HP's Server Sales Rise, While IBM's Fall - Gartner

The third quarter of 2007 was a great time for Hewlett-Packard and Sun Microsystems server sales in the U.S., while IBM server sales took a hit, according to the quarterly server report from analyst firm Gartner.

Solution providers offered a number of reasons for the rise in HP server sales and the fall in IBM server sales.

However, Mitch Kleinman, president of Ryjac Computer Solutions, an Irvine, Calif.-based IBM solution provider, said the answer is not always obvious.

"We're going to find a logical reason for the shrinking (of IBM server sales)," Kleinman said. "But if we don't find it, we will be fed by the vendor what the reason is."

According to the report, released on Monday, Dell is still the overall server leader in terms of units shipped in the U.S., with sales of 242,650 units, up 1 percent from its sales in the third quarter of last year.

However, HP is pushing hard on Dell's heels, with shipments up 13.3 percent over last year to hit 183,000 units. IBM, on the other hand, saw its shipments drop by nearly 11 percent to 92,582 units. Sun Microsystems' overall shipments slipped 9.1 percent, while Rackable Systems' shipments rose 23.3 percent, to round out the Top Five.

Overall U.S. server shipments reached 904,145 units in the third quarter of 2007, up 5 percent from the 861,290 servers sold in the same period last year.

Server revenue in the U.S. rose by 1.6 percent to hit nearly $5.1 billion in the third quarter, Gartner said. IBM maintained its solid top spot despite a drop in revenue by 6.5 percent down to $1.5 billion. HP, on the other hand, saw its revenue rise 4.3 percent, while Dell's revenue rose 10 percent.

They were followed by Sun, with a 10.7 rise in U.S. server revenue, and Rackable Systems, which saw revenue rise 21.8 percent.

Dell was still the largest x86-based server vendor, accounting for 245,100 of the 857,623 servers sold in the U.S. for a market share of 28.6 percent. However, its sales rose an anemic 1.0 percent over last year's shipments, compared to a 13.1-percent rise in shipments for number two HP.

IBM saw its server shipments dip 14.4 percent over 2006, while Rackable Systems and Sun Microsystems rounded out the Top Five with growth rates of 23.3 percent and 18.3 percent, respectively.

Sun, however, managed to sharply increase the average selling price of its servers by offering a mix of models which was fairly heavy on the four-socket and eight-socket models, which gave it the number four spot in terms of x86-based server revenue with $137 million.

Overall, U.S. x86 revenue was up 6.2 percent to $3.3 billion in the third quarter. HP lead in terms of server revenue with an increase of 5.5 percent over last year, while Dell kept its number two spot with a 10.0 percent increase. Rounding out the top five were IBM, which saw its revenue crawl ahead by only 1.1 percent, and Rackable Systems with a 21.8 percent rise.

Gartner said that x86-based blade server shipments during the year actually fell by 14.2 percent to reach 84,872 units. However, HP's blade server shipments rose 76.4 percent while IBM's fell 34.3 percent and Dell's by 27.2 percent, giving them the second and third place in the market.

Sun had a spectacular growth rate of over 2,000 percent, but that was due to selling almost no blade servers last year. The company just recently reentered the blade server business. It was followed at number five by Verari Systems, which saw its blade server shipments grow nearly 30 percent.

It was a similar story among the top five for x86-based blade server revenue in the U.S., which rose 12.7 percent to just shy of $400 million.

HP vaulted ahead of IBM to grab the number one spot with a rise in revenue of 85.5 percent, compared to a drop of 6.1 percent by IBM. Dell's blade revenue also slipped, by 34.4 percent. However, Sun's revenue exploded nearly 1,300 percent, giving it a market share of 6.5 percent, bringing it to within Dell's market share of 9.8 percent, Gartner reported.

Ryjac's Kleinman said it is necessary to take the blade server shipment data with a grain of salt, as IBM's BladeCenter architecture allows backward compatibility between newer and older chasses, blades, and storage devices.

"With HP, in my understanding, it's not backward compatible," he said. "So if you want new blades, with HP you need a new chassis. If it's IBM, you just need to buy a couple new blades."

Kleinman also said that server virtualization software sales, especially those of VMware, have been cutting into server sales, which could be impacting IBM server sales, especially blades. "IBM could be selling more servers with VMware," he said.

To Dhruv Gulati, executive vice president of Lilien Systems, a Larkspur, Calif.-based HP solution provider, the message of the Gartner report is clear.

"HP is putting a huge focus on blade server sales," Gulati said. "HP's c-Class blades are better than it older p-Class blades in terms of the efficiency of the design from a power and cooling and density perspective. And it's better than blade servers from Dell and IBM."

HP's overall server line is also priced much more competitively than two or three years ago, Gulati said. "HP seems to have reduced their costs," he said. "So we're winning more deals than in the past."

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