Save our servers: The next extinction begins

Traditional equipment makers are stuck, as tablets and smartphones kill PC sales and the cloud eats into server sales

Everyone loves the cloud. You can't go to a user convention like this week's Oracle OpenWorld without being absolutely barraged with talks, pitches, demonstrations, and handouts aimed at convincing you that the entire future of IT is floating far above the skyline. One message, of course, is that a business can save big bucks by outsourcing its infrastructure to public clouds built and hosted by the likes of Oracle and Amazon.com, not to mention Hewlett-Packard, Rackspace, and many others.

What surprises me, though, is the failure of so many cloud mavens to ask a very simple question: What effect does the cloud have on server sales? I believe the answer to that question is one word: damage.

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IDC, for example, is forecasting flat server sales over the five-year period that began in 2011. Worldwide revenue will grow by just 1 percent a year as revenue goes from $56.6 billion in 2011 (and $55.6 billion in 2012) to $59.5 billion in 2016. Gartner's figures are sobering as well. Cloud revenue is expected to rise 19 percent in 2012, becoming a $109 billion industry compared to a $91 billion market last year. But server revenue will increase by less than 1 percent, from $52.8 billion to $53.3 billion, while spending in the overall IT market will increase by just 3 percent.

Simply put, the cloud is drowning the commodity hardware makers, as tablets and PCs have already begun to do to PC makers. Traditional hardware makers are in trouble as the world changes around them.

Ultrabooks tanking, too
It's not just the cloud that's keeping the CEOs of traditional hardware makers like Acer, Dell, and HP up at night. The rapid growth of increasingly powerful tablets and even smartphones is rapidly eating into sales of PCs -- and their makers have yet to find an answer to that shift.

Ultrabook sales, seen as a remedy to eroding sales of traditional PCs, are bad and getting worse, an outcome that we at InfoWorld predicted from the beginning. IHS, which follows PC shipments, just cut its forecast for Ultrabook shipments in 2012. IHS (once known as iSuppli) said it expected that 10.3 million Ultrabooks would ship worldwide this year; that is less than half the 22 million units it had forecast earlier.

"There once was a time when everyone knew the 'Dude, you're getting a Dell' slogan. Nowadays no one can remember a tag line for a new PC product, including for any single Ultrabook," says Craig Stice, a senior principal analyst for compute platforms at IHS. "So far, the PC industry has failed to create the kind of buzz and excitement among consumers that is required to propel Ultrabooks into the mainstream. This is especially a problem amid all the hype surrounding media tablets and smartphones."

Interestingly, the MacBook Air, the inspiration for the Ultrabook, continues to sell well for Apple.

As to Stice's point about tablets and smartphones, consider this: On Monday, the Pew Center for Excellence in Journalism, in a report on online news consumption, said that half of American homes owned a smartphone or a tablet. "Over the last year, tablet ownership has steadily increased from 11 percent of U.S. adults in July of 2011 to 18 percent in January of 2012," according to PEJ data. Currently, 22 percent own a tablet and another 3 percent regularly use a tablet owned by someone else in the home.

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