Server sales dropping faster than in dot-com crash

According to Gartner, server revenue and server shipments are both down 24 percent from the first quarter of last year, the biggest drop this decade

Intel and AMD are spicing up the server market with ever-faster processors, but server vendors have suffered the largest revenue decline seen this decade, Gartner has found.

Worldwide, server revenue declined 24 percent in the first quarter of 2009 compared with the previous year's first quarter, and server shipments dropped an almost identical 24.2 percent. These were the largest year-over-year declines the server industry has experienced in recent memory, Gartner says.

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"It was the biggest drop [we've seen]," Gartner analyst Martin Reynolds says. "The astonishing thing is it's a bigger drop than we saw after the dot-com crash."

Analyst firm IDC came to a similar conclusion last week when it said worldwide quarterly server revenue dropped 24.5 percent  year-over-year to $9.9 billion -- the lowest revenue total seen since IDC began tracking the quarterly server market 12 years ago.

Virtualization technologies that let servers run multiple applications at once have lessened the need to purchase new machines. But economic turmoil is clearly the biggest factor in customers delaying or canceling server purchases.

"If your business isn't growing, you don't need to buy any new servers at all," Reynolds says.

According to Gartner's numbers, first quarter revenue was $10.2 billion, down from $13.4 billion in the first quarter of 2008. Total shipments dropped from 2.3 million to 1.7 million. Gartner analyst Jeffrey Hewitt said the global server market is unlikely to see growth until 2010.

In the United States, shipments dropped about 27 percent in the first quarter, while revenue declined 21.2 percent. The biggest declines geographically occurred in Eastern Europe, where shipments fell 41.3 percent and revenue fell 47.7 percent.

Even as the server market goes south, many new machines are hitting the market to incorporate upgraded processor designs from Intel and AMD. Intel got the ball rolling in March by releasing the Nehalem processors, and AMD followed up this week by announcing six-core Opteron chips code-named Istanbul.

AMD boasted of enhanced virtualization and power management capabilities, and promised performance-per-watt improvements of up to 34 percent compared with previous AMD processors.

Even after this upgrade, AMD processors are only about two-thirds as fast as Intel's, according to Reynolds. But the speed improvements were badly needed to maintain AMD's competitive position.

"It puts [AMD] in a better position," Reynolds says. "The gap between Intel and AMD performance had been big enough that you virtually couldn't give the processors away."

HP on Tuesday announced seven new ProLiant servers build on the six-core AMD chips, promising that energy bills can be cut in half by replacing servers purchased prior to 2006 with the new models. More new servers from vendors who offer AMD-based systems are likely in the works.

Despite losing 20 percent of its revenue, IBM grabbed the most revenue in the first quarter of 2009 with $3.1 billion, or 30.7 percent of the market, according to Gartner. HP came in second place with $2.9 billion, while Dell and Sun earned $1.2 billion and $976,000, respectively.

IBM owes most of its success to mainframe and Unix systems, while HP maintained a big lead in the x86 market with $1.9 billion in revenue. Dell followed with $1.2 billion and IBM came in third with $856 million.

This story, "Server sales dropping faster than in dot-com crash" was originally published by Network World.

Copyright © 2009 IDG Communications, Inc.

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