The Server Racket Concentrates Like Orange Juice In A Can

June 9, 2014 Timothy Prickett Morgan

When I was a kid, and we had orange juice concentrate because it was cheaper and easier to store. I remember popping off the lid to reconstitute the juice and, I won’t lie, scooping out a little bit to eat off a spoon like it was some kind of glorious, natural popsicle. The concentration that is going on in the server market doesn’t taste like that, and for those who make and sell machines, it probably tastes a bit more like bile.

I used to joke a few years back that I was really worried that there might only be four or five companies left in the world from which to buy systems; these days, after watching the rise of hyperscale datacenters and various public cloud providers, I begin to worry that there might only be one server buyer left on the planet. We are a ways away from that day, but we are definitely heading in that direction.

In the first quarter, IDC reckons that companies consumed 2.1 million server units, up 2.1 percent year-on-year, but revenues fell by 2.2 percent to $10.89 billion.

“The server market continues to be heavily influenced by the emergence of the 3rd Platform as mobile, cloud, big data, and social enablement drive significant hyperscale server deployments globally,” explained Matt Eastwood, group vice president and general manager of enterprise platforms at IDC. “At the same time, traditional client-server workloads continue to drive investment in private cloud facilitation as traditional SMB and enterprise customers drive consolidation and automation deeper into their environments. The net effect is an increasing concentration of computing power into fewer and larger enterprise and service provider datacenters around the world.”

This is the fifth quarter in a row that overall server revenues have declined, and you can blame hyperscale datacenters and supercomputer centers that buy minimalist designs as well as the ongoing slump in the midrange and high-end system spaces. Volume systems, which cost under $25,000 in the IDC scheme of things, saw a 3.9 percent jump in revenues (despite the downward pressure of those hyperscale and supercomputer deals) in the quarter, the fourth quarter in a row of revenue growth. Converged systems consumed by midrange and large enterprises are pulling up the class average. Midrange systems, which cost between $25,000 and $250,000, had a 4.8 percent decline in Q1, and high end systems, mainly IBM System z mainframes and big Unix iron, fell by 25.6 percent year-on-year. You can blame technology transitions on some of this decline, but some if it is just driven by the fact that a 4U server packs a hell of a punch these days thanks to Moore’s Law. For many companies, individual back office workloads do not grow faster than Moore’s Law–not even close. Other workloads such as analytics, might.

The slump in Power Systems and System z sales was to be expected, and the as-yet-unfinished $2.3 billion deal with Lenovo Group has put a serious hamper on IBM’s System x and PureFlex says. IBM’s revenues in the first quarter were off 25.4 percent to $2.08 billion, giving IBM second place behind Hewlett-Packard, which saw its sales slip 2 percent to $2.9 billion. Dell, at number three, had a 3.2 percent decline to $1.96 billion in sales. Cisco Systems, which created the converged systems wave and then rode it masterfully, posted a 37 percent revenue gain, to $617 million. Fujitsu was down 2.3 percent to $549 million and Oracle was up 1.9 percent to $538 million. Those buying servers directly from original design manufacturers (ODMs) spent $799 million, reckons IDC, an increase of 75.4 percent compared to a year ago. Other vendors–particularly those in China–did well, and that is why the Others category grew by 5.8 percent to $1.46 billion.

X86 systems accounted for $8.9 billion in revenues, up 4.9 percent, with shipments of just under 2.1 million, up 2.5 percent.Non-X86 iron accounted for $2 billion in revenues, declining 25.2 percent in the quarter. Blade servers comprised $2 billion in revenues (up 2.3 percent) and density-optimized machines brought in $649 million, off 10.8 percent as some deals pushed out to later in the year. This density optimized business is very choppy, just like the supercomputer business has always been. Interestingly, IDC did not provide a breakdown of server revenues by operating systems this time around.