Intel used its usual hyperbole to describe the big step forward it has taken with with Xeon E3 and E7 families of chips. In one slide of its presentation deck to reporters on a conference call today, it said that 18 racks of 2006-vintage servers using its dual-core chips from back then could be replaced by a single rack full of servers using its newest Xeon E7-4800 chip. Swapping out the old servers for the new ones would also cut the annual energy cost by 93 percent.

The refresh is part of Intel’s bid to go after the $15 billion ultra-high end of the server market, where powerful, expensive and often very customized machines running IBM Power7 chips or Oracle/Sun SPARC chips hold sway. But here’s where the shifting sands of semiconductor politics get a little complicated. For years, Intel has coveted this market and had planned for a very long time and spent billions on designing and building its Itanium chip to go after the big iron.

Remember last month when Oracle said it would stop building software that supports Intel’s ultra-high end Itanium chip? The kerfuffle that followed included rebuttals by Intel and Hewlett-Packard. Finally, Oracle had the last word, saying in effect that Intel wasn’t being entirely honest about its plans and that in fact it eventually planned to kill Itanium in favor of its higher-volume Xeon chip. (While Oracle happily buys lots of Intel’s Xeon chips for its Sun servers, the real target in all this was HP, which is for all intents and purposes the only company selling Itanium-based servers in meaningful numbers and one competitor Oracle has been taking every opportunity to disparage.)

With memories of that three-way scrum still fresh, it was no surprise at all to hear Kirk Skaugen, VP of Intel’s Data Center Group, defend Itanium, reminding reporters and analysts assembled for the launch event today that the anniversary of the Itanium chip’s release in 2002 is coming up on May 29. He then went on to defend Itanium and score points againt Intel rival AMD in one breath, saying that the Itanium ecoystem, constantly criticized for being much smaller than Intel initially envisioned, amounted to about $4 billion in server sales last year, bigger than the $2.8 billion in sales of servers running AMD chips. He then reiterated Intel’s promise to keep development of Itanium chips on track: Poulson and Kittson, code names for future Itanium chips, are in the pipeline for release.

Yet even after all that, it was hard not to side with Oracle’s interpretation of the situation. The key moment came when Skaugen said, “There’s no workload in the world that Xeon can’t handle.” Hmm. Does that mean a Xeon chip could in some scenarios replace an Itanium?

Confused, I turned to Dean McCarron of Mercury Research, an Arizona-based outfit that tracks the market for x86 chips (chips used in PCs, servers and workstations manufactured by Intel, Advanced Micro Devices and VIA Technologies).

Years ago, he said, there wasn’t much that differentiated a Xeon server chip from a Pentium used in a PC. But over the years that’s changed. “Xeon has grown up,” he said. Many of the features that Itanium included as suitable for specific tasks have migrated down the line and into Xeon chips. “While there’s still a lot of cases where an Itanium is the right choice for the customer, the fact is that over time Xeon has gotten better and is able to fit into more segments of the server market.” There may be some cases, McCarron said, where a customer who would have insisted on an Itanium a few years ago might be more willing to consider a less expensive Xeon.

Here’s what may be going on. McCarron told me that Intel’s share of the market for server chips stood at 93.4 percent at the close of 2010, while AMD’s stood at a paltry 6.6 percent. In a market where one percentage point amounts to about 50,000 servers–which on average contain roughly two server chips each–Intel’s Xeon is in need of new territory in which it can grow. By definition, that means attacking the market for big iron where systems running IBM’s Power7 and to a lesser extent Oracle’s Sun SPARC chips dominate. This will also mean Intel will bump into itself: Xeon will probably eat into Itanium’s business. That’s going to take some complicated, nuanced positioning.

As Skaugen put it today, just before his more memorable line about Xeon being able to handle any workload in the world, he said the coexistence of Xeon and Itanium is one of choice. Xeon, once positioned at the lower-cost-but-higher-volume end of the server market, is now, as he put it, “side by side” with Itanium. What’s unclear is how much longer that will continue. Expect Intel to shed more light on this at its developer forum in Beijing later this month.

Note that iSuppli counts microprocessors differently than some of the other research firms. Its “other” category includes not only PC chip also-rans like Via Technologies, but also general purpose RISC chips like IBM’s Power chips that go into servers.

There’s better news, however, for the beaten-down hard-drive industry. After seeing shipments decline through the first half of the year, fourth-quarter shipments are up, as are revenues, iSuppli says. It’s clearly the result of the holiday-season demand, but welcome news, especially in light of all the worries that tablets–like Apple’s iPad–which use flash memory for storage, would whack hard-drive sales. (Though, as Digital Daily’s John Paczkowski noted this morning, the hard-drive guys still have lots to fear from tablets.)

