Server Sales Remain Strong

By Andy Patrizio (Send Email)
Posted Nov 27, 2007


Worldwide server shipments rose 8.7 percent on a unit basis and 2.6 percent on a dollar basis for the third-quarter 2007 compared to the same quarter in 2006, according to the latest research from Gartner. Worldwide server revenue totaled $13.4 billion for the quarter, with just over 2.2 million units shipped.

Despite predictions, the server market continued on its growth trajectory. Third-quarter shipments increased on both a revenue and unit basis, with x86 servers leading the charge.

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If the upward trend continues it would contradict some predictions that server consolidation and virtualization would cause a dip in buying.

"We were thinking that the market would be slower due to virtualization, but it hasn't shown that in this quarter, and some other markets have shown rapid growth, particularly the emerging regions," Lillian Alvarado, senior analyst in Gartner's server markets team told InternetNews.com. "There probably has been some effect, but you can't see it because the market is still growing strong."

IBM again lead the way on the revenue side, although its sales actually declined year over year. Third-quarter 2007 sales were $4.0 billion, down 8.1 percent from $4.3 billion in 2006. System p and System x sales rose while System z (its most expensive servers) and System i declined.

HP led the way in both unit shipments and revenue growth. Unit shipments skyrocketed 20.2 percent in the quarter. Its closest competitor in terms of unit growth was Fujitsu/Siemens, which gained 17.4 percent on the previous year. However, Fujitsu sold 76,606 units, while HP sold 649,958 servers, almost ten times as many.

HP is also coming within striking distance of IBM's sales. For the quarter, it reported sales of $3.75 billion, up 13.9 percent over the prior year. HP had 28.1 percent of total sales to IBM's 30.1 percent.

Alvarado said x86 sales have been driving the market, and HP has one of the most recognized brand names in x86 servers, the ProLiant line. But what really helped has been HP's investment in its channel strategy.

"They have done a lot of things to improve their sales," said Alvarado. "They have revamped their channels, they have invested a lot to get to market in a faster way, and they are reaping the benefit of those strategies."

Dell is enjoying a bit of a recovery as shipments grew by 5.4 percent, giving it 21.8 percent of the overall server market to HP's 29.3 percent and IBM's 14.3 percent. Dell's quarterly revenue of $1.52 billion was a 12.6 percent improvement over 2006 and represented 11.8 percent of the total revenue for the quarter.

Sun Microsystems also saw improvements, with an 11.4 percent growth in revenue even though there was a 4.5 percent decline in server unit shipments. The revenue growth was due to Sun's focus on the high end of the market, where margins are higher.

"I think they are still using a lot of their customer base [to drive new sales]," said Alvarado. "But they are trying to reach new customers, and in this quarter they did win back some old customers. But by and large, they are still working with their old customers."

In the end, the server market continues to be an x86-dominated world, with 2.1 million of the servers sold, compared to just 100,000 RISC-based servers (including Intel's Itanium) sold in third quarter. However, there is big margin in RISC. The 2.1 million x86 machines sold in third quarter brought in $7.5 billion in revenue, or around $3,500 per unit, while those 100,000 RISC servers brought in $3.8 billion in revenue or $38,000 per unit.

"There is still life in non-x86, and there will continue to be," said Alvarado. "It's an area that has large margins and vendors are going to protect those segments."

This article was originally published on InternetNews.com.

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