Every year HP TSG (Technical Services Group) holds a big analyst get-together in Boston. TSG is a big piece of HP; servers, software and consultancy. So here I am, fingers posied over keyboard, as Deb Nelson of HP pleasantly smiles at the audience of attack-dog-analysts and introduces Ann Livermore who will give us her annual “State of the HP Nation” presentation.

It’s probably going to be positive, if the HP share price movements over the past year are anything to go by, and….

45 minutes later

… it was positive. Basically the TSG part of HP grew by about 11%, with consultancy and software revenues growing well.

Talk to a hardware vendor nowadays and you’ll hear the refrain:

Blades, power management and virtualization.

It’s not surprising really because that’s where the competitive differentiation lies and therefore not surprising that Ann Livermore spent a little time championing HP’s capabilities in these areas.

It’s interesting to consider how these three critical success factors relate to each other. So that can be the theme of this posting.

Blades, Power, Virtualization

The industry keeps on shrinking the circuits down to smaller sizes. You could roughly define Moore’s Law as: “Circuits keep on getting smaller”. The problem that put an end to Moore’s Law was “smaller also meant hotter” and that wasn’t too much of a problem until about 2002 when the heat problem started to become significant and by 2006 Moore’s Law was broken – if you made the circuits any smaller they’d be too hot and by the way they were already too hot.

That’s why the IT industry suddenly moved to multiple cores. We could have moved there before, because there had been ample space on a chip for extra cpus for quite a while, but it was all used for cache. Never mind, extra cores is good because there is no step increase in heat or power with extra cores.

Virtualization is a good thing too, from that perspective, because there is little point in running a cpu that’s underutilized; it still chews electricity and spits out heat. Virtualization makes chips work harder without making them sweat any more.

So the shrinking of circuits plus virtualization allows you to cram a vast amount of computing power into a single blade cabinet and that gives you a unit to focus your cooling technology to work on.

And that is how the server market has become decommoditized.

And that’s a shock to quite a few people, including a number of companies that were happily building commodity servers, because now they are challenged. The vendors that were quick to leap into power management, blades and virtualization were HP, IBM and Sun and they are the ones that will benefit from decommoditization. The main company caught napping was Dell.