Excepting X86 Iron, Server Sales Continue To Slip In Q3

December 3, 2012 Timothy Prickett Morgan

It might be better for all parties concerned in the server racket if they didn’t stagger their new processor releases over the course of a year. But server processors are an increasingly complex thing to develop, the fabrication plants that make them are increasingly more expensive, and vendors have to slow down, get it right, and milk each chip generation for all it is worth. When the economy is running a little cool and chip makers are all in the middle of processor transitions, it is generally not going to cause server sales to go up.

The late summer and fall were tough on high-end server makers. IBM was just getting ready to launch its first Power7+ machines, and Oracle pushed out its Sparc T5 processors to their original early 2013 launch. Intel dropped the “Sandy Bridge-EX” high-end Xeon E7 entirely, and will skip to an “Ivy Bridge-EX” chip next year. And Fujitsu was talking up its Sparc64-X processor, and Intel had not yet announced its “Poulson” Itanium 9500 chips, which are going to save Hewlett-Packard‘s HP-UX cookies. But these chips are all still in the future, and everyone knows they are coming but not yet here. Every chip holds the promise of a more capacious system with better bang for the buck, so you always wait until the last minute to buy.

And some people did just that in the third quarter ended in September, according to the analysts at Gartner, with revenues down 2.8 percent to $12.61 billion even as shipments rose 3.6 percent to 2.46 million machines. That is still a heck of a lot of iron, and admittedly if the RISC, Itanium, and mainframe processors were not all in various stages of upgrade, the box count would not change all that much. But all of that iron certainly does affect revenues.

The X86 segment of the market, which started its transitions in the spring and summer, fared better. Gartner analyst Jeffrey Hewitt said in a statement accompanying the server market stats that X86 iron saw a 4.3 percent jump in shipments, to 2.43 million machines, and drove a 4 percent revenue increase, to $9.37 billion. Among the big players, Dell was the only one to grow X86 server revenues, however, and upstart Cisco Systems continued to skyrocket and knocked Oracle out of the top five in the x86 rack. With $419.9 million in revenues, Cisco even topped Fujitsu in terms of revenues–and did it with an X86-only server business.

Here’s how the tallies by vendor across all server types looked in the third quarter. Oracle didn’t make the top five list with its shipments, so I don’t know how many machines it sold. What I can tell you from the data that Gartner provides me each quarter is that Oracle’s RISC server shipments were down 45.3 percent to 10,349 machines in the quarter, which drove $354.8 million.

IBM was able to bring in $1.19 billion in AIX-Power Systems sales, according to Gartner, making it the undisputed Unix king. But that AIX server biz was still down 2 percent compared to a year ago. My guess is that IBM is doing a lot of price cutting to move iron ahead of the Power7+ rollout, and will also have to cut prices when it launches the Power7+ across the rest of the Power Systems line in 2013. It won’t be a big price cut, but the performance gains are not as dramatic as the jump from Power6 to Power7 and something has to give to better compete with X86 iron. Oracle’s Solaris servers generated $354.8 million in sales (down 35.5 percent), and HP’s Integrity and Superdome 2 line running HP-UX brought in $387.5 million (off 28.2 percent). As you can see, IBM has been gaining market share like crazy, but the Unix server market is shrinking faster than IBM can eat share and thus its overall server business is shrinking.

A big uptick in mainframe sales would certainly help Big Blue, but the Others category, where Gartner lumps IBM mainframes and other proprietary machines like Power Systems running IBM i, did not do well in the third quarter. Across all vendors, revenues in this Others group were off 21.6 percent to $1.21 billion, and IBM’s own Others sales fell 23.5 percent to $870.2 million. IBM’s Unix biz brought in $1.19 billion, as I said above down 2 percent, and the System x, BladeCenter, and PureSystem machines using X86 processors contributed $1.42 billion and was down 5 percent.

The question now is can the System z and the Power Systems-IBM i platforms start picking up some of the slack. The discounts that IBM is giving to service providers who want to set up hosting and cloud businesses on Power Systems iron is a start. There are 150,000 shops out there, and they want disaster recovery. Especially if they have been reading and watching the news lately.

The question is just how much appetite there is for new iron. Hopefully, after many years of putting off purchases, the appetite in the IBM i base will be strong in the new year. I wouldn’t expect too much for the fourth quarter, however. I wouldn’t buy a new Power Systems machines until I knew when the entry and midrange Power7+ machines were coming and what kind of pricing they have. Every day IBM holds back the rest of the Power7+ launch is another tough sales day for itself and its channel partners.