Windows leads as server market booms

For the first time, Microsoft Windows was the leading OS in new servers in the third quarter, as the overall worldwide server market grew a robust 8.1 percent, market research company IDC said Tuesday.

After a long period focused on cutting costs and buying servers just to run current applications, enterprises are once again investing strategically in systems to handle future workloads, said IDC analyst Matt Eastwood. IT organizations are once again being asked to support real growth, he said.

Also Tuesday, Gartner reported that worldwide server revenue grew 5.6 percent during the third quarter. Gains in sales of servers costing less than $25,000 led the upward trend, according to both research companies.

Sales of Windows systems accounted for 36.9 percent of all server revenue in the quarter, versus 31.7 percent for Unix and 11.5 percent for Linux, Eastwood said. Enterprises increasingly are using Windows-based servers for applications such as ERP (enterprise resource planning) in addition to traditional uses such as e-mail and Web hosting. Migration from Windows NT to newer versions of Windows also is driving sales, he said.

Server revenue grew faster than IDC's projection, which was for 6 percent growth, according to Eastwood.

"For the first time, you could say that Microsoft has its own legacy, and that legacy is NT," Eastwood said. How much of Windows' gain will be permanent is hard to say, he added. However, just two years ago, Windows servers were only 31.5 percent of the market, according to IDC. Gartner's figures showed Windows servers with more than 37 percent of the market, also in first place, according to analyst Joseph Gonzalez.

IBM, Hewlett-Packard, and Dell each had revenue growth faster than the market, and Dell's gains pushed it firmly into third place ahead of Sun Microsystems, after several quarters of virtual ties between the two contenders, Eastwood said. Dell servers brought in factory revenue of $1.3 billion, giving it 10.5 percent market share, whereas Sun's roughly $1.1 billion gave it a market share of 8.7 percent. Sun's revenue was down 7.6 percent from a year earlier, while Dell's grew 11.8 percent.

The kinds of servers Dell specializes in -- x86-based Windows and Linux systems -- are on a roll right now, Eastwood pointed out.

"Sun was slow to react to momentum around the x86 servers. They're reacting now ... but it's going to take them a few quarters to get their story out," Eastwood said.

IBM remained the top vendor in revenue terms, with a gain of 10.3 percent to more than $4 billion, while HP stayed in second place as its revenue grew 12.4 percent to reach nearly $3.5 billion. IBM had 32.3 percent of the market versus HP's 27.8, but both gained share. Overall, just under $12.5 billion worth of servers were sold in the quarter, according to IDC.

Gartner gave the same ranking, also showing Dell gaining on Sun. Both companies ranked Fujitsu/Fujitsu Siemens in fifth place.

Volume servers, which sell for less than $25,000, showed 14.8 percent revenue growth year over year and are the main growth engine for the industry, IDC said. Midrange enterprise servers selling for between $25,000 and $499,000 grew 3.8 percent, while high-end enterprise servers priced over $500,000 declined 1.2 percent.

Processors with 64-bit capability are leaping to the forefront of the x86 server market, according to IDC. In the third quarter, 69 percent of all x86 servers sold had 64-bit-capable processors, compared with just 9 percent a year earlier, Eastwood said. Most of those chips are still running only 32-bit applications, but enterprises are investing for the future, he said.

AMD, which pioneered both 64-bit and dual-core processors for the x86 market, continued to gain on Intel, according to Gartner. In terms of revenue, AMD-based servers made up 10.7 percent of the x86 server market, compared with just 4.3 percent a year earlier, Gonzalez said. Winning a place in servers from IBM, HP and Sun is helping AMD take share, he said.

(IDC is a division of International Data Group Inc., the parent company of IDG News Service.)