Building an internal cloud? Forget HP and Dell, think Quanta

ODMs like Quanta are increasingly selling direct to cloud providers and may set their sights on enterprises soon

If you imagine buying servers for your business from HP, Dell, and IBM into the future, think again.

Quanta and other ODMs – hardware makers that started out building servers for the likes of HP and IBM – have over the past couple years begun shifting their businesses toward making a new breed of servers and selling them directly to cloud service providers.

For now, Quanta, which sold 1.2 million “nodes” (it counts a motherboard as a node; some servers are built with multiple motherboards) in 2012, is focused on that market but soon enough may start selling to enterprises that want the servers for internal clouds.

Photo_Mike Yang_0.jpgSource: Quanta
Mike Yang, vice president and general manager of Quanta’s cloud computing business unit

When asked about selling to enterprises, Mike Yang, vice president and general manager of Quanta’s cloud computing business unit, had this to say: “If we’re talking about next steps, definitely.” The company is focusing its resources on its current cloud service provider customer base but expects to be able to expand, possibly as soon as a year from now, into the enterprise market, he said.

The company has shown it can quickly shift to respond to market demands.

In 2011, 66 percent of Quanta’s business was making gear for big-name server vendors, with 34 percent of its business going to directly to cloud service providers. In 2012, that almost exactly flopped: 35 percent of Quanta’s business was ODM and 65 percent direct. This year, the company expects 85 percent of its revenue to come from direct sales.

Overall growth is up at Quanta too, at the same time that growth is flat across the industry. Quanta said that its server shipments were up 19 percent in 2012 compared to 2011. Meanwhile, analysts at Gartner reported that server shipments worldwide were essentially flat in 2012 – up just 1.5 percent.

Yang pointed to Intel statistics that show that in 2008, three vendors represented 75 percent of its server chip revenue. By 2012, eight vendors contributed 75 percent of Intel’s server chip revenue. Quanta says that the new companies are supplying servers for cloud computing and that it’s one of those new vendors consuming Intel’s server chips.

The big name cloud service providers have shifted their purchases to directly from the ODMs, rather than the big names. The service providers started out designing their own servers and then farming them out to the ODMs. More recently, those ODMs have started building off-the-shelf servers based on the demands of the cloud providers.

Since many cloud service providers are secretive about how they build their data centers, they often won’t say who makes their servers. But when Facebook open sourced its server designs, it revealed that Quanta was making its hardware. Rackspace has also come forward to say that Quanta builds its hardware too.

Is Amazon, the largest cloud service provider out there, also buying from Quanta? Yang, wouldn’t name more than Facebook and Rackspace among customers. However, he did say that Quanta is opening its second U.S. office in April, in Seattle. “There are quite some number of customers there,” he said, explaining the decision behind choosing Seattle, where Amazon has its headquarters.

There will continue to be demand for the kinds of servers that HP and Dell make. But as more enterprises build their own internal clouds, they may want the same kinds of servers that the cloud providers buy. The servers that Quanta sells to service providers tend to require less energy to run and use open source software. They are also built for specific kinds of workloads, rather than being general purpose machines, Yang said.

Quanta’s cloud customers don’t require the high availability that the traditional vendors offer – at a cost. But they do sometimes require help with configuring and deploying the servers, so Quanta sends its own engineers on site to help customers.

Surely the traditional vendors are taking notice of the market shift and so may start moving into the market Quanta is serving. They’ll have to figure out how to make money by selling commodity servers though. For enterprises, it means ultimately you're likely to have more choice when shopping for servers to build your own internal clouds.

Read more of Nancy Gohring's "To the Cloud" blog and follow the latest IT news at ITworld. Follow Nancy on Twitter at @ngohring. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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