With Nehalem, OEMs Xeon — not Core — for entry level, single-socket workstations

Posted: 04.08.09

Intel appears to be consciously shifting brand strategy ... and pricing accordingly

When it comes to workstation volume, Intel’s Core brand has consistently garnered the lion’s share of unit shipments, with its sibling Xeon brand commanding a relative minority. That long-time status quo is now set to change, however, as Intel’s introduced not only a new Xeon platform, but it appears a new strategy for the brand as well. In launching the first processors of the Nehalem generation to bear the Xeon name, Intel’s looking to extend the brand’s reach down into the entry-level, single-socket segment of the workstation market, pushing beyond the mid-range, dual-socket turf to which it’s been limited in the past.

Why hasn’t Xeon historically found its way into single socket (1S) workstation platforms? Well, the proposition of doing so hasn’t been particularly compelling to the OEM, at least from the context of features and cost. Xeon today is built from the same design foundation as Core, and so has delivered comparable performance and offered the same baseline set of features, with the most notable exception being multi-socket support. And multi-processor support for a single-socket configuration is, by definition, a non-feature. Consider the price premium Xeon has commanded in the past, and it’s no wonder why Xeon hasn’t had any significant presence in the market for entry, 1S workstations.

(SoJPR Workstation Charturce: Jon Peddie Research)
Figure 1 The Xeon brand has represented the minority of Intel’s platforms selling into the workstation market ... but its share will now certainly grow

But not so with this platform release from Intel. On the contrary, with this launch every major OEM, including HP, Dell, Lenovo and Fujitsu-Siemens, has chosen to build their new single-socket entry model around a Xeon-branded Nehalem, rather than Core. Why the change in tactics? Well, my only answer is this is a case of conscious brand re-positioning, carrying over from a dynamic that’s been present in the server space, but not in the workstation market, until now.

Xeon is the premium brand, and ultimately, we know OEMs would — all else equal, or close to equal — prefer to market it over the Core brand, regardless of whether there’s any technical advantage for 1S configurations or not. Trouble is, with Xeon’s price premium, it hasn’t made sense to push the brand in the dollar-sensitive entry level. It couldn’t have made sense, or we would have seen Xeon there long ago.

But it’s there now, and that begs the question as to why. Well, one reason is that starting with Nehalem, Intel’s incorporating a workstation-valued feature in Xeon that’s not present in the Core i7 brand (and that doesn’t necessarily mean we’re talking different die, just another feature that’s exposed in one brand and not the other). With Nehalem, Intel’s first processor to integrate a memory controller, ECC (Error-Correcting Code) memory is no longer a chipset feature, but a processor feature. Intel’s letting Xeon have it, but not Core i7, and ECC has been one of the few hardware features that a customer shopping for an entry-class workstation might pay a little extra to get.

But more than ECC, this shift in strategy is about marketing and perception. The Xeon brand conjures up notions of “professional”, “mission-critical” and “enterprise”, where the Core brand suggests a far more pedestrian connotation. The past fragmentation of the workstation market — Core at the high-volume low end and Xeon at the mid-range and above — and the introduction of Nehalem have presented Intel and its OEM partners with an opportunity to now clean up its brand positioning.

Clean it up more like the server side, that is. Because while Xeon hasn’t made a mark in the market for single-socket workstations, it has done so in the closely related market for single-socket PC servers. Intel has given the impression it’s been selling Xeons into the 1S server space not necessarily due to any particular strategy of its own, but rather because its customer base had been asking for it.

Now, I don’t doubt the server OEMs have orchestrated some pull for Xeon in 1S configurations, looking for more differentiation and brand appeal. But I have to imagine Intel’s been proactive as well, rather than simply acting the part of cooperative vendor. Either way, Intel’s created separate SKUs for Xeons that serve 1S segments, along with a distinct 3000 series numbering to set them apart from the 5000 series dual-socket models.

But for Intel to work Xeon into 1S configurations for workstations the way it’s done for servers, it’s going to take more than just ECC. If it were to simply throw in ECC but leave the pricing structure alone, OEMs wouldn’t be jumping on it, certainly not all in unison as they’ve done with the Nehalem launch. No, Intel’s had to have gotten much more aggressive in pricing, perhaps not at parity with the Core i7 Nehalems, but surely a lot closer to parity than it’s ever been before.

Of course, cutting prices and shaving margins aren’t steps to be taken lightly. But ultimately, when customers see a starker differentiation between PCs and entry workstations, it’s not just the OEM that stands to gain, but Intel as well. And the company knows it, perhaps because it’s already seen the dynamic pay off on the server side, or perhaps because it stood witness as its rival made the approach work in workstations. Remember that while Intel hadn’t been pushing Xeon for 1S workstations, AMD had been, with HP and Sun (at one time) marketing 1S models based on Opteron, not Athlon. Now granted, AMD’s shipments into workstations pale in comparison to Intel, but the latter can at least look to the former’s success as some type of existence proof for pushing the premium brand into 1S sockets.

In the end, this very conscious re-positioning of Xeon will certainly grow the brand’s profile in the workstation market, resulting in better revenue and healthier margins per machine, even if Intel has to charge less for the 3000 series chips, in order to make it all happen. Core and its predecessor Pentium have dominated workstation shipments for years, and while Core-based workstations aren’t going away, it looks like Xeon’s going to rule the roost going forward.