Worldwide server sales will fall 14.5 percent in the second quarter, hurt by the continued sluggishness in the U.S. and Japanese economies, according to Framingham, Mass.-based IT research firm IDC.

Growth is predicted for the third and fourth quarters, but not enough to offset declines in the first half of the year. IDC's latest forecast projects a 5 percent drop in server sales in 2002, over the previous year.

"After almost two years of battling tough economic conditions and capital spending freezes, the server market is well-positioned to regain momentum in 2003 and beyond," said IDC's Vernon Turner.

Looking ahead, IDC predicts the server market will achieve a compound annual growth rate (CAGR) of 3.8 percent over the next five year, representing a $66.9 billion market in 2006.

The U.S. market will be the largest, followed by Western Europe and Asia/Pacific (excluding Japan). While the Japanese market will remain steady, the rest of Asia/Pacific is forecast to grow at 9 percent CAGR over the next five years, as telecom companies in the region begin investing in infrastructure.

Another growth area will be Blade server market, which is expected to reach $3.7 billion by 2006. Server blades are anticipated to represent 20 percent of server unit shipments by the end of the forecast period. Customers are attracted to their cost, small size and low power consumption.

"The Blade market is a new area of opportunity for server vendors," said Mark Melenovsky, of IDC. "This new market will bring dramatic changes to the server landscape while creating new areas of demand for server management and clustering."

Major vendors, are attacking the new market. Compaq Computer, now part of Hewlett-Packard introduced a new blade offering in January. new offerings.