"We are virtualizing". I hear that at every customer, every day. I am not sure where virtualization is on the hype curve, but i don't think it is anywhere near slowing down. I am very glad to be past the "Dilbert" and "in flight magazine" era. Customers seem to have a really solid command of what they want to virtualize and why they want to virtualize. ( not to imply that all the questions have been answered )
The latest Intel servers - Xeon 7400 processor series in the 4 socket family, and the incredible Xeon 5500 (Nehalem) processor series in the 2 socket family - deliver more than sufficient capacity for sweeping data center virtualization. i.e. very few enterprise applications are to big for a VM on one of these platforms.
I hear three reasons from customers for virtualization. ( in order of emphasis )
1) To improve efficiency. Most enterprise servers are only about 10% utilized ( and many of these are old, slow, inefficient servers) Applications are partitioned onto individual servers for archaic historical reasons. Combining these on powerful modern servers can dramatically reduce footprint, power, server costs and licensing costs.
2) To improve flexibility. Virtualization allows "servers" ( think VMs ) to be easily moved from one platform to another - for sizing - for maintenance - for almost any reason. With the Intel Flex Migration technology and recent versions of VMware ESX - customers can pool Intel servers across multiple generations and families. Live migration from your Xeon 5100 processor based server to a cozy VM on a 4 socket Xeon 7400 based 24 core server.
3) To improve reliability. Virtualization provides a vehicle for managing hardware failures, allowing near instantaneous fail-over in the event of a server loss.
Virtualization has moved out of the lab and become a "best know method" for doing IT right.
Intel points to three focus areas for servers. Efficiency, Performance, and Virtualization. I think virtualizaiton's place in this triad is fleeting. It only remains because changes are still being made to the platform to support virtualization. Soon virtualization will become just another part of the stack- like the operating system. Nobody claims their processor is optimized for running an operating system... Even today choosing the best processors for virtualization is more about efficiency and performance than about virtualization features. Fortunately - as I do work there - Intel has a solid lead on both efficiency and performance.