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IDC: Server shipments slow on spread of virtualization

In its latest quarterly server tracker, IDC found that high-end and midrange enterprise server revenue outstripped sales of volume systems.

Server shipments in Q4 2006 were stagnate, marking the 10th consecutive quarter of slowing overall shipment growth, according to IDC's latest Worldwide Quarterly Server Tracker report.

Server shipments were flat in Q4 2006 compared with the same period a year ago, a trend reflecting moderate unit growth, particularly in the x86 market, as server virtualization and dual- and quad-core offerings spread, said Jed Scaramella, research analyst, enterprise server research at IDC.

At the same time, IDC found that servers that are shipping tend to be more richly configured than in years past.

"It is clear that both large and small organizations across the world are investing aggressively to simplify and virtualize their IT infrastructures," said Matthew Eastwood, program vice president of IDC's Worldwide Server Group, in a statement. "For the first time in more than 10 years, average selling values in the quarter increased year over year as IT managers move to consolidate IT workloads. This shift toward a shared compute infrastructure is driving additional scalability, memory attachment and I/O needs, which in turn, lead to higher average selling values."

"For technology suppliers, this inflection point represents an opportunity for the vendors best equipped to innovate their systems, software and services offerings, and meet these challenges," Eastwood said.

Overall server market standings by vendor

IBM held onto its No. 1 spot in terms of worldwide server market revenue, with 37.9% market share in factory revenue for Q4 2006 -- growing factory revenue by 3.8% year over year. The growth was driven by its System x, System z and System p servers.

Hewlett-Packard Co. (HP) holds the No. 2 spot with 26.8% share for the quarter, growing revenue 5.1% over Q4 2005. HP's growth stemmed from strong ProLiant server performance. Although there was a statistical tie for the third position between Sun Microsystems Inc. and Dell Inc., Sun continues to show momentum in the market, growing 24.4% year over year and holding a 9.7% share for Q4 2006, an increase of 1.5 share points over Q4 2005. Dell grew revenue by 2.4% compared to Q4 2005, ending with 9.4% revenue share.

Fujitsu/Fujitsu-Siemens experienced a 2.8% increase in factory revenue holding 4.1% revenue share in Q4 2006.

Scaramella said companies that are de-emphasizing their server sales will fare well in the shifting market.

"The volume sellers, like Dell, may have to adapt their business model," Scaramella said. "Those companies that are offering software, like HP, which is looking at the data center holistically, are positioned well."

x86 server market dynamics

Growth in the x86 server market revved slightly in Q4 2006, growing 7.0% in the quarter to $7.2 billion worldwide, its fastest growth rate in five quarters, but unit shipment growth continued to moderate with growth at 1.1% year over year, to 1.85 million servers as customers continued to consolidate their IT infrastructures, according to IDC.

IBM, HP and Sun were the only top five server vendors to outgrow the market in Q4 2006 -- growing factory revenue 7.8%, 8.2% and 85.8% respectively -- and gaining x86 market share in the process, IDC reported.

HP led the market with 33.9% revenue share, and IBM and Dell tied for second place with each vendor securing 20% revenue share. For the full year 2006, worldwide x86 server revenue grew 5.2% to $25.8 billion, while worldwide x86 unit shipments grew 7.4% to 6.9 million units.

Linux shoots up

After two consecutive quarters of single-digit revenue growth, Linux server revenue growth accelerated once again, growing 15.3% to $1.8 billion when compared with Q4 2005. Linux servers now represent 11.9% of all server revenue, up more than one point over Q4 2005. But Linux server shipments declined 0.8% year over year after 18 quarters of double-digit shipment growth, as IT consolidation extends its reach into the open source domain.

Microsoft Windows servers also showed positive growth. Rrevenue grew 9.4% and unit shipments grew 5.1% year over year. Significantly, quarterly revenue of $5.3 billion for Windows servers represented 34.9% of overall quarterly factory revenue, the single largest revenue segment in the server market, IDC reported.

Unix servers experienced 2.8% revenue growth year over year when compared with Q4 2006. Worldwide Unix revenues were $5.1 billion for the quarter, representing 33.5% of quarterly server spending and reflecting continued IT investment in this server market segment, with particular strength in the high-end enterprise segment of the Unix market.

EPIC or Itanium-based systems grew 71.5% year over year, generating more than $1.1 billion in revenue for the quarter the first time the platform has exceeded $1 billion in revenue in a quarter. In the x86 market segment, Advanced Micro Devices Inc.'s (AMD) Opteron processor accounted for 20% of all worldwide x86 server revenue for the third consecutive quarter.

IBM's z/OS mainframe experienced its third consecutive quarter of positive revenue growth increasing 5% year over year in Q4 2006 to $1.7 billion. This is the highest quarterly revenue for IBM's System z in 8 years. z/OS accounted for 11.2% of all server revenue in Q4 2006.

"IBM's solid System z revenue growth comes as a result of a significant amount of turnover in the installed base as customers look to take advantage of the performance and reduced cost structures available in both the System z EC (enterprise class) and the System z BC (business class) machines, which were introduced in late 2005 and mid-2006 respectively," said Steve Josselyn, research director, IDC's enterprise computing group. "This is an indication that many customers still view investment in System z as an integral component of their IT infrastructure."

Blade server market strong

The server blade market showed continued growth in the quarter, with factory revenue gaining 18.2% year over year and shipments increasing by 16.9% compared to Q4 2005. Overall, bladed servers, including x86, EPIC and RISC blades, accounted for $788 million in Q4, representing 5.2% of quarterly server market revenue.

HP, with its "blade everything" agenda, moved into the No. 1 spot in the server blade market in Q4 2006 with 41.9% revenue share and IBM finished with 37.0% revenue share. For the full year 2006, worldwide blade server revenue grew 29.8% year over year, and IBM continued to hold the No. 1 position with 40.0%, followed by HP with 37.4% revenue share, IDC reported.

"HP claimed the No. 1 spot in the blade market over IBM by listening to their customers," Scaramella said. "When designing the third generation of BladeSystem, HP focused on specific customers concerns and developed the corresponding product features around energy efficiency, management and networking."

Boom days are back?

Factory revenue in the worldwide server market grew 5.2% year over year to $15.2 billion in the Q4 2006, marking the third consecutive quarter of positive growth. For the full year 2006, worldwide server revenue grew 2.0% to $52.3 billion, while worldwide unit shipments grew 5.9% to 7.5 million units -- representing the highest annual server revenue since the market peaked in 2000.

Although volume systems grew 2.1% year over year, the segment is no longer the catalyst for growth for the server market overall. In fact, Q4 2006 was the first quarter in the 10-year history of IDC's quarterly server tracker that both midrange enterprise and high-end enterprise system revenue grew faster than volume system revenue.

After four consecutive quarterly decreases, revenue for midrange enterprise servers increased 5.4% year over year and the high-end enterprise server market showed an 11.5% increase year over year, the second consecutive quarter of increasing revenue for high-end enterprise servers, IDC reported.

Let us know what you think about the story; e-mail: Bridget Botelho, News Writer

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