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Low demand dampens server market revenue

Posted: 30 Aug 2012 ?? ?Print Version ?Bookmark and Share

Keywords:server market? bladed server? EPIC? RISC?

International Data Corp. (IDC) has revealed that factory revenue in the worldwide server market decreased 4.8 percent YoY to $12.6 billion in 2Q12. This is the third consecutive quarter of YoY revenue decline, as server market demand continued to soften following a strong refresh cycle that characterized the market in most of 2010 and 2011. Server unit shipments decreased 3.6 percent YoY in 2Q12 to two million units. This was the first YoY decline in server shipments since 3Q09, added the market research firm.

On a YoY basis, volume systems experienced a 2.5 percent revenue decline. At the same time, demand for midrange and high-end systems experienced YoY revenue declines of 11.2 percent and 7.6 percent, respectively in 2Q12. All three segments were impacted by difficult YoY compares combined with transitions in the technology refresh cycles.

"Worldwide server revenue declined for the third consecutive quarter in 2Q12 as the market continued working its way through a number of technology transitions impacting customer demand for x86, Unix, and mainframe class systems. That said, it is also clear that economic uncertainty is weighing on the market and the sales cycle is lengthening," said Matt Eastwood, group VP and GM, enterprise platforms at IDC. "Regionally, server demand in Western Europe and Japan was particularly soft while server revenue in the U.S. and Asia/Pacific managed to grow modestly. It is important to note that IDC believes that server demand will begin to improve in 2H12 following a number of critical product refreshes which continue to be announced."

HP and IBM jointly held the number 1 position in the worldwide server market with 29.6 percent and 29.2 percent factory revenue share, respectively, for 2Q12, a statistical tie. IBM experienced an 8.2 percent YoY decline in factory revenue losing 1.1 points of share in the quarter on soft demand for System x, Power Systems and System z ahead of a number of major product transitions. HP's factory revenue declined five percent YoY in 2Q12 based on flat sales for x86-based ProLiant servers offset by continued declines in HP Integrity server demand. Dell maintained third place with 16 percent factory revenue market share in 2Q12. Dell's factory revenue increased 5.9 percent compared to 2Q11 helping Dell to its highest-ever server market share in any quarter. Oracle maintained the number 4 position with six percent factory revenue share. Oracle's 2Q12 factory revenue decreased 20.1 percent compared to 2Q11. Fujitsu ended the quarter in the number 5 market position with 3.9 percent factory revenue share. Facing a tough yearly compare from the K-computer HPC deal in 2Q11, Fujitsu server revenue declined 42.1 percent YoY.

"The Unix server market is in between generation refresh cycles, and continues to be hampered by workload consolidation and migration to other platforms," said Kuba Stolarski, research manager, enterprise servers at IDC. "IDC expects the Unix market to stabilize over the next few years and remain a smaller, specialized segment of the overall server market, catering primarily to customers who are looking for high levels of availability and stability in a scale-up architecture."

Demand for x86 servers continued to improve in 2Q12, with revenues growing 3.5 percent in the quarter to $8.7 billion worldwide as unit shipments were down 0.6 percent to 1.9 million servers. This was the first decline in x86 server shipments since 3Q09. HP led the market with 36.4 percent revenue share based on a 0.2 percent revenue decline when compared to 2Q11. Dell retained second place, securing 23.1 percent of revenue share while gaining 0.5 points of share when compared with 2Q11. IBM rounded out the top three positions, holding 14.3 percent revenue share following a 7.4 percent YoY revenue decline. Overall, this was the twelfth time in the previous thirteen quarters with a YoY increase in average selling prices for x86 servers as both the mix of systems and average system configurations continue to move up-market, driving generally higher product margin for x86 ecosystem players.

The blade market continued its solid growth in the quarter with factory revenue increasing 6.3 percent YoY and shipment growth increasing by 4.1 percent compared to 2Q11. Bladed servers, including x86, EPIC and RISC blades, accounted for $2.1 billion in revenues, representing 16.9 percent of quarterly server market revenue. More than 90 percent of all blade revenue is driven by x86-based blades, which now represent 22.1 percent of all x86 server revenue. HP maintained the number 1 spot in the server blade market in 2Q12 with 51.5 percent revenue share, while IBM finished with 15.9 percent revenue share. Cisco and Dell rounded out the top 4 with 13.8 percent and 8.1 percent factory revenue share, respectively.

"IDC is observing a increasing trend toward form factor specialization in the market, as both blade and density optimized servers continue to outperform the general market," said Jed Scaramella, research manager, Enterprise Servers at IDC. "Together, blade and density optimized servers grew 15 percent in annual revenue and now represent 22 percent of the market. These modular form factors are expected to continue to gain adoption, with blades targeting virtualized environments in enterprises and density optimized servers targeting large-scale homogeneous environments in data centers."

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