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Hardware required to setup VMWare Server for desktops?

I just setup a brand new Dell R710 server as a DC and Exchange 2003 server. It is fast and has lots of space.

Can I use this to host VMWare desktops for 35 people or would I need to purchase a separate server for that?

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Its recommended to install the free esxi instead, check out http://www.vmware.com/products/esxi/
One of branch in my comp is actully using this model for approx 100 users, it has dc, file, isa, app servers running as a VM
But if you just want to do some testing, it is perfectly fine to install vmware server to create few VMs
It would be better if you could store all the test VMs on dedicated disk/array to prevent unnecesarry load to prod systems
By the way, what is the total physical ram?
If you could afford VMWare View, it would really help you for the provisioning of desktops etc. OF course for this you would also need to have vCenter etc. But it will make your life much easier. I am busy trialling this as opposed to just hosting desktops on ESX/i ...
Based on hardware requirements for View, I will tell you this however.
You should run 4-6 VM's per physical core on the server, so if you have a dual quad core processor server, you could run 40-48 Virtual desktops on it. Of course VMware also state that you should keep Server and Desktop VM's seperate.
So to answer you answer, use ESXi and then the guidelines from VMWare even if you don't use View.
Normally you can have a Server compression of 1:10 meaning 10VM on 1 Physical host with Sincle Quad Core Xeon and 32GB RAM.

Depends what kind of work would be performed by 35 Desktop users. Like is their work is more Disk Oriented or CPU or RAM or all? If you are using vSphere 4.0 then you can overcommit memory. Meaning if you have 32GB RAM on the Host (ESX) then too you can create 20 VM with 2GB RAM Each.

Also hope your ESX Host has nice RAID5 configuration as users machine is going to have lots of IO.

As for the client side you can use ThinClient PCs as they are the cheapest and consume less Power (Green Computing)

Best recommendation would be build up slowly, like try putting 10VM for users and check hows their performance. If no issue then start adding another 5 or 10 VM as you deem fit.

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