Are Dedicated Servers Becoming Obsolete?

Today's Microsoft and Red Hat mutual virtualization support agreement supports a trend that enforces the common belief that dedicated Linux servers are becoming a thing of the past.  Consider in InformationWeek that

Microsoft, Red Hat Agree To Mutual Virtualization Support -- Windows Linux Virtualization
As part of the agreements, Microsoft will run Red Hat Enterprise Linux 5.2 and 5.3 as a guest in Hyper-V environments, and will lend its hand to technical support and documentation. Red Hat will also run Windows Server 2003 SP2, Windows 2000 Server SP4, and Windows Server 2008 as guests on Red Hat virtualization technologies, with similar tech support offered.

Brian Stevens, Red Hat Vice President and CTO makes a valid point that the hardware is becoming so powerful that single applications and cannot taking full advantage of the dedicated server.  That is, the processor speed is not increasing anymore but more and more physical cores are being added.

Unless the application is designed for multiprocessors, the other CPUS are effectively sitting idle.  Allocating the physical cores to logical virtual servers may make the best use of the physical server since each logical processor can be used to balance and increase the overall performance of the dedicated Linux Server.

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