The Yin and Yang of Server Sales

By Clint Boulton (Send Email)
Posted May 26, 2006

Servers are still selling at a healthy clip, but customers are consolidating gear to cut costs, according to new research from IDC and Gartner. IDC said worldwide server sales dipped 1.9 percent to 11.9 billion in the first quarter of 2006 after several quarters of growth. Server revenue was down but shipments were up in the first quarter of 2006.

The research firm said 2 million units shipped during the period, up from 1.7 million units in Q1 2005.

Research rival Gartner, which uses different metrics to tally how servers sell, said server revenue for Q1 2006 was flat, notching $12.35 billion compared with $12.34 billion in Q1 2005.

However, Gartner said first-quarter server shipments increased 13.7 percent from Q1 2005.

IDC analyst Matt Eastwood said the server market's deceleration portends shifts in IT spending patterns, with IT managers condensing their gear to meet business needs, while factoring in budgeting and staffing considerations.

HP and IBM tied for the top position with 28.1 percent and 27.9 percent of server revenues, respectively. Dell kept the third place with 11.1 percent for the quarter.

Sun Microsystems saw a 5.8 percent year-over-year revenue growth in the period and increased its market share to 10.8 percent from 10 percent in Q1 2005.

IDC analyst Steve Josselyn said Sun's UltraSPARC T1-based multi-core machines and Opteron-based x64 Galaxy servers are "beginning to resonate with customers."

Volume servers, those priced lower than $25,000, continue to be the top seller, with sales growing 6.3 percent year over year.

Midrange server sales continue to get squeezed by the low-end and the high-end, dropping 16.2 percent. The high-end also lost out to the low-end, dipping 3.2 percent year over year.

Most volume servers run Microsoft Windows, so it comes as no surprise that IDC found that Windows-based machines continued to show strong growth, with revenues growing 5.9 percent on quarterly factory revenue of $4.4 billion and a 12.9 percent increase in unit shipments year over year.

This makes Windows the largest single segment of the server market, comprising 37.1 percent of all server revenue in 1Q06.

Windows is the likely cause behind the Unix servers experienced a 7.1 percent decline in sales year over year, while unit shipments declined 8.7 percent from first-quarter 2005. Unix revenue, on the other hand, totaled more than $3.9 billion for the quarter and accounted for 33.2 percent of sales.

Linux servers continued to grow at 17 percent and now account for 12.2 percent of all server revenue.

In terms of chip architecture, the x86 server market tallied $6.1 billion worldwide, due to an uptick in AMD-based Opteron systems, which accounted for over $1 billion of server revenue in the quarter.

Itanium-based systems, once maligned by almost every server vendor not named HP, grew 41.8 percent year over year.

Blade servers continued their upward climb, with sales rocketing 43.4 percent and shipments ascending 29.5 percent year over year.

Here, IBM held the No. 1 spot, with 40.1 percent market share. HP held 35.6 percent share, and Dell retained the third position with 11.1 percent but is growing nearly twice the rate for blades.

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