Q1 Server Business Plummets: Key Findings From IDC5:14 PM EST Thu. May. 30, 2013
The first quarter of 2013 is likely to be a quarter most top-tier server vendors, except Dell and Cisco, would like to forget. Revenue from server sales plummeted 7.7 percent in the quarter compared to last year, the worst showing for the last six quarters, according to the latest quarterly report from IDC, released late Wednesday.
Indeed, server sales have dropped in five of the last six quarters on a year-over-year basis. The extra-steep drop experienced in the first quarter of 2013 stems from a number of factors, wrote Matt Eastwood, group vice president and general manager for enterprise platforms at IDC. "Customer demand for new servers is being impacted by ongoing server consolidation, technology transitions, and challenging macroeconomic conditions across the globe. ... It is clear that challenging market conditions are increasing the competitive dynamics for server market share globally," Eastwood wrote.
Here's a look at the key findings from IDC's quarterly server sales report.
Dell's worldwide server revenue in the first quarter of 2013 hit $2.0 billion, up 10.1 percent over the same period as last year, giving the company a solid third-place in the server rankings and bringing it to within striking range of Hewlett-Packard and IBM.
But the real champion for the quarter was Cisco, which saw its revenue grow over last year by 34.9 percent to reach $450 million. While Cisco is in a technical tie with Fujitsu and Oracle (IDC declares a tie when there is less than a 1 percent difference in market share), Cisco is the only one of the three growing. That puts the company on track to shortly take over the No. 4 spot.
The IDC quarterly server sales report was released a day after Gartner's server sales report.
The two matched fairly well, but there are a couple major differences.
Gartner said IBM was the largest server vendor with sales in the first quarter of $3.0 billion. IDC, however, pegged IBM as the second-largest vendor, after HP, with sales of $2.8 billion. Both analyst firms had similar revenue estimates for HP.
While both IDC and Gartner put Dell in the No. 3 position, Gartner said Dell's sales rose 14.4 percent compared to IDC's estimate of 10.1 percent.
Also, Gartner said revenue in the Americas expanded over last year, but IDC estimated that Americas revenue contracted during that time.
IDC said weakened demand for x86 servers caused a 3.4 percent drop in the number of those servers shipped in the quarter to 1.9 million units. That led to a 1.7 percent drop in sales of those servers to $8.3 billion.
However, average selling prices rose for 15 of the last 16 quarters as customers purchased higher-end servers to meet the requirements of increasingly virtualized environments.
HP led the x86-based server market with a 31.6-percent share of the market despite an 11.6 percent drop in revenue. Dell was second with a 24.3-percent market share, followed by IBM with a 14.1-percent market share.
However, should IBM's reported sale of part of its x86 server business to China-based Lenovo prove true, IBM could drop out of IDC's list of the top three x86 server vendors.
IDC estimated Unix server revenue declined 35.9 percent year-over-year to $1.4 billion, or about 12.6 percent of the total quarterly server revenue.
This was the seventh consecutive quarter of Unix server revenue decline, with all the major Unix server vendors experiencing a revenue drop compared to the first quarter of 2012.
Indeed, the drop in Unix server vendor was a major part of the drop in overall server vendor revenue by IBM, HP and Oracle. The drop for HP was amplified by the ugly legal battles between HP and Oracle over Oracle's decision to stop developing software for HP's Itanium servers.
Whenever one reads about the coming death of mainframes, it's time to turn the page.
IDC said revenue for IBM's System z mainframes running z/OS had its second consecutive quarter of growth, with revenue up 7.0 percent over last year to reach $800 million.
That was about 7.7 percent of all server revenue in the first quarter of 2013, IDC said.
IDC estimated that first-quarter 2013 sales of servers targeting Microsoft Windows environments fell 4.2 percent over last year to $5.7 billion.
That was about 52.2 percent of total server sales for the quarter. However, despite the 4.2 percent drop in sales, Windows-focused server sales actually gained market share in the quarter thanks to the huge drop in Unix server sales.
