Virtualization, Consolidation Drive Server Sales in Q1

May 29, 2007 Timothy Prickett Morgan

The massive churning in the server business continued apace in the first quarter, according to market statistics released by both IDC and Gartner. While neither company ever agrees down to the second significant digit when it comes to revenue market share in the server space, the analysts at IDC and Gartner agree that the virtualization of servers is driving the sale of more expensive boxes and server consolidation is pushing lots of new iron into data centers and, presumably, lots more older iron out.

According to IDC’s statistics, worldwide factory revenue for servers sold during the first quarter of 2007 came to $12.4 billion, an increase of 4.9 percent over the $11.8 billion in machinery sold in the first quarter of 2006; shipments cooled, only growing 4.6 percent. Part of that revenue growth came about because IDC revised last year’s Q1 numbers down from $11.85 billion, but nonetheless, this time last year server revenues had declined for two quarters in a row. This is the highest revenue level that the server market has hit in the first quarter, according to IDC’s numbers, since 2001. And it was only the second time in the decade of data that IDC has been putting together tracking server sales and shipments that sales of high-end servers, which rose by 8.5 percent, outgrew the volume segment, which rose by only 4.5 percent. Even the midrange market, which has been squeezed as entry platforms get more powerful, managed to eke out 2.2 percent revenue growth in the first quarter of 2007.

“The server market continues to experience solid growth as businesses of all types look to enhanced IT capabilities in order to help drive additional business efficiency, improved customer satisfaction, and accelerated revenue growth,” said Matt Eastwood, IDC’s vice president of enterprise platforms in a statement accompanying its figures. “It is becoming increasingly clear that the typical enterprise computing infrastructure will require additional investment in order to deliver on these objectives. This next generation infrastructure will be denser, more energy efficient, easier to manage, better integrated, more virtual, and much more resilient. For most organizations this represents a long-term journey requiring IT investment in the new computing capabilities necessary to meet the IT and business flexibility needs of tomorrow’s dynamic enterprise. We are still in the early stages of this journey today.”

The Windows server market was particularly hot, with sales rising 10.4 percent to $4.8 billion–the first time since 1998 when IDC started tracking Linux as a separate category in servers that Windows has outgrown Linux in the growth department. But only just barely. Linux server sales rose by 10 percent to $1.6 billion; the Unix collective accounted for $4 billion in sales, according to IDC, with growth of 0.5 percent. If you consider Linux a kind of Unix–as many people do–then Unix is still holding pretty steady with Windows in terms of overall platform market share. IBM‘s System z mainframe platform posted sales of $933 million in the first quarter of the year, up 11.7 percent–posting the highest share IBM has seen for first quarter server sales for the mainframe in three years.

In terms of processor architectures, sales of X86 and X64 servers grew by 8.7 percent in the first quarter, to $6.6 billion, and shipments rose by 6.5 percent to 1.8 million units. Sales of other kinds of servers comprised $5.8 billion in sales in the quarter, up 1 percent. IBM’s sales in this non-X64 segment rose by 8.2 percent, despite a decline in System i sales, thanks in large part to mainframe sales and a 14 percent increase in System p Unix server sales. HP’s sales in this segment dropped by 5.7 percent as Itanium-based Integrity sales did not offset declines in sales of older HP 9000 and AlphaServer lines.

Despite the fact that there are really only two vendors in the blade server market–IBM and HP, with Sun and Dell making stabs at it–everyone always wants to talk about the blade form factor. In the first quarter of 2007, blade server sales rose by 29.7 percent to $768 million, according to IDC. This makes blade servers 6.2 percent of the server market–not even close to the market projections from seven years ago when blades first started coming on the market. IDC reckons that HP had 40.9 percent of blade server sales in the first quarter, as its c-Class BladeSystem machine took off, while IBM had 35.2 percent share of blades with its BladeCenter boxes.

IDC ranked Hewlett-Packard as the revenue leader in the server market in the first quarter, with $3.62 billion in sales (up 8.2 percent), repeating the number one position it held in the first quarter of 2006. IBM came in second in IDC’s rankings, with $3.58 billion in sales, up 8.1 percent. Sun Microsystems and Dell were in a statistical dead heat with $1.36 billion and $1.35 billion in sales, respectively, but Sun grew sales by 6.3 percent in the quarter compared to Dell’s 1.7 percent growth. The Fujitsu-Siemens partnership had a sales blip in the quarter, with revenues down 5.6 percent to $779 million. All other remaining vendors totaled $1.72 billion in sales, but in aggregate the remaining vendors in the server space posted a sales decline of 1.3 percent.

Over at Gartner, the analysts reckon that worldwide server shipment growth was even higher in the first quarter of this year, up 6 percent to 2.1 million units. And they believe that server shipments across the globe rose by 4.5 percent to $12.9 billion. (Gartner only revised its Q1 2006 sales figures downward by $29 million, which had a negligible effect on that revenue increase for this year’s first quarter.)

“X86 servers had been constrained in the fourth quarter of 2006 due to the lengthening sales cycles, following a period of particularly rapid technology transition,” said Jeffrey Hewitt, research vice president at Gartner in its statement on first quarter server report card it issued. “As we had predicted, this constraint was less about virtualization and was only a temporary issue as evidenced by the fact that this part of the market returned to growth in the first quarter.”

By vendor, Gartner said that IBM was the market leader in the quarter, with $3.82 billion in sales (up 8.4 percent), followed by HP’s $3.64 billion in sales (up 5.4 percent). Gartner put Dell at $1.44 billion in sales, up 10.3 percent, and had Sun at $1.33 billion, up 2.2 percent. According to Gartner, Fujitsu-Siemens had sales of $698 million, down 7.7 percent, while the remaining vendors had aggregate sales of $1.94 billion, down 1.8 percent.

In terms of shipments, Gartner had HP as the king of the hill, with 634,093 units shipped, up 17.8 percent. Gartner said that the sale of servers with one or two sockets, the traditional sweet spot for the old Compaq and the new HP, drove its shipments and gave HP a 30 percent share of the global box count–an increase of 3 points of market share. Dell came in second in terms of shipments, with an increase of 3.3 percent to 445,850 units. IBM came in third in the shipment rankings by moving 295,175 boxes in the quarter, but its shipments declined by 1.1 percent compared to the year-ago quarter. Fujitsu-Siemens ranked fourth in shipments, with 81,068 boxes sold and an increase of 7.2 percent. Sun, which has been on a tear to push more X64 iron, had a tough first quarter, with shipments down 10.1 percent to 79,063. All other vendors accounted for 576,016 machines, an increase of 2.8 percent.

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