HP joins with Foxconn to build low-cost cloud servers

HP will tap Foxconn's manufacturing prowess to target cloud providers like Amazon and Google

Hewlett-Packard is partnering with Foxconn, the Taiwanese manufacturing giant best known for producing Apple's iPhone, to tackle the growing market for low-cost servers in cloud data centers.

The companies hope to combine Foxconn's large-scale manufacturing operations with HP's computer know-how to develop a new line of servers aimed specifically at big online service providers, they announced Wednesday.

Those service providers, which include firms like Amazon, Google and Facebook, represent one of the few growth areas in the server business, but they typically want low-cost, no frills hardware designed to fit their needs.

Traditional server vendors like HP and IBM have had mixed results selling to those companies, who increasingly buy direct from Asian contract manufacturers like Quanta and Wistron, which are better set up for low-cost production.

HP hopes to tap into that low-cost model by tightening its partnership with Foxconn, one of the biggest contract manufacturers that already manufactures some of HP's ProLiant servers, as well as TVs, PCs, phones, tablets and servers for numerous vendors.

One industry analyst saw the move as way for HP to keep Foxconn as an ally instead of seeing it become a threat. Foxconn is gaining expertise as a server maker in its own right, and it reportedly wants a bigger piece of that business, which could be more profitable for it than consumer electronics.

"The challenge for the established server vendors is that they risk becoming increasingly over-engineered and overpriced as the data center evolves, and this is HP's attempt to circumvent that challenge," said industry analyst Andrew Butler, a Gartner vice president.

It could be a smart move by HP, he said, but it needs to avoid conflict and overlap with its own server products. HP said the jointly developed gear will be complementary to its ProLiant and Moonshot servers, which it will continue to sell.

HP and Foxconn didn't give many specifics about the partnership in their press release, They'll jointly design "cloud-optimized" servers that will be manufactured by Foxconn and marketed, sold and supported by HP. They have set up a "non-equity joint venture" that takes effect May 1.

Foxconn can deliver "superior value throughout the supply chain," they said -- meaning it can build products cheaply -- while HP brings "compute leadership and industry-recognized service and support."

The servers will carry the HP brand initially, and the first products will be announced later this year and come in multiple rackable form factors, an HP spokeswoman said.

Another challenge for HP will be how it positions the effort against the Open Compute project, an industry group designing cloud-scale equipment that HP joined a few years ago. The Foxconn partnership could rival that effort, or HP could build OPC-compliant products or even contribute designs to the group, Butler said.

The deal provides HP an opportunity to be a much bigger player in the scale-out market, where most of the growth in servers is happening, said Patrick Moorhead, an analyst with Moor Insights & Strategy.

"Success will depend on the ultimate cost and flexibility model both HP and Foxconn can bring to the table," he said, adding that Quanta is the biggest potential loser in a market that has no loyalty to brands.

IBM is also making moves to better tackle the cloud server market. It has started licensing the design of its Power processor to other hardware makers, which it hopes will build new low-cost servers for cloud providers.

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's e-mail address is james_niccolai@idg.com

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James Niccolai

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