Bob Dutkowsky, CEO, Egenera

Bob Dutkowsky Egenera wouldn’t mind being the next VMware, a company that became so
popular for its server virtualization software that EMC decided to scoop it up at a premium.

Though considering the ink has recently dried on a $300 million contract
with Fujitsu Siemens, Egenera may soon become too big a target for companies
looking to improve the way their data-center gear is managed.

And that’s just fine with Egenera.

Though the Marlboro, Mass., company is private and doesn’t reveal its revenue
figures, sources say Egenera is already at over $100 million in revenues and
rising. In comparison, VMware just cracked the $100 million mark in the
recent quarter.

Egenera makes stateless blade servers. That is to say, they are without
disks. So, while traditional blade systems from top-tier vendors take hours
to configure, IT administrators can color one of the company’s BladeFrame
systems as a Linux or Windows system in minutes just by pointing and

Egenera CEO Bob Dutkowsky explained to how the company’s products give it a competitive advantage over systems vendors IBM, HP, Dell and Sun Microsystems.

Q: What is the problem or technical challenge Egenera is trying to
address with its BladeFrame systems?

In today’s typical data center, large, complex Fortune 1000 businesses have
lots and lots of computing power, lots of storage and lots of networking

The challenge they have is that they are trying to make all of
that work together and deliver a competitive advantage in a cost-effective
way. Many of those architectures and technologies were designed 40 years
ago. They’ve just been modernized with faster chips and bigger memories. But
the basic architecture is the same.

Consequently, companies have to layer
lots of tools and software to make the pieces work together. On the server side, the average utilization rate of a server in a data
center in corporate America is 20 percent. For every $1 that the business
spends for a computer, they only get 20 cents of value back.

Companies that
we compete against — IBM, HP, Sun Microsystems and Dell — are still using the
same basic architecture and trying to get that productivity and usage
higher. Egenera said it was time for a new computing architecture — that’s
the stateless blade — and it’s time to build an infrastructure from scratch
that will solve the complexity problems in the data center. That’s what
Egenera’s product does.

Q: So you see yourself as competing with the blades that market leaders IBM
and HP make.

Do we compete against them? Yes, we absolutely do. Do we complement them?
Yes we do, because they run different sets of applications in that data
center than we do. Our product is targeted at mission-critical,
highly available, must-run 24×7 applications. Customers will pay a premium
for that.

You mentioned the stateless blade. Let me use your laptop as an example.

Your laptop uses the same 40- or 50-year-old architecture as the mainframe.
It has a processor and it has dedicated storage. When you press the “on”
button on your laptop, it boots up Windows and that computer is a Windows
computer. It’s not Linux, it’s not Unix, it’s Windows, and it’s attached to
a processor. That processor can do work based on the applications you ask it
to do.

That’s the same architecture that IBM blades have, Dell blades and
Sun Galaxy servers. They all have a “state” because they have a disk in

The disk defines what that computer is attached to and what it can do. The
Egenera blades have no disk. They have no state. They get their state from
the enterprise’s SAN — the big storage infrastructure of a company. It’s
real easy for us to move workload to our blades because we can point at the
blade and say ‘turn that one into a Linux blade.’

In the IBM, Dell, HP, Sun
world, they have to shut the blade down and reboot it with a different OS.
That time is the gap that Egenera’s solves with its architecture.

In a data center, it’s more complex. When a business wants to run a new
application, IT has to build out a server, figure out how to attach it to
storage, define the network and then interconnect all those pieces together.
It takes one to two months.

Contrast that with an Egenera environment. When
an executive says he wants to run an application on Windows, he literally
points and clicks, and that server is up and running in two minutes. Two
months versus two minutes. That’s the differentiation and competitive
advantage in the market.

Q: I was talking to a Cisco official recently about the upgrade to its
Topspin portfolio. I asked him about Egenera, and he said that Topspin would
eat Egenera’s lunch. What do you say to that?

Is Topspin a competitor of Egenera? No, it’s a completely different class.
They don’t sell blades or servers.

The reason why Topspin was attracted to
Cisco is that it’s basically a switch. They have a piece of software called
VFrame that adds some value to the switch. That’s like comparing an apple
and an orange. Call your Topspin marketing guy silver-tongued, ruby-throated
savage back and ask him for a reference. And not a high-performance
computing reference, but ask him for commercial applications, where people
make money. And I think what you’re going to hear is that they don’t have any.

Our customers are companies like Goldman Sachs, Credit Suisse First Boston,
AOL and Sprint and Wells Fargo. I think what you’ll get back from Topspin
are scientific applications. You don’t reboot AOL in the middle of the day
and tell all their customers ‘I’m sorry, we’re down for a few hours.’

Do we compete with VMware? No, we remarket VMware. Our customers use our
product plus VMware to get another level of virtualization. VMware splits up
the processor to handle multiple workloads and virtualize them. What we do
is virtualize the servers. They make the processor more productive; we make
the server more productive.

Q: You recently inked a big contract with Fujitsu Siemens. What did that
entail and how will that help Egenera compete in Europe. Any plans for a
similar contract in the U.S.?

We’re about 90 percent U.S. and 10 percent the rest of the world. One of our
growth strategies is to accelerate our growth in Europe.

Fujitsu Siemens
brings tremendous distribution capability in a strategic growth market for
us, which was EMEA [Europe, Middle East and Africa].

To put it in perspective, we had about 15 people on the
ground in Europe. Fujitsu Siemens has about 4,000 sales people in EMEA. They
could accelerate the deployment of our product in EMEA. We’ve given sole
distribution rights to the Egenera product line to Fujitsu Siemens in EMEA. Now we can put more of our attention in the Americas and in Asia.

Q: You seem to be following a similar growth pattern to VMware, which was
acquired by EMC. Would Egenera be amenable to an acquirer, or do you plan to
stay independent?

Our desire is to grow this value proposition as aggressively as we possibly
can. We believe we have a very unique competitive advantage in the market

Our board of directors is aggressively looking at every alternative
that gives the company scale and allows us to grow. Therein lies the Fujitsu
Siemens deal. That’s a quoted $300 million, 30-month deal. If you pretend that
we’re $100 million in revenue, that’s three times more revenue. That makes
Egenera a very, very attractive IPO candidate and a very, very attractive
acquisition candidate.

We don’t have a pre-conceived notion of which
direction we want to take the company other than we want to get Egenera as
big as we possibly can and get as many customers using the product as we
can. We’ll figure out what’s the best alternative from there.

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