Server Markets Downward Spiral Begins to Slow

After a dismal first half of the year for the server market involving a large decline in sales and average selling prices (ASPs), it seems things aren't quite as bad as they could be. A third quarter server market survey from Gartner states that worldwide server revenues have continued to fall by 15.5 percent to $10.7 billion, and unit shipments are falling at an even faster pace down to 17.1 percent to 1.92 million units. At first glance these numbers may look bleak, but there is room for cautious optimism as we head into the fourth quarter and 2010.

The bright side of it all? The descent in sales and Average Selling Prices have begun to slow. Jeffrey Hewitt, research vice president at Gartner, expresses his optimism for the server market. "It is important to put the yearly declines into perspective," said Hewitt in a statement. "Looking at the third quarter results from the sequential perspective, they showed an increase of 13.8 percent in shipments and 10.2 percent in revenues when compared to the second quarter of this year. That suggests that the market as a whole is showing signs of stabilization as we move toward the end of 2009." And indeed these numbers are a considerable improvement over the second quarter which was painful across the board. The second quarter showed a 30.4 percent plunge in unit shipment year-over-year which makes the 17.1 percent decline in quarter 3 seem like a large improvement.

Current Server Market Standings

In the third quarter, Gartner placed IBM at the top of the list once again with a total market share of 31.7 percent and $3.38 billion in total server sales, which are down 12.3 percent. IBM Mainframe sales and Power Systems sales were down while System X sales were up. Coming in at number 2 is Hewlett-Packard with a revenue decline of 15.1 percent to $3.22 billion and a market share of 30.2 percent . Dell came in third, with $1.42 billion in sales, down only 5.1 percent, and currently holds 13.4 percent of the market.

Sun Microsystems continues to suffer the worst of the losses with sales down 32.3 percent in the third quarter to $784.6 million. Sun's market share has dropped from 9.2 percent to 7.4 percent in just one year. Fujitsu, which sells servers using Sun's UltraSparc processor as well as x64 and Itanium processors, was down 10.8 percent to $550.2 million in revenue. Other niche vendors, such as Intel Itanium-based vendors and x86 providers have dropped a combined 23 percent year over year to $1.3 billion in sales.

Currently x86 servers account for 97 percent of the sales, which totals to 1.86 million units. Overall x86 unit sales have fallen by 16.2 percent while revenues fell by 11.4 percent to $6.32 billion. The Server Market was much harsher for RISC vendors - which are primarily Sun, Itanium and IBM Power-based servers. These RISC servers accounted for just three percent of total unit sales, but contributed 25 percent of overall sales revenue. This 3rd quarter RISC server sales fell by 37 percent on a unit basis year-over-year and 34.8 percent on a revenue basis. What's more, the defections to IBM and HP are really starting to show.

In the third quarter of 2008, Sun dominated 55.1 percent of the RISC market. However in Q3 of 2009, Sun only holds 44.0 percent. IBM on the other hand is up from 28.3 percent market share in 2008 to 33.6 percent in 2009, and HP saw an increase from 12.8 percent in 2008 to 17.8 percent share in 2009.