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Server Hardware Revenue Growth Strongest in a Decade

By David Needle (Send Email)
Posted Dec 1, 2010


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Despite continued economic doldrums, the server hardware market saw a healthy revenue increase in the third quarter of 2010, according to research released Monday by IDC. Worldwide server hardware revenue in the latest quarter increased 13.2 percent from 2009, according to IDC. The research firm also reports HP and IBM remain in a tight race for bragging rights to the leading share of revenue.

Factory revenue in the worldwide server hardware market increased 13.2 percent during the same quarter last year to $11.8 billion. IDC said it's the third consecutive quarter of year-over-year revenue growth and the fastest growth since 2000. IDC said server unit shipments increased 13.1 percent over the same quarter last year. But that growth represents a drop off from the big increase in second-quarter 2010 that saw a 23.1 percent increase in the number of servers shipped compared to the same quarter in 2009.

"The server market experienced its strongest growth in 10 years in the third quarter of 2010," Matt Eastwood, IDC's group vice president for Enterprise Platforms, said in a statement. "All geographic regions exhibited positive growth for the second consecutive quarter as the infrastructure build-out and refresh extends across SMB, enterprise, public sector, and cloud/hoster organizations. "While much of the third-quarter refresh occurred in x86 and CISC-based mainframes, IDC expects the recovery to extend to Unix platforms in the fourth quarter of 2010."

Volume, lower cost systems saw the biggest revenue increase, up 28 percent from the year ago quarter, which was the fourth consecutive quarter of positive growth in that segment of the market. Midrange servers also saw healthy demand in the quarter, with a year-over-year growth of 19.8 percent. Significantly, this is the second straight quarter of positive growth for midrange servers after nine quarters of decline. IDC points to the growth in midrange server revenue as a sign of broader interest in more powerful servers than volume systems.

"Within the x86 server market, customer demands have increased for x86 servers with advanced performance capabilities," said IDC senior analyst for enterprise servers Reuben Miller. "Though the x86 market is experiencing annual positive growth for both unit sales and revenue, this shift in demand for more robust systems is providing vendors with higher growth rates in revenues over units sales, and in turn, higher profitability."

However, demand at the high end of the enterprise market continues to be soft, with revenue declining 14.9 percent in third quarter compared to the same quarter in 2009. IDC said this is the eighth consecutive quarter the high-end enterprise server segment has seen a drop in revenue.

Server Hardware Market Share

IDC said HP (NYSE: HPQ) was the overall leader in server hardware with a 33.4 percent factory revenue share for the third quarter. HP increased revenue 22.2 percent and gained 2.5 share points a year ago. IBM checked in at the No. 2 spot with a 30.6 percent share of factory revenue in the quarter, a 9 percent increase compared to a year ago. IDC said IBM (NYSE: IBM) continued to experience weakness in its Power Systems business, but System z demand improved nicely following the recent zEnterprise product refresh cycle coupled with a continued strength in demand for the x86-based System x servers during the quarter.

Rounding out the top three is Dell (NASDAQ: DELL) with a 14.1 percent of the factor revenue market share in server hardware for the quarter -- only an 0.7 percent gain in share over the same quarter a year ago, but IDC reports the company had an 18.7 percent revenue growth in servers driven by demand from enterprise and SMB customers.

Oracle (NASDAQ: ORCL), now a systems vendor, thanks to its acquisition of Sun Microsystems, checked in at fourth place, with an 0.9 percent year-over-year revenue growth for the third quarter and a 6.7 percent share of the market. Fujitsu, came in fifth in IDC's rankings of the top five server vendors by revenue growth with a 5.1 percent revenue share for the quarter. David Needle is the West Coast bureau chief at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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