According to IDC's quarterly server report, server sales are up, but the number of servers being shipped is slowing down, and virtualization is the culprit.
The Framingham, Mass.-based analyst firm said year-over-year unit shipment grew 11.3%, but that is only two-thirds the year-over-year unit growth rate observed in 3Q 2004. IDC claims these numbers reflect a trend in the server market: a growing number of users are implementing virtualization technologies and buying more powerful machines. This translates to higher prices but lower unit shipments.
Gordon Haff, senior analyst with Nashua, N.H.-based analyst firm Illuminata, said this is a message he's heard from vendors as well. "Vendors are looking at their numbers and there is no smoking gun, but it seems like it's virtualization," Haff said.
"Pre-virtualization, you had a lot of people buying low-end servers because they were only getting maybe 15% utilization out of them anyway," Haff said. "With virtualization technologies, people are seeing increased utilization on higher performance machines. And virtualization has its own overhead cost [on processing power, which might necessitate more powerful servers], but that's a small part of the equation."
Industry experts believe virtualization -- software that allows IT organizations to provision operating system images into platform-agnostic pools of processing and storage capacity -- will be built into every layer of IT within the next five years. Last month, IDC reported that virtualization technology would saturate the market sooner than expected, taking place over the next one to two years, not a five- to 10-year gradual market shift as in other technology areas.
How vendors stack up
The top positions in vendor revenues stayed the same in Q3 2005, according to IDC. IBM held onto its lead with 32.3% market share, growing its revenue by 10.3% year-over-year. Hewlett-Packard continued in second place with 27.8% share. HP's server revenue grew 12.4%, compared to the third quarter of a year ago. Dell took third place, with 10.5% market share, a 11.8% revenue growth. Sun Microsystems experienced a 7.6% revenue decline in Q3 2005 and landed in fourth place with 8.7% market share. Fujitsu and Fujitsu Siemens took fifth place in terms of factory revenue, with 6.1% market share.
HP dominated unit shipments with 28.8% server shipment share, increasing its server shipments 6.4% since Q3 2004. Dell held onto the No. 2 spot in terms of shipments with 23.9% share, up from 22.2% from last year.
Haff was not surprised to see IBM continue to hold the top position in the revenue rankings. "IBM has such a broad line, when it comes to total revenue you have to expect it would do very well," Haff said. "IBM has been on a roll with its server lines, and it's a broad supplier."
Scale-out computing winning
While servers priced under $25,000 were the main growth area, according to IDC, revenue for midrange servers also saw a slight bump, growing 3.8% year-over-year and marking the fourth consecutive quarterly increase in that segment. But the high-end enterprise server market (servers priced above $500,000) showed a 1.2% decline year-over-year, making it the fourth consecutive quarter of declining revenue for high-end enterprise servers.
"Although there was continued IT investment across all three server classes, the volume and midrange enterprise server segments are showing the strongest growth, speaking to IT purchasers' continuing focus on cost containment, which is often achieved through strategic server consolidation and server virtualization initiatives," said Matt Eastwood, program vice president of worldwide server research at IDC.
Agreeing with this finding, Haff said the price of large symmetric multiprocessing machines is coming down and the usage model is changing to smaller machines.
"Scale-out computing is winning," Haff said. "Look at the Top500 supercomputing list -- it's clusters. Plus, $500,000 is a pretty high watermark for servers today."
Other findings from the report included:
"The throughput of x86 servers continues to increase as the transition to 64-bit capability accelerates and these capabilities will only increase further with a wholesale move toward dual-core processors in the x86 server market over the next few quarters," said John Humphreys, research manager of enterprise servers at IDC.
"Dual-core servers represent nearly 25% of all server spending today and in the x86 market, blade form factors are leading the move to dual core. In 3Q 2005, dual core represented nearly 10% of blade factory revenue, illustrating the growing importance that customers are placing on heat and power concerns. We expect the transition to dual core in the x86 market will accelerate over the next four or five quarters as customers look to take advantage of the additional capability the technology provides."
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