Western Digital is holding on to its top spot as the world’s leading supplier, edging out Seagate, which has seen its share of troubles lately.

Seagate failed to come to terms with TPG Capital last month on a plan that would have taken the company private, and also spurned a takeover offer from Western Digital. Last week it moved to refinance more than $2 billion in debt, more than $500 million of which is due before the end of the year, with a combination of bonds and bank loans.

The two countries are slowly moving toward a formalized trade agreement, called the Economic Cooperation Framework Agreement, or ECFA, that will address how their economies relate to each another. Its first iteration isn’t expected until early 2010, but Taiwan-based tech companies are already hoping to gain entry to China’s massive consumer market.

That’s especially true for Via Technologies, a chip maker running a distant third behind industry heavyweights Intel (INTC) and Advanced Micro Devices (AMD). The company, founded in 1987, made a name for itself working on an underdeveloped part of the market: small, low-power chips.

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To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. Music to their ears: SoundExchange, the recording-industry group that has been in a protracted battle with Internet radio companies, has reached a deal with them on royalties. The Associated Press reports that SoundExchange would cap fees at $50,000 a year for Webcasters offering more than 100 channels–down considerably from the much higher per-channel tax it had sought to impose.
2. Playing catch-up with YouTube, Yahoo plans to revamp its video portal. Miguel Helft of the New York Times writes that Yahoo will consolidate the Internet site’s somewhat messy video interface into a more interactive one enabling users to view and share videos and compile playlists. Of the plans, Helft quotes Mike Folgner, general manager of Yahoo Video: “We’re going to make it a more cohesive experience. Video is going to be everywhere on Yahoo.”



3. A teenage hacker from New Jersey has picked the lock that links the iPhone to AT&T. According to the Associated Press, 17-year-old George Hotz, using a complicated procedure involving both software and soldering, unlocked an iPhone from AT&T and was using it on T-Mobile’s network, freeing the handheld for calls overseas using carriers outside the U.S. After announcing the feat on his blog, Hotz put the reconfigured iPhone (pictured, left) up for sale on eBay.
4. Google goes Gotham? Bloomberg is reporting that the Internet search titan is in talks to provide online transit guides in New York City and environs. The guides, which are already available in more than a dozen cities, including Dallas and San Diego, show how to navigate transportation systems and could greatly expand Google’s revenue from ad sales to restaurants, hotels and other businesses that serve the nine million commuters in metropolitan New York.
5. IBM may take elements of its Jazz collaboration software open source. According to IDG News Service, the tech giant is considering open-sourcing some of the lowest layers of the framework, which makes software development easier, so people could “build on the kernel,” said a member of the Jazz management committee.
6. Sweet juice: Sony has developed a battery that uses sugar as an energy source. TMCnet reports that test cells of the battery have 50 milliwatts, so far the world’s highest electrical output for the so-called passive bio batteries. Sony engineers proved they work by putting four together to power a Walkman.
7. And in an industry where power is everything, Via Technologies has produced a processor that consumes a maximum of one watt of electricity. Reporting on the development, PC World notes that the Eden ULV chip will be used in mobile devices and embedded applications.
8. Manhunt 2, the sequel to Rockstar Games’ eponymous video-game gorefest, got a break in the form of a less-severe rating from the Entertainment Software Rating Board. According to CNET blog Crave, the board changed the rating from “adults only” (the equivalent of an NC-17 for video games) to an M-for-mature after Rockstar eliminated some ultraviolent content. The new rating means that companies like Sony and Microsoft will allow the game to run on their players, clearing the way for sales pegged to Halloween.
9. Decrying its role in “promoting” child prostitution, Atlanta Mayor Shirley Franklin is calling on online classified-ad service Craigslist to police itself better, according to the Atlanta Journal-Constitution. In a letter sent this week, Franklin asked the Web site to toughen warnings for personal ads and pages that offer erotic services and to delete postings advertising sexual services for sale. An Atlanta vice officer claims that Craigslist and similar Web sites facilitate 85% of the sexual trysts men in Atlanta make with underage youths.
10. News this week of a study that linked gender with color preference prompted Shiny Shiny (the self-described “girl’s guide to gadgets”) to assemble a selection of pink laptops. We eyed the Hello Kitty model (pictured here) and concurred that this was indeed a laptop that only a girl (of either sex) could love.

–posted by Associate Editor John Sullivan