Second Quarter Server Sales Humming Right Along

September 12, 2011 Timothy Prickett Morgan

We were deep into the third quarter of 2011, but the data about how well or poorly different systems did in the second quarter had just come out while The Four Hundred was on its Labor Day hiatus. The good news is that the server business–a bellwether for the national and global economies–continues to grow and looks to be back to something close to normal.

With so much mixed economic news out there, the fact that server sales continue to be robust, coming close to setting all-time volume record for a second quarter, may be more of an indication about how dependent the global economy is on systems and, equally importantly, refreshing them to get much better bang for their buck out of those systems and the applications that run on them. Call it the cloud and virtualization updraft, and sooner or later, unless we keep going nuts with online apps as consumers and then as businesses, there will eventually be a downdraft.

But not now. In the second quarter, the box counters at IDC say that worldwide server revenues rose by 17.9 percent, hitting $13.2 billion. This was the sixth consecutive quarter of year-on-year revenue growth in the server racket, and shipments were up by 8.5 percent to 2.1 million units. Jed Scaramella, research manager for enterprise servers at IDC, told me that across all server types and architectures, about 20 percent of the machines shipped in the second quarter had virtualization hypervisors installed, with the virtualization rate being higher than this in the United States and Western Europe and lower in other regions. Matt Eastwood, group vice president of enterprise servers at IDC, said that the company was being cautious about the second half of the year. “While 2Q11 was an exceptionally strong quarter, attention has already turned to the market outlook for the second half of the year,” Eastwood said in a statement. “IDC believes that weakening macroeconomic conditions around the world will serve to moderate demand for new servers later this year.”

The big winner in the second quarter was Fujitsu, which more than doubled its server revenues to $849 million thanks to the installation of the Sparc64-based K supercomputer for the Japanese government, which nearly brought it level with partner Oracle, which had $941 million in server revenues in the period but only grew by 5.2 percent. Thanks to booming System z mainframe sales and decent Power Systems and System x server revenues, IBM was the top server revenue generator in the, with just over $4 billion in sales at the factory revenue level that IDC tracks, up 24.5 percent. (Mainframe sales were up 61.1 percent, to $1.2 billion.)

Big Blue should send a thank you note to Oracle CEO Larry Ellison, because Oracle’s decision to stop development for database, middleware, and application software on the Itanium platform has most definitely affected Hewlett-Packard‘s revenues in the quarter–and not in a good way. HP’s overall server revenues were $3.92 billion, up only 9.3 percent, so this time around it was watching IBM’s back. Dell maintained its number three position in the global server biz, with sales up 5.1 percent to $1.81 billion. Oracle and Fujitsu would have to merge with each other as well as eat supercomputer makers Cray Cray and Silicon Graphics and a few other small fries for good measure to knock Dell out of its position. Other vendors outside of the top five accounted for $1.62 billion in server revenues in the second quarter, up 19.7 percent and raising the class average as IBM’s sales in Q2 did.

X64-based servers accounted for $8.4 billion, up 15.1 percent across all vendors, with X64 volume shipments up 5.4 percent to 1.9 million machines. Unix-based machines made up 22 percent of the server revenue pie in Q2, with $2.9 billion in sales (up 1.5 percent). Thanks in part to the K supercomputer mentioned above, Linux server sales were up by 47.5 percent, to $2.7 billion, the first time that Linux server sales almost matched Unix server sales. Windows machines had 12.4 percent growth in the quarter, to $5.9 billion, and represented 45.5 percent of worldwide server sales and 71 percent of shipments. That is about as good as it gets and is far better than Unix ever did on the shipment front and about as well as Unix did in terms of its peak revenue share of the server pie.

The Gartner view of the Q2 server world

Over at Gartner, which tracks server revenues at the end user level, not at the vendor factory level, the company’s box counters reckon that in the second quarter, companies shelled out over $13.2 billion for servers, up 19.5 percent compared to the year-ago period, and consumed 2.33 million units, an increase of 8 percent over Q2 2010.

Gartner says that HP edged out IBM for the top revenue ranking, with $3.95 billion in revenues (up 11.4 percent) for HP compared to $3.79 billion (up 23.9 percent) for Big Blue. HP was by far the server shipment king, with 719,590 machines going out the door (up 11.7 percent in tandem with revenues). IBM was the number three shipper, pushing out 273,718 machines (up only 2.3 percent compared to the year-ago period). Dell was number three in terms of server revenues, with $1.88 billion in sales (up only 4.4 percent), and number two in terms of shipments, with 511,507 boxes going out (and down 5.8 percent from a year ago). Fujitsu’s shipments were up 17.8 percent to 71,848, thanks to the K supercomputer, giving HP the number four shipper slot, and giving it the number five revenue spot with just under $837 million in revenues, up 136.7 percent. Oracle had 936.1 million in sales, up a mere eight-tenths of a point, and didn’t make the top five shippers list. Chinese PC and server maker Lenovo didn’t make the top five in terms of revenue, but it outshipped Oracle with its 36,220 boxes, up an impressive 45.8 percent from a year ago. Other vendors accounted for $1.84 billion in sales, up at nearly twice the market rate at 32.4 percent growth year-on-year.

Gartner’s public information breaks server sales down roughly by processor architecture. The company says that X64-based machinery accounted for 2.28 million units, up 8.4 percent, with sales growing 17.7 percent to $8.7 billion. HP had 37 percent of the X64 server revenue pie, compared to Dell’s 21.6 percent. IBM’s 15.4 percent, Fujitsu’s 3.2 percent, and Oracle’s 3 percent. Other vendors made up the other fifth slice of the pie.

The RISC/Itanium server market running a Unix platform accounted for $2.62 billion in sales in Q2, up 4.3 percent. Shipments for RISC/Itanium boxes running Unix fell by 8.5 percent to a measly 44,177 units. Yup, that’s it. Interestingly, Oracle is the top Unix system shipper, with 18,650 boxes sold, down 21.5 percent from a year ago. Oracle was the number two in terms of Unix system revenue, with $670.9 million in sales, down 10.2 percent. IBM was the number two shipper, with 16,170 boxes (up 8 percent), but was number one in terms of Unix sales at $1.25 billion (up 27 percent). HP was third in Unix systems, with 7,883 boxes (down 1.8 percent) and $582 million in sales (down 15.5 percent). When HP goes to trial in its Oracle suit over Itanium support (or rather, the lack thereof on behalf of the software vendor), you can bet it will be arguing that lost sales in Q2 were damages that it deserves compensation for. The K super might be a Sparc RISC machine, but it doesn’t run Solaris Unix but rather Linux. So it didn’t help here. Fujitsu shipped a mere 1,210 Unix machines in Q2, up 9.7 percent, and generated $63 million from them.

Another interesting statistic: Adrian O’Connell, research director at Gartner who tracks the European server racket, said in a statement that in EMEA, the server market continues to strengthen, with revenues up 15.2 percent to $3.68 billion and shipments up 5 percent to 611,828 machines. However, revenues for Unix machines in Q2 are half what they were before the Great Recession hit, and ditto for the “Other” machines that are not based on RISC, Itanium, or X64 processors such as mainframes and IBM i machines. And even when you add all of the servers together, the revenue level in Q2 2011 is only a little more than three-quarters of the level in Q2 2008. Blame the uncertainty in many of the European economies for that.