Q2 2014 Server Sales: HP Rules While IBM, Dell Slip

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Hewlett-Packard in the second quarter of 2014 was the top server vendor in terms of revenue and units shipped due to sales slides at rivals IBM and Dell, according to the the latest Worldwide Quarterly Server Tracker from research firm IDC.

Among the other winners during the quarter were Cisco Systems, which saw its server revenue skyrocket more than 35 percent, and Lenovo, which even before it closes its historic deal to acquire IBM's x86 server business saw its shipments rise nearly 48 percent and revenue rise nearly 63 percent, according to IDC.

Total worldwide server revenue for the second quarter rose 2.5 percent over the year before to reach $12.6 billion, while the number of servers shipped during the quarter rose 1.2 percent year over year to reach 2.2 million units, IDC reported.

[Related: Behind The Numbers: Analyzing Gartner's Q2 Server Estimates]

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This was in line with what research firm Gartner also reported. Gartner reported that worldwide second-quarter 2014 server revenue reached $12.7 billion, up 2.8 percent from last year. Shipments for the quarter rose 1.3 percent to 2.5 million units, Gartner said.

That meant average selling prices are continuing to rise over time, said Kuba Stolarski, research manager for servers, virtualization and workloads at IDC.

Some of that increase stems from a change in product mix, as a move away from large volume deals helps bring average prices up, Stolarski told CRN. But a big driver has been an increase in the amount of memory and in storage-attach rates over time, he said.

"With converged systems like VCE, servers are being configured for very high virtual machine densities," he said. "To do this, you need a lot of cores in the processors. A lot of two-socket servers now go out with both processors filled for this market. For general server sales, a lot are sold with only one socket filled."

Customers today are trying to squeeze workloads into smaller footprints, Stolarski said. "They're being packaged almost as if it's a mainframe to the customer," he said. "So the systems are getting richer, and that gets a premium price."

The industry also is seeing richer server configurations with the growth of hyper-scale infrastructures, although not as rich as those used in converged infrastructure solutions, Stolarski said.

"Cloud providers often purchase the highest-performing processors from Intel and pay a premium for them," he said. "Certain aspects of the processors can be tweaked for their workloads. These servers also see a high storage attach rate. This is not like traditional high-performance computing clusters, which traditionally linked a bunch of low-end servers in a cluster."

NEXT: HP The Big Winner

IDC reported HP's second-quarter 2014 server revenue as $3.2 billion, up 4.0 percent over the second quarter of 2013. HP shipped a few units shy of 570,000 servers, which was down 2.6 percent. That drop in shipments, however, was far less than the drop in shipments of its top competitors, giving HP the lead.

Dell was the second-largest server vendor in terms of units shipped but was third in terms of revenue after IBM.

Dell's server sales fell 6.5 percent over last year to $2.1 billion due to an 11.7 percent drop in shipments to just more than 488,000 units, IDC said. Gartner also estimated Dell's server shipments fell about the same percentage to about 488,000 units, with sales totaling about $2.2 billion. However, Gartner said the sales figure actually represented 0.7 percent growth over last year.

As a result, Dell's market share in revenue terms fell to 16.6 percent in the second quarter from last year's 18.2 percent. Gartner pegged Dell's market share in revenue terms at 17.4 percent, down only slightly from last year's 17.7 percent. Gartner also estimated Dell's market share in terms of servers shipped to be 19.6 percent in the second quarter, down from 22.4 percent last year.

Stolarski said Dell's 2014 shipments and sales faced a tough comparison last year because Dell's 2013 sales included one significant large hyper-scale server deal that inflated that year's figures.

"Now Dell is letting those large deals go and is refocusing on higher-margin deals more than on high-volume deals," he said. "It's not out of the hyper-scale business. But it's not being as competitive with those as it was in the past."

Dell actually has suffered four straight quarters of revenue declines since Dell closed its deal to become a private company, Stolarski said. "It will be interesting to see how Dell's future sales compare to its post-privatization quarters," he said. "Next quarter will be a good indicator. It will be more of an apples-to-apples comparison."

Dell channel partners were surprised about the reported fall in Dell server sales.

One solution provider, who asked not to be named, expressed shock at the numbers.

NEXT: Looking Behind The Dell Numbers

"That is a 'Really?' bit of news," the solution provider told CRN. "All my communications with Dell after the first quarter indicated Dell servers were doing well, and I expected to see better in the second quarter."

Servers have become commodity items, and Dell may have been using lower pricing to increase the number of units sold in enterprises, the solution provider said. "Dell wants the enterprise footprint," the solution provider said. "It's still a footprint conversation."

Michael Tanenhaus, principal at Mavenspire, an Annapolis, Md.-based solution provider and Dell partner, told CRN that it's important to understand the context behind the numbers.

"The message from Dell has been very enthusiastic: double-digit growth across the board," Tanenhaus said. "I know my Dell server business is way up in the second quarter over last year. And I've heard that from others."

Chris Case, president of Sequel Data Systems, an Austin, Texas-based solution provider and HP partner, said he is not surprised to see the drop in Dell server sales.

"Dell is less and less a part of our conversation," Case told CRN. "There's a concern among customers about Dell's maturity after it went private. One customer, an all-Dell shop, just told us he was confused about Dell's going private. And he's an all-Dell shop talking to HP."

Forrest Norrod, vice president and general manager of Dell server solutions, wrote in an emailed statement to CRN that Dell actually did not lose revenue share during the second quarter for its mainstream server products, but instead drove a shift in its portfolio to more powerfully configured systems with greater average selling prices, which was not reflected in the analysts' latest revenue share numbers.

"In fact, based on internal reporting, Dell grew its worldwide x86 PowerEdge server revenue for its core products by double digits year over year. We are pleased with this performance and will drive the business in this direction going forward," Norrod wrote.

Dell is focused on profitable growth and has decided to walk away from deals at zero or negative margins, Norrod wrote.

"Consistent with prior quarters, we did not chase deals that made bad economic sense. Further, many of these deals are in the density-optimized or self-built/ODM market, which can be lumpy in terms [of unit] shipments quarter over quarter," he wrote.

NEXT: IBM And Everybody Else

IBM was the second-largest server vendor in revenue terms due to sales of $3.0 billion in the second quarter of 2014, according to IDC. However, that was down 10.2 percent over last year as IBM struggled with the fallout of its decision to sell its x86 server business to Lenovo, IDC said.

IBM server shipments fell 9.8 percent during the same period.

A big part of the IBM drop was a sharp decline in IBM's Power-based systems sales in advance of a big technology refresh, IDC said.

Oracle and Cisco were in a statistical tie for fourth place due to a huge jump in Cisco server sales.

IDC reported Oracle's server revenue rose 3.9 percent over last year to reach $737 million, despite a 20.9 percent drop in the number of units shipped.

Cisco, meanwhile, saw its server revenue rise 35.4 percent to $727 million despite a modest rise in server shipments of 4.9 percent, according to IDC.

For real growth, no one beat Lenovo. IDC reported Lenovo server shipments rose 47.7 percent over last year to just more than 77,000 units, leading to a 62.7 percent rise in server revenue to $145 million.

ODM direct business also did well, with sales of servers to companies such as Amazon, Google, Facebook, Microsoft, and other hyper-scale data center users rising 24.7 percent to $835 million, IDC reported.

The "others" category, including smaller vendors and system builders, also enjoyed good growth, with sales up 16.4 percent to $2.0 billion, IDC said.