Behind Gartner's Preliminary Q3 Server Numbers: HP Recovers, Dell Falls

So Close, And Yet So Far

Dell, which in the second quarter came to within 2 points of Hewlett-Packard in server market share, saw its market share slide backwards in the third quarter of 2013 as arch-rival HP revved up its server shipments, according to preliminary market data from Gartner.

Those preliminary Gartner server sales numbers, which were made available to certain Gartner customers and confirmed by Jeffrey Hewitt, research vice president at Gartner, show that the total number of servers sold in the third quarter reached 2.49 million units. That was up about 1.2 percent from the 2.43 million units shipped in the third quarter of 2012.

Hewitt said it is important to remember that the data is preliminary and subject to change. However, he said, typically there is no major change between the analyst's preliminary estimates and its final numbers, which he said are modified and released after the vendors report their quarterly financials and shipment data.

HP: Regaining Its Old Momentum

Palo Alto, Calif.-based HP grew its worldwide server shipments by more than 5 percent in the third quarter, halting a slump of eight consecutive quarters of shipment declines, according to preliminary worldwide server market data from Gartner.

HP sold 669,129 units during the third quarter, up 5.4 percent from 629,213 units in the third quarter of 2012, Gartner estimated. HP's market share for the quarter climbed to 26.9 percent, up from 24 percent in the second quarter of 2013.

HP's turnaround came in the quarter that started about one month after CEO Meg Whitman pledged to step up the server battle with Dell, saying she would not accept "very aggressive competitive pricing" from Dell or others as an "excuse" for poor sales performance at HP.

Dell: Losing Momentum

Dell, Round Rock, Texas, shipped 484,607 servers during the third quarter, down 14.1 percent from 564,475, according to Gartner's preliminary results.

That drop gave Dell a market share of about 19.5 percent, down from its second quarter 2013 market share of 22 percent, Gartner said.

Should Gartner confirm that drop in early December when it releases its final server shipment estimates, it could slow Dell's enterprise transformation.

Uncertainty around the setback could also play into HP's hands. Whitman in August pledged to step up the server battle with Dell to go after Dell's installed base.

"What I will tell you is a lot of customers are nervous about Dell," Whitman said. "What I can tell you first hand is uncertainty is not our friend in the business."

The Microsoft Effect On Dell?

An industry source said that significant Dell server shipments to Microsoft for its Bing search engine business was likely a major contributor to Dell's spike in shipments in the first and second quarters, a factor that Gartner's Hewett agreed was very possible.

Lending credence to that observation is the fact that Dell in mid-2011 announced it was working with Bing Maps to deploy modular data centers to create a dedicated imagery processing microsite to support aerial and satellite image types provided by Bing Maps. That continues to be an on-going process, a Dell spokesperson told CRN.

Microsoft declined to discuss any such deal. However, it is important to note that Microsoft played a major role in Dell's privatization by providing a $2 billion loan to help finance the deal.

IBM: Server Shipments Take A Big Hit

IBM's x86 server numbers also took a huge hit in the third quarter. Gartner estimated that IBM's server shipments fell by 30.2 percent over last year to 195,805 units.

As a result, IBM's x86 server market share in the third quarter of 2013 fell to 7.9 percent according to Gartner. That compares to 9 percent in the second quarter of 2013, according to official Gartner numbers.

Hewett at Gartner said he suspects a big reason for the drop was related to leaks about talks between IBM and Lenovo about Lenovo purchasing IBM's entry-level server business.

"If you do stuff like that, that will have an impact on customers," he said.

Cisco: Continuing Growth, If Only A Bit Slower Than Before

Cisco showed strong growth over last year, albeit from a much smaller installed base. Gartner said Cisco in the third quarter shipped 67,650 units, up 20.9 percent from its second quarter shipments of 55,973 units.

That made Cisco's total market share 2.7 percent in the third quarter, down from Gartner's official Cisco second-quarter market share of 3.2 percent.

Changing Dynamics At The Top

Dell's drop in sales appears closely related to confusion caused by its move to go private, said Chris Case, president of Sequel Data Systems, an Austin, Texas-based solution provider and long-time HP solution provider. "Dell's going private created a lot of unknowns," Case said. "There was talk about slashing people. A lot of concerns."

Case said customers were worried about what would happen at Dell during the privatization battle. "It's just like when HP a year or two ago took a big hit when there was talk about spinning off the HP PC business," he said. "Dell is in disarray. HP is coming out of disarray."

Another HP solution provider, who requested anonymity, said Dell has recently been extremely aggressive with pricing as it prepares to battle without the eyes of investors on the company. "They think, screw Wall Street, we're going private," the solution provider said.

HP And Dell Respond

HP and Dell declined to directly address the Gartner preliminary third-quarter server sales. However, Paul Santeler, vice president and general manager of the Hyperscale Business Unit within HP's Industry Standard Servers and Software business, said HP has a lot of respect for its competitors. "That said, this is a battle," Santeler said. "We're out here to win. Our goal is to change the trend. And these quarterly results show that the trend has changed." Jim Ganthier, vice president of marketing for HP's Industry Standard Servers and Software group, told CRN via email that HP has recently tightened its execution, given more attention to its channel and partner programs, and increased accountability in its regions.

Forrest Norrod, vice president and general manager for Dell server solutions, wrote in an email to CRN that Dell remains confident in the profitable growth of its server business. "While market growth is not always linear each quarter, we have gained on our competitors at a rapid rate over the past quarters and we remain confident in our goal to be the No. 1 x86 server market share vendor worldwide," he wrote.