RealTime IT News

Small Servers Boost Market Growth

The $10.8 billion server world is doing better than expected as the year heads to a close, thanks in large part to smaller Linux and x86 blade servers, according to a report released Wednesday by analysts at IDC.

The Framingham, Mass.-based firm's latest Worldwide Quarterly Server Tracker shows a 2 percent revenue pickup over the last three months. The gain is nearly one percentage point higher than analysts anticipated and is the second consecutive quarter of positive growth for server revenues worldwide. This after nine quarters of decline during the dot-com bust.

Overall, there have been more server unit shipments -- 19.5 percent -- than previous quarters. Analysts say an underlying demand for volume servers, which are small servers priced less than $25,000 are leading the charge. Year-over-year, volume server revenue is up 9.5 percent.

"Volume servers are generating most of the positive momentum in the worldwide server market," said IDC group vice president Vernon Turner. "This shows that the IT community has embraced volume server deployments as a mainstream technology to meet a wide range of data-processing requirements and to support a wide variety of computing workloads. However, two quarters of positive growth do not necessarily mean that a long-lasting economic rebound is in place."

Midrange enterprise servers ($25,000 to $499,999) are also on the rise growing revenues by 7 percent year-over-year, according to the report.

But not every type of server is enjoying such success. High-end enterprise servers (priced $500,000 or more) declined in revenue by 14 percent year-over-year. IDC believes this is due in part to IT budget constraints and to shifts in server deployments that favor clustering servers together. The shift away from mainframe-style systems was made obvious this summer when Round Rock, Texas-based computer maker Dell said it would no longer produce 8-way servers.

As for the style trends, IDC points to x86-based blade servers running Intel and AMD processors as the most popular. The report found than 50,000 server blades purchased in the third quarter and more than 120,000 year-to-date.

"The x86 server market continues to outpace our expectations with respect to unit shipment demand and customer spending," said IDC analyst Mark Melenovsky. "Strong growth for Windows and especially Linux-based solutions, modular scale-out server deployments of rack-optimized servers and blades, as well as a very good replacement cycle environment for servers purchased before the IT spending recession are all contributing to exceptional market demand."

Linux is the other hot commodity with 49.8 percent growth in factory revenues, year-over-year, while unit shipments grew 51.4 percent year-over-year.

"Linux servers generated $743 million in the quarter, demonstrating their traction in the worldwide server marketplace as they take on more and different types of workloads from other types of servers," said IDC research vice president. "Linux servers have demonstrated six consecutive quarters of year-on-year revenue growth, proving that they are not a flash-in-the-pan technology."

The big surprise of the quarter is Windows-based servers, which accounted for $3.4 billion in sales, representing 31.7 percent of quarterly server market revenue. IDC said several factors contributed to the continued growth, including upgrades in the large Windows NT server installed base to Windows 2000 or Windows 2003. Growing average sales prices for scalable servers (with four or more processors) running Windows 2003, contributed to revenue growth, as well.

Just about the only area that lacked luster was the UNIX sector. The report said revenues for the backbone of most server rooms and data centers were $4.1 billion in the quarter. That's a decline of just 3.8 percent, which is the lowest rate of decline in almost two years.

IDC did say shipments of UNIX servers did show signs of life with Hewlett-Packard usurping Sun Microsystems , which had been the leader in the second quarter in 2003. In fact, Sun's UNIX revenue declined by 10.1 percent year-over-year, but Sun's unit shipments grew by 17.4 percent, reflecting the company's focus on low-cost boxes.

When it comes to overall server market bragging rights though, IBM is the biggest vendor in the bunch. The Armonk, N.Y.-based computer giant held onto its number 1 spot in the worldwide server systems market with 31.1 percent market share in factory revenue, gaining 1.4 points of share year-on-year. HP took the number 2 spot with 27.7 percent share, gaining 0.4 points of share year-on-year. The gap between Sun and Dell continued to close with number 3 Sun showing revenue share of 10.8 percent worldwide, while number 4 Dell showed revenue share of 9.5 percent. According to IDC, Dell has been growing its worldwide revenue market share for six consecutive quarters.