The Market for Servers in Europe Is Hot

June 4, 2007 Timothy Prickett Morgan

Last week, the box counters at IDC and Gartner provided their quarterly estimates of global server sales by server type, operating system, and vendor. But IDC also went the extra mile and provided some insight into server sales in Europe, the Middle East, and Africa. In what must seem like something of a dream for server makers, Europe is going strong right now.

According to IDC, sales of server across all architectures rose by 11 percent in the first quarter of 2007 to nearly $4.3 billion, and the number of server units sold increased by 8 percent to 600,000 machines. In recent years, shipment growth has outpaced revenue growth, but the advent of multicore machines and sophisticated virtualization technologies are convincing some customers to buy beefier machines and then virtualize them. By going virtual, they can triple or even quadruple the utilization of the processors inside a server, but it takes a beefier server to do the trick because virtualization requires memory and I/O bandwidth and in some cases requires newer processors that have hardware features that help make virtualization hypervisors run better.

IDC says that in Western Europe in particular, virtualization is becoming normal and is one of the largest drivers of server sales in the short term. But there are other forces at work, too, to prop up the EMEA server market, which is growing faster than the worldwide market. IDC reckons that in the first quarter of 2007, companies bought $12.4 billion in new server iron, up 4.9 percent, but server shipments worldwide grew at only 4.6 percent. With EMEA being roughly a third of the market and growing revenue at more than twice the global rate and shipments nearly twice as fast as the entire world, this would seem to imply that some areas are not, in fact, doing too well when it comes to server sales.

“Server revenue continued to be driven by consolidation efforts, SMB sales, blades, and large infrastructure projects,” said Beatriz Valle, research analyst with IDC’s European enterprise servers group, which put together the EMEA figures for Q1. “Sales of more richly configured servers resulted in rising average sales values for the second consecutive quarter. In forthcoming quarters, we will see wider adoption of quad core processors, impacting prices and also the level of shipments.”

Revenue growth in Central and Eastern Europe came in at 12 percent in the first quarter of 2007, and was driven by healthy IT spending by governments and corporations in the region. Spending in this region was brisk for X64 servers in general and for blade servers in particular, which grew by 49 percent compared to the first quarter of 2006. However, spending on RISC/Unix servers fell in this geographic area.

Across the EMEA region, Linux is still being adopted at an increasing rate, with sales of Linux-based servers rising by 42 percent in the first quarter; on a global basis, Linux server sales grew by only 10 percent in the same time period. Western Europe consumed the most Linux iron it has ever eaten to date in the first quarter of 2007, according to IDC. This is reminiscent of the uptake of Unix in the late 1980s and early 1990s, when European companies struggling with stagnant economies turned to cheaper Unix iron to do more with their limited IT budgets and away from proprietary minicomputer and mainframe technologies–well ahead of North America or Japan. Sales of Unix platforms were flat across all of EMEA–up in Central and Eastern Europe but down in Western Europe–according to IDC, with Windows boxes seeing sales rise by 13 percent even though Windows 2008 is looming on the horizon.

In terms of architecture, sales of X86 and X64 iron broke through the $2 billion mark in the first quarter, and sales of Itanium-based servers rose by 54 percent–albeit, from a relatively small base in the year ago quarter. Sales of Opteron-based servers nearly hit $300 million in EMEA in the quarter, giving Advanced Micro Devices about 15 percent revenue share of the X86-X64 server space in the region.

As it did on a global basis, Hewlett-Packard was able to maintain its top revenue share in the EMEA server space in the first quarter of this year over rival IBM, which also played second fiddle to HP a year ago. HP booked $1.46 billion in server sales in EMEA in Q1, up 15 percent, while IBM had sales of $1.34 billion, up 13 percent. Sun Microsystems, buoyed by its new Opteron-based servers, grew sales by 13 percent as well in EMEA, posting $463 million in sales for the quarter. Dell grew slower than the market at large with an 8 percent increase in sales, to $354 million, followed by the Fujitsu-Siemens partnership, with a meager 2 percent growth in the quarter, to $348 million in sales. All of the other vendors selling servers into the EMEA market in aggregate had a 4 percent decline, to $292 million in sales.

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