Study: Server Sales Up On The Low End, Down On The High

In the first quarter of 2002, global shipments of PC-based servers reached 938,000 units and accounted for 39 percent of worldwide server spending, up from 912,000 units shipped and 35 percent of total server spending a year earlier, the IDC report said. However, that gain hasn't helped vendors or solution providers selling entry-level servers, said IDC analyst Mark Melenovsky. Revenue for the sector dropped about 12 percent from last year's level because of intense price competition and falling component prices, he said.

For now, though, average server sale prices are stabilizing, memory prices are firm and new Intel processors are coming to market, Melenovsky said. "We won't see the massive disappearance of revenue we saw last year," he said.

Demand for servers remains strong, but lower-end units are driving sales, said Melenovsky. "Businesses want immediate returns on their investment when their budgets are cut, so they are shifting away from four-way and eight-way servers and buying more two-way servers," he said. "So the four-way and eight-way servers have lost in terms of market share and won't recover until the third quarter."

As a result, the door is opening to opportunities beyond typical server offerings. Melenovsky said Advanced Micro Devices now has a chance to gain on Intel, thanks to an industrywide move to blade servers and Intel's difficulty in getting its Itanium processors to market. "But AMD has not taken advantage of the open door yet. They have to soon before the door creaks shut," he said.

Rack-mount servers continue to grow in popularity, according to IDC. Overall server shipments in first-quarter 2002 slipped 8 percent from levels in fourth-quarter 2001, but rack-mount server shipments rose 4 percent in that time, Melenovsky said. Rack-mount server shipments climbed 38 percent year over year in first-quarter 2002, and the segment now accounts for 38 percent of global server shipments, up from 28 percent a year ago, he said. Compaq (now merged with Hewlett-Packard) leads in the rack-mount category with about 55 percent of total shipments, he added.

In its server study, IDC began tracking blade servers as a separate category. In the first quarter of this year, 6,700 blades were shipped, and Compaq led the field with about 3,000 units. About two-thirds of all blade servers shipped run the Linux operating system, Melenovsky said.

IDC expects the market to absorb about 50,000 blade servers in 2002, with shipments topping 135,000 units next year, said Melenovsky. Part of that spike will come as more vendors--particularly IBM and Dell Computer--enter the market by year-end, he added.