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IDC: Server Sales Fell 14 Percent in Q4

Unix servers show more staying power than low-end x86 servers as the global economic crisis hits the once-thriving server business.

The worldwide server market contracted 14 percent in the final quarter of 2008, according to figures just released by IDC. But the drop wasn't evenly distributed; with the high end of the market showing better resiliency than the more affordable low-end.

Worldwide server sales declined 14 percent from the fourth quarter of 2007, to $13.5 billion. Worldwide server unit shipments declined 12 percent compared to the same quarter in 2007, indicating server prices dropped slightly.

This erased all of the gains for the year, resulting in an overall decline in 2008 of 3.3 percent to $53.3 billion, while worldwide unit shipments grew 2.0 percent to 8.1 million units. Again, this reflects that prices and unit sales often go in different directions.

Volume systems, on the lower end of the price spectrum, saw the sharpest decline in the quarter, down 16.8 percent over the prior year in revenue. Midrange systems were off 14.5% while the high-end enterprise segment saw a revenue decline of just 7.5 percent.

Unix servers, typically the most expensive hardware next to mainframes, held up the best, with only a 6.2 percent decline in quarterly revenue compared with 4Q07. Linux server sales were down 7 percent, while Windows server sales fell 17.8 percent. Unix server revenues account for 36.2 percent of quarterly server spending, compared with 35.3 for Windows and 13.6 percent for Linux.

It shows that enterprises, the typical customer for Unix servers, have more money to spend than the SMB market, so there was less decline in the high end, according to Dan Harrington, research analyst with IDC's Enterprise Platforms Group.

"There was probably a lot of planning involved in [the high-end] market than there is in the low end market, so the money was likely already allocated for the purchase," he told InternetNews.com. "It's a lot easier to freeze the purchases on smaller volume servers, but if a customer had spent six months getting ready to buy an IBM z Server, they aren't going to cancel that."

Avoiding 'dot-bomb'-era mistakes

The across the board decline is the first time since 2002 that all three server segments have experienced a year-over-year revenue decline in the same quarter. Back then the dot-bomb implosion led to one start-up after another going up in flames, while bigger, more established Internet firms went into survival mode and cutting back on their IT purchasing.

The industry was clobbered with excess inventory for two reasons: one, it kept making product even as a slowdown loomed and finally took hold, and two, when start-ups died, their gear ended up for sale on eBay or at auction. This was especially painful for Sun Microsystems, since its servers had been sold to many start-ups. Now Sun was competing against eBay, with relatively new servers going for 10 cents on the dollar.

Like the consumer side, Harrington said the industry learned its lesson from that mess and made very sure not to get caught holding a lot of unsold inventory again.

"These companies learned from that. They are really cutting back on inventory," said Harrington. "They are cutting their inventory base and that's definitely going to affect their upcoming quarters. They know demand is going down and don't want to be stuck with those inventories."

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