Q2 Sees Server Growth Despite Midrange Decline

Taking a look at server sales in the second quarter showed that things have stayed pretty steady. This is extra good news considering there was a decreasing demand for midrange systems, according to research firm IDC. During this time, vendors as a whole saw their server revenue increase by 6.1% year over year to $13.5 billion. In addition to that, server shipments also increased by 3.2% from one year ago.

Moreover, revenue in the market also saw an increase on sales of higher-end servers and lower-end servers  used for hyperscale computing. However, the demand for midrange servers decreased by 5.4% year over year. This could be attributed to the recent ending of the x86 server refresh cycle, according to IDC.

In the second quarter, HP contained its top spot as the market leader with a share of 25.4%. The company's density-optimized servers were also in high demand as sales of the products saw a major increase of 119% year over year. Dell came in second place with a 17.5% share as its blade servers and rack servers experienced healthy growth.

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Coming in third place was IBM and the company was also the only vendor in the top five to see its market share and revenue fall during the quarterly period. IBM sold off its x86 server business to Chinese PC developer Lenovo last year and, as a result, its server revenue saw a hefty decrease of 32.9% year over year.

On the other hand, Lenovo saw its server revenue completely skyrocket by over 500%, which was a definite benefit from the acquisition deal with IBM. The China-based company is also hoping to become a major player in the server industry as it has begun diversifying away from its traditional market of PC sales. In addition to that, Lenovo also reached a statistical tie with Cisco for fourth place in the server market.

In terms of geography, the United States was the fastest-growing market for servers, with 12.6% year over year growth. The Asia Pacific region, which excludes Japan, came in second to the United States with 12% growth.

With the x86 server refresh cycle over we can probably assume that midrange servers will continue to see a decline. However, with the numbers of growth posted by both the high-end and low-end markets, we can also assume that the server market is going to steadily increase.

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Server Sales Pass Go! Collects $200 As The Market Sees Turnaround

According to a recent report from IDC, server sales are on the up and up, which is great news due to the extremely slow sales figures that have plagued the market recently. In addition to that, IDC also claims that server sales are likely to stay on the increase well into 2015 and beyond.

Growth last quarter was minimal with worldwide server revenue increasing only 2.5% from the previous year. The news of an increase in sales will be welcome news to server makers as they have faced five consecutive quarters of server sales decline. In addition to that, server markers are also benefiting from the start of a cyclical refresh cycle. According to IDC, customers are now starting to replace systems that they employed soon after the financial crisis.

However, there are other factors at work as well, says IDC Analyst Kuba Stolarski. According to Stolarski, sales of x86 servers have been strong for quite a while and have been increased by companies like Google and Facebook that are building out their massive infrastructures. On the higher end of the market, sales of Unix and mainframe systems, which are traditionally more expensive, have been in decline which has also slowed down the overall market. The good news here is that these products make up a small enough part of the market that x86 gains are able to make a positive influence.

Moreover, sales of anew midrange server system, converged infrastructure products sold by companies like Cisco and VCE, have been increasing and contributing to overall growth. This has also allowed the server market to show some growth in the April-June quarter. Factory revenue across the globe also reached $12.6 billion, an increase from $12.3 billion last quarter. In addition to that, two upcoming developments also mean growth should continue and accelerate, according to IDC.

One of these developments is the release of servers based on Intel's Grantley Xeon server platform. These servers are expected to debut at Intel's developer conference in San Francisco next month. In most cases, a new chip typically spurs a new wave of server purchases. Still a long ways out of development, Microsoft is planning on ending support next year for its Windows Server 2003 OS. This product is very widely used so the discontinuation of it should prompt more people to upgrade.

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Stolarski warns, however, that anybody expecting Microsoft's server business to experience the same thing its operating system business did with Windows XP shouldn't get their hopes up. This transition, Stolarski says, will be slower and some customers will most likely keep their existing hardware and simply upgrade their operating system.

The server market overall saw HP leading the pack once again with 25.4% of revenue, a slight increase over last year. Cisco had the biggest increase overall, expanding its revenue 35.4%. The company still has a small share overall at only 4.4%, though IDC notes that it took joint fourth place in the market with Oracle, who also saw a slight increase in sales. IBM was on the opposite side of the spectrum. The company is in the process of selling its x86 server business to Lenovo and also saw its sales drop 10%. Dell, which recently became a private company, also saw a decrease in sales of 6.5%.

Even though some companies experienced decline, the server market as a whole is looking up. With things reaching the end of their life users will be looking, if not forced, to upgrade to new systems. Servers based on Intel's Grantley Xeon server platform should be a great stepping stone in spurring a nice refresh for the server industry as a whole.

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.