Server sales stabilizing, says study

Falling less fast

The server market was down but not out in the third quarter.

According to the box counters at Gartner, who released their revenue and shipment statistics for servers today, worldwide server revenues fell by 15.5 per cent in Q3, to $10.7bn. And shipments fell even faster, down 17.1 per cent, to 1.92 million units.

While there are some currency effects that make the server racket seem a bit stronger in terms of revenues as sales are translated into strengthening US dollars, the fact that the market has grown sequentially from the second quarter - as it almost always does - was cause for relief. But not yet celebration.

"It is important to put the yearly declines into perspective," explained Jeffrey Hewitt, research vice president at Gartner, in a statement accompanying the figures. "Looking at the third quarter results from the sequential perspective, they showed an increase of 13.8 per cent in shipments and 10.2 per cent in revenues when compared to the second quarter of this year. That suggests that the market as a whole is showing signs of stabilization as we move toward the end of 2009."

As El Reg reported in early September, Gartner calculated that in the second quarter, global server revenues plummeted by 29.4 per cent to $9.69bn and shipments dropped like a rock by 28 per cent to 1.69 million units. The hope, of course, is that sales will continue to rise sequentially in the final quarter of this year. And while the server market stomached a pretty awful Q4 2008, with revenues down 15.1 per cent to $13.1bn and shipments falling by 11.7 percent to just over 2 million units.

It will take an exceptionally strong Q4 here in 2009 to even match last year's sales - and that really seems unlikely. Server makers will probably pop the champagne if they see sequential growth on the order of what they saw moving from Q2 to Q3 this year. They may just be happy to see 2009 end no matter what happens. With high-end server chips from IBM (Power7), Intel (Nehalem EX), and AMD (Magny-Cours) not due until the first or second quarter of 2010, it seems likely that those who can wait to spend dough on servers, will wait.

In the third quarter, Gartner reckons that IBM once again held the top spot in terms of revenues, with $3.38bn in total server sales, down 12.3 per cent. Mainframe sales cratered, but Power Systems didn't do anywhere near as badly as they could have and System x sales were in positive territory.

Hewlett-Packard came in at number two, and the price erosion in the x64 space and diminished sales of high-end Integrity server sales (mirroring IBM's mainframe slump) caused HP to have a bigger revenue dip, falling 15.1 per cent to $3.22bn. HP saw a one-tenth of a per cent uptick in revenue market share, but IBM gained 1.1 points in the quarter. We know who is getting the bigger bonuses, I guess.

Dell ranked third in the third quarter, as it usually does, with $1.42bn in server sales, down only 5.1 per cent, raising the class average and also giving it 1.5 points more market share than it had in the year-ago quarter. The high-end Sparc server business at Sun Microsystems was hit hard, just as big iron was at IBM and HP, in the third quarter, and uncertainty surrounding Sun's Sparc product plans and the pending $7.4bn Oracle acquisition didn't help, either. And so Sun's server sales were down a stunning 32.3 per cent in Q3, to $784.6m.

Fujitsu, which sells Sparc boxes as well as x64 and Itanium gear and a smattering of mainframes in its home market, ranked fifth, with $550.2m in revenues, down 10.8 per cent and raising the class average as well. Other vendors in the server racket accounted for just a smidgen under $1.3bn in sales, a 23 per cent decline compared to Q3 2008. There is something of a flight-to-quality effect going on as well as more aggressive sales by the top players in niche markets, like hyperscale and Web 2.0 data centers, that the big server makers were willing to let others have a taste of in years gone by.

In terms of shipments, HP is by far the global heavyweight, according to Gartner, pushing out 615,694 box in the third quarter, down 15 per cent and not shrinking as much as the market at large. Dell was the number two shipper, with 437,447 boxes, down 12.6 per cent. IBM had a 20.1 per cent shipment decline, peddling only 246,493 machines, and Fujitsu did comparatively well in terms of decline, only falling 9 per cent to 66,953 boxes. Sun is normally the number four shipper, but not this time around. The company's server shipments were off 38.1 per cent to 50,435 boxes, in the quarter. Other vendors accounted for 503,497 units, down 20.1 per cent.

The x64 server is still the workhorse in terms of sales and shipments in this market. But x64 shipments fell by 16.2 per cent, to 1.86 million units, and revenues fell by 11.4 per cent, to $6.32bn. Most of the price erosion in the x64 space is coming from those vendors not in the top tier, by the way. The other vendors in the x64 category - not including the top five vendors, which are HP. Dell, IBM, Fujitsu, and NEC, in that order - saw a 20.6 per cent decline in aggregate shipments, to 491,647 x64 boxes, but their collective revenue fell by 30.8 per cent, to $1.04bn.

That's a 12.9 percent slide in average selling price for the others (around $2,100 per x64 box) compared to a 5.8 percent rise for the average box sold across the market, to $3,399. For the top five vendors, ASP prices for x64 boxes are up 9.7 percent to $3,865.

I guess we can see who is benefiting from virtualization-enabled consolidation.

HP was the revenue and shipment leader in the x64 area, with $2.3bn in sales and 604,491 boxes out the door in Q3. Dell pushed 437,447 boxes and got $1.42bn, gaining the number two slot, followed by IBM, which sold 224,573 x64 machines and which actually posted a 1.3 per cent increase in sales in the quarter, to $1.14bn. (IBM's System x and BladeCenter businesses went onto the rocks before the banking crisis got into full swing last September, and the compares are easier).

Fujitsu and NEC has comparatively small x64 businesses - at $259.5m and $169.5m, respectively - and Sun does not rank in the top five in terms of either shipments or revenues. It really needs to be the number four player here to be viable and to have shipments and sales that are at least comparable to IBM.

Gartner's analysts believe that 54,553 RISC or Itanium boxes running Unix were sold in Q3, down 37 per cent, and they said that Sun's shipments in this area were down 49.7 per cent, to 23,986 units. Its revenues were down 34.8 per cent, to $628.3m. IBM was the revenue leader in Unix boxes, with $1.06bn in sales, down 11.5 per cent. IBM shipped 18,325 machines, 25.3 per cent fewer than it did a year ago. HP, with $762.8m in Unix sales, down 17.4 per cent, only sold 9,723 Unix machines - 12.5 per cent fewer than a year ago, and presumably a cause for some celebration at HP considering the contraction in Unix spending.

Fujitsu's Unix biz was almost as bad off as Sun's, falling 28.5 per cent to $104.4m, and Bull, the number five player in terms of revenues in the Unix space, had $28.9m in sales, down 35 per cent. (Bull resells IBM's Power-AIX boxes). Overall, Unix sales came to $2.6bn in the third quarter, down 21.2 per cent. ®

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