Server revenue reached new lows in Q2

Worldwide factory server revenue was the worst since 1996, when IDC started tracking the numbers

Worldwide factory server revenue reached its lowest in more than a decade during the second quarter of 2009, bitten by weak demand and constrained IT budgets, according to an IDC study released on Wednesday.

Server revenue for the second quarter was $9.8 billion, a 30.1 percent decline compared to last year's second quarter, the survey firm said in a study. This is the fourth consecutive quarterly revenue decline, and the lowest quarterly revenue since 1996, when IDC started tracking the numbers, according to the company.

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Fewer servers shipped over the last four quarters compared to any period since 2005, and the installed server base is aging rapidly, IDC said. However, the worldwide server market could stabilize in the second half of 2009 as enterprises look to upgrade IT infrastructures, said Daniel Harrington, research analyst at IDC.

"IDC expects the server industry as a whole to begin recovery starting next quarter, slowly returning to stable growth in 2010," Harrington said. Servers based on the x86 architecture are expected to lead this recovery, with many enterprises opening up budgets and beginning to refresh their aging infrastructures with the latest technologies.

Of the top five server vendors, Sun took the biggest hit during the quarter, with worldwide server revenue declining 37.2 percent year-over-year during the second quarter. The company could continue to be affected as there is lot of uncertainty surrounding Sun's server business in connection with its pending acquisition by software giant Oracle, Harrington said.

"From a server perspective, this is largely dependent on what direction Oracle decides to go with their hardware business," he said. "There is no doubt that Sun customers are uneasy and... IBM and Hewlett-Packard are taking full advantage of that fact." Harrington said.

IBM and HP are actively trying to get Sun customers to migrate to their hardware amid the uncertainty surrounding the future of Sun's Sparc server processor. Oracle CEO Larry Ellison has said Oracle plans to stay in the hardware business and would increase its investment in Sparc. The company last week shared details about a new chip codenamed Rainbow Falls at the Hot Chips conference.

Nevertheless, the sooner Oracle can get the deal fully approved and starts making statements about their intentions, the better, Harrington said.

IBM took the top spot in worldwide server revenue during the second quarter. The company recorded $3.39 billion in quarterly server revenues, a 26.3 percent drop, and a market share of 34.5 percent. Hewlett-Packard was in second place, with $2.8 billion, a 30.4 drop and a 28.5 percent market. Dell was in a distant third, with server revenues of $1.2 billion, a 26.8 percent yearly drop. Sun was in fourth spot at $981 million, and Fujitsu/Fujitsu Siemens took fifth.

Blade servers were a bright spot as users continued to scale back the total number of servers and consolidate, Harrington said. Blade server market revenue was $1.2 billion during the quarter, falling by only 12.1 percent, while shipments declined 19.8 percent year-over-year.

"Blades remain a share gainer in the industry due to their advantages in enterprise virtualization environments, energy efficiency, and consolidation attributes," Harrington said. However, blade adoption may slow down in the short term as many large-scale consolidation activities may either be complete or are close to it.

Both the x86 and non-x86 server markets were weak during the second quarter. Revenue for non-x86 servers, including servers based on RISC and EPIC architectures, declined 32.2 percent on a yearly basis to $4.7 billion. The x86 server revenue declined 28.1 percent to $5.2 billion worldwide, while unit shipments declined 30 percent to 1.4 million servers.


Copyright © 2009 IDG Communications, Inc.

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