Serving Up Tech Growth

MAY 13, 2011   THE WALL STREET JOURNAL

By ROLFE WINKLER

The forecast is cloudy for tech titans, like Intel, Hewlett-Packard and Cisco Systems, as they find growth harder to come by in their core businesses.

But a ray of sunshine is bursting through: Sales of servers to data centers are on fire as more people access more information on more devices every year.

Intel's key challenge is to get its chips into handsets, as well as PCs. Being power-hungry, its chips are a bad fit for mobile phones. But because they are faster calculating engines than rival chips, they are ideal for servers. Indeed, its data-center business, mostly driven by chips inside servers, was up 32% last quarter. At roughly 20% of overall sales, Intel's data-center group is a key growth driver.

H-P faces growth issues, too, weighed down by a slowing consumer PC business. Again, servers are expanding quickly, up 17% last quarter versus the company's total 4% growth rate.

Cisco, meanwhile, chased far-flung growth opportunities and lost focus. Its struggling core-networking business is so big it will continue to drag on growth. But not every new initiative has become a turkey.

Cisco jumped into servers in 2009. Because these are integrated with Cisco's networking technology, the servers provide compelling value to customers. Though still a small percentage for Cisco, sales of gear to data centers, which also includes specialized switches, are expanding fast. Last quarter, they ran at an annual rate of $1.5 billion, up from zero three years ago.

Even as investors wrestle with larger issues hanging over these companies, sales of data-center gear ultimately may serve them well.

Write to Rolfe Winkler at rolfe.winkler@wsj.com