Server vendors should be giving thanks and praise for Linux.
Thanks to the high-performance computing (HPC) and cloud infrastructure markets, sales of servers for use in Linux environments rose 3.4 percent over last year to $2.5 billion.
As a result, Linux servers now account for 23.1 percent of all server revenue, which is up 2.5 points when compared with the first quarter of 2012.
The shift to cloud computing is causing a shift in the types of servers built, with sales of density-optimized servers for cloud-based data centers rising while sales of blade servers fall, IDC said.
Density-optimized server revenue grew 54.8 percent in the first quarter compared to last year to reach $753 million thanks to a 39.3 percent increase in shipments to just under 215,000 servers. IDC estimates that density-optimized servers now account for 6.9 percent of all server revenue and 11.2 percent of total shipments. Dell is the leader in this market with a 47.3-percent revenue share.
Blade servers, however, seem to be falling out of favor. Blade server sales fell 2.9 percent from last year to $1.9 billion, or 17.7 percent of total server revenue. IDC said HP retained its No. 1 position with 44.6 percent of total revenue, followed by Cisco at 17.6 percent and IBM at 17.2 percent.
HP is still the world leader in terms of server revenue at $2.9 billion despite a 14.8 percent drop in sales over last year, IDC said.
The drop in server sales stemmed from weak demand for HP's Gen8 servers as well as continued weakness in its Itanium-based server business. That Itanium weakness was a big factor in the overall drop in Unix servers.
However, HP is still the leading vendor of x86-based servers and blade servers.
In addition, HP CEO Meg Whitman has committed her company to win against Dell in the server market.
IBM kept its No. 2 spot on the IDC top server vendor list with sales of $2.8 billion despite a 13.4-percent fall over last year.
IBM experienced a drop in sales of both its Power Systems and its x86-based System x servers year over year, which far exceeded the increase in sales of its System z mainframes.
However, IDC said, the mainframe sales increase comes during a major refresh cycle for IBM's line, giving Big Blue a comparatively strong boost over a weak sales period.
Dell was the third-largest server vendor for the first quarter of 2013 with a 10.1 percent boost in sales over last year. That gave Dell an 18.5 percent share of total server revenue, up from 15.5 percent last year.
IDC attributed a big part of Dell's growth to strong demand from the company's density-optimized data center solutions business.
Given Dell's solid growth, and a weakness in HP and IBM sales, Dell is now within striking distance of possibly taking over the top position. However, a push by HP to recover market share, and a potential strong acceptance of the new HP Moonshot modular density-optimized servers could thwart Dell's race for the top.
Fujitsu's first-quarter 2013 server sales fell 8.5 percent over the same period last year to $562 million, IDC estimated.
Fujitsu offers servers based on both the x86 architecture and on the SPARC architecture developed in the past by Sun Microsystems and now by Oracle, which in 2010 acquired Sun.
Fujitsu's primary market is in Asia-Pacific, with a relatively small business in the Americas.
Oracle server sales fell 26.2 percent compared to last year to $528 million, causing the company to lose its fourth-place position in the server market. That is a steep fall from back in the Sun days when that company, which Oracle acquired three years ago, was the third-largest server vendor.
Oracle's server sales continue to fall as the company places less emphasis on stand-alone server sales and more emphasis on its engineered systems, which combine its server and storage hardware with its application software in integrated appliances.
Cisco is the fastest-growing of the top server vendors, according to IDC. However, that growth must be taken in context of its much lower existing server sales due to the fact that Cisco's UCS servers only came to market in 2009.
IDC estimated Cisco server revenue was $450 million, up 34.9 percent over last year. Because of the heavy emphasis on blade server form factors in the Cisco UCS line, Cisco had a 17.6-percent share of the blade server business, slightly ahead of IBM's blade server sales but still far behind HP's.