IDC Says Server Buyers Weigh Economy and Power in Q3

December 10, 2007 Timothy Prickett Morgan

Everybody, with the possible exception of the head bean counter at the company, likes shiny, new servers. New servers have more bandwidth to support larger workloads, which makes transaction volumes go up and response time go down; they also tend to be more energy efficient these days, which is a good thing. But whenever the economy is not roaring along, people get concerned and they do not want to shell out money for new iron. Right now, the economy is doing OK and the desire to have more powerful and efficient machines is offsetting the jitters among server buyers.

Market researcher IDC recently put out its reckoning of the winners and losers, by vendor and architecture, in the server space, as it does every quarter. And IDC’s findings echo those of Gartner‘s Dataquest unit, which put its numbers out a half-day earlier and therefore went into the weekly newsletter production cycle earlier. Even though IDC and Gartner often have very similar box counts, they usually have different things to say about the qualities of the server market in each quarter, which is why we bother reporting on both sets of numbers.

This time around, IDC seemed a little more concerned about the economy in reviewing the third quarter 2007 numbers and what affect the state of economies around the globe might have on server sales in the coming quarters.

“Although demand for X86, blades, and Unix systems remained strong, other parts of the market cooled off in the third quarter,” explained Matt Eastwood, group vice president of enterprise platforms at IDC in a statement accompanying the quarterly figures, “concerns about the economy, particularly in the U.S., are causing customers to re-think their infrastructure needs at the same time that new levels of compute and power densities are expanding power and cooling challenges and driving different IT infrastructure acquisition patterns in the market. IDC believes that we are in the early stages of a marketwide transition, which will require significant IT investment in a more flexible IT fabric; however, concerns among buyers about an economic slowdown could slow investment in new systems somewhat.”

The key word there is “somewhat.” The issues of server sprawl and inefficient use of existing servers is so large that even the economy will not stop the trend among companies with aging RISC/Unix iron or 32-bit, essentially unvirtualizable X86 iron to move to more modern gear that has virtualization capabilities built-in, better thermal properties, and a relatively low price tag for a unit of performance.

By IDC’s numbers, factory revenues among server suppliers collectively only grew by 0.5 percent, to $13.1 billion, in the third quarter. (That’s a lot less growth than Gartner showed, but about the same revenues. Gartner and IDC have slightly different ways of gauging server sales, with IDC measuring it at the vendor factory level and Gartner measuring it as a mix of direct and channel sales by brand at the end user level.) This was the sixth consecutive quarter of revenue growth for the server business, and the highest third quarter sales level since back in 2000, during the tail end of the dot-com boom. Server shipments grew by 6.3 percent in the quarter, which is good, but it is less than the 7.8 percent unit shipment growth IDC projected for the third quarter of 2006.

By platform, so-called volume server products saw sales rise by 8.1 percent in the third quarter–the highest growth rate for volume products in the past two years. Sales of midrange servers declined by 2.2 percent in the quarter, despite growth for Windows, Unix, and Linux servers in this price band; this is the second consecutive quarter of revenue decline in the midrange, and a lot of this is attributable to declines in IBM‘s System i and to a lesser extent System z products. The high-end server market took a hit because of a very steep decline in mainframe sales, which sales of large RISC/Unix and Itanium boxes could not make up for. High-end server sales fell by 14.5 percent in the quarter, the largest drop in big iron sales in the past five years. IBM’s delays in getting Power6 iron to market (which should happen in early 2008) and the expectation that new System z mainframes based on the quad-core z6 processor are coming next year stalled sales. Sun Microsystems, Hewlett-Packard, and Fujitsu-Siemens all have their own challenges at the high-end, and mainly because quad-core X64 processors in two-socket or four-socket servers have plenty of oomph and are now virtualizable in a way that is almost as good as what is possible in RISC and Itanium Unix boxes.

By operating system, the Windows platform continued on its path of growth, with sales of Windows boxes up 9.7 percent from the year-ago quarter to $5.3 billion. Windows machines have a 40.4 percent share of the $13.1 billion in revenues for the third quarter of 2007. In aggregate, Unix server sales rose by 4.1 percent to $4.1 billion, and high-end Unix server sales rose by 9.3 percent in the quarter. Linux server sales rose by 10.7 percent to $1.8 billion. IBM’s System z mainframe sales plummeted by 31.9 percent in the quarter, dragging down the high end of the market. If you do the math on IDC’s numbers, then sales of proprietary machines–that’s boxes where the primary operating system is not Unix, Linux, or Windows–fell by 28 percent to $1.9 billion. The X64 platform accounted for $7.2 billion in server sales in Q3, and accounted for 1.9 million unit shipments, up 7.8 percent. By IDC’s reckoning, the blade server form factor surpassed $1 billion in sales (up 41.4 percent) for the first time in a single quarter and accounted for 10 percent of servers shipped–also a first. HP had 42.1 percent revenue share for blades compared to IBM’s 32.9 percent, and these two vendors still have the lion’s share of the blade space to themselves.

By vendor, IDC shows HP closing the gap with IBM, just as Gartner did. IBM’s sales in the third quarter, according to IDC, came to $3.93 billion, down 8.5 percent and giving IBM a 30 percent revenue share, followed closely by HP, with $3.75 billion in sales, up 10.3 percent and giving HP a 28.6 percent share. Dell ranked third in IDC’s revenue rankings, with $1.58 billion in sales, up 13.5 percent, followed by Sun, with $1.34 billion in sales, up only 0.9 percent. Fujitsu-Siemens had $706 million in sales in the quarter, up 2.3 percent, and all other vendors accounted to $1.79 billion in sales, down 7.3 percent.

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