken great steps to adopt the new chips by either refreshing their current servers with the chips or by rolling out entirely new servers based on the chips. For instance, Dell was one of the first to offer the Prestonia Xeon chip in its PowerEdge 4600 server. Hewlett-Packard and IBM followed shortly and have since rolled out products based on the new chips. Intel anticipates that many companies will likely want to consolidate the duties of several servers onto one or two four-way machines, which could ultimately support large scale e-mail systems, databases, scientific applications, etc. However, these chips follow the recent introduction of the Itanium, which has not stirred as much demand as was originally anticipated. From a buyer's perspective, companies also often don't simply run out and buy the latest, most cutting edge server technology in the first few months of its introduction due to the associated high cost and effort involved in procuring and maintaining a server. It is often the case that manufacturers anticipate this, and are patient as buyers wait for new chips to be tested in the field and assured of no glitches or bugs.

Since servers are becoming more standardized, companies must turn to other features to distinguish a competitive advantage. IBM, Dell, Compaq, and HP have implemented other strategies such as new service offerings, improved hardware capabilities, and system management features to separate themselves from the competition. IBM has focused heavily on its project Eliza initiative, which is a major research initiative focused on developing systems that reduce the need of human intervention and can self manage. As a result of the project Eliza features being incorporated into servers, systems will become more efficient, more reliable by increasing up-time, and will potentially reduce the number of IT staff required to administer a company's network. Server partitioning, which was originally available on higher-end mainframe servers, is now becoming available on almost all server segments. Partitioning enables servers to become more efficient by dividing processing resources and balancing workloads. Another focus being widely implemented by server vendors is the concept of TCO, which manufacturers have been stressing in order to increase server sales. Not only are servers becoming cheaper for total cost of ownership over the long run, the upfront costs are also becoming cheaper than ever. Services and pricing remain key strategy in this market as well.

There is no doubt, that with time, servers based on Intel's new Xeon processors will be enough for companies to justify the switch from older technology. Not only do these systems offer higher performance than systems based on older Pentium 3 Xeon architecture, but the management and reliability components manufacturers have added to them are making them more attractive to buyers. The battle between server manufacturers will expand from performance and price as a market driver, to system management offerings, reliability and scalability benchmarks, improved hardware components, and the strategy of stressing TCO. Not only do servers based on Intel's new processors outperform older P3 Xeon based systems, but the total cost of ownership is lower. Since the new Xeon processors are based on the P4 core, which has already been in the market place for over a year, adoption for servers based on the new chips should be the opposite of the Intel's 64-bit Itanium processor, which has been a disappointment.

END CAP

Top selling software according to NPD - Week of April 14 - April 20, 2002
Provided by NPD Techworld

List is based on units sold by twenty-three channel partners. For more information, please contact NPDTechworld at (703) 376-6200.