Gartner Says Server Market Closed 2003 with a Bang
by Timothy Prickett Morgan
Despite all the talk of server consolidation, companies around the world are still buying lots and lots of servers. While the growth rates in unit shipments for the fourth quarter of 2003 were not nearly as high as during the peak of the dot-com bubble in the 1990s, shipment growth accelerated throughout 2003, according to preliminary estimates by the Dataquest market research unit of Gartner. People are buying lots of servers again, and that means a couple of things.
By Gartner's reckoning, this was the fourth consecutive quarter of double-digit shipment growth in the server market, after a rough couple of years during which growth was flat or down and revenues plummeted. Gartner has not yet released server sales figures for the fourth quarter of 2003, and sales could have dipped slightly even against the tide of rising sales because of intense competition in every sector of the server market. Still, shipment growth is good news, particularly if you are in the IT business. Companies do not buy new servers and associated systems software in the current fragile economy if they do not have some reasonable hope for a fast return on investment and some confidence in the improving economy.
Gartner's analysis of the market in the fourth quarter showed that server shipments came to 1.59 million, up 24.5 percent year-to-year, and up 13.6 percent sequentially from the third quarter of 2003, when companies bought 1.4 million servers. The United States accounted for 653,365 units, or 41 percent of servers sold worldwide in the fourth quarter. Europe (including the Middle East and Africa, as is standard in IT market analysis) accounted for 527,216 servers (33 percent) by Gartner's estimates, followed by Asia/Pacific (including Japan) with 310,730 units (19.5 percent). Latin America accounted for 44,898 machines sold in the quarter, and Canada had 54,957 machines sold into its geography in the fourth quarter.
The numbers from Gartner show that Hewlett-Packard is still losing a little market share as it wrestles with absorbing Compaq, but the untold story--and one that Gartner's latest report does not discuss--is that the uniprocessor market that IBM, Dell, and Fujitsu Siemens have pursued very aggressively accounts for a large portion, but certainly not all, of unit sales growth. That's why you can expect an increasing emphasis from HP with its ProLiant 100 series of uniprocessor X86 boxes.
In any event, Gartner figures that HP sold 461,615 servers in the fourth quarter, giving it a 29 percent share. That market share is down 0.9 percent from the fourth quarter of 2003, which means HP is growing a little more slowly than the market. IBM, Dell, and Sun Microsystems are all growing a little faster than the market, and therefore increasing their shares a bit. Smaller server markers and white box suppliers that make up the "others" category outside of the top ten vendors accounted for 333,411 units, or about 21 percent of the pie, in the fourth quarter of 2003, but shipment growth was only 16.6 percent in aggregate for these players. As has been the case for the past several years, the top server suppliers are very slowly driving other players out of the market.
Dell was the number-two vendor in terms of shipments, with 318,500 units shipping in the fourth quarter of 2003 and 20 percent of the server pie. While HP maintained its worldwide lead in the 32-bit X86 server market, according to Gartner, with 442,976 machines shipped, compared with Dell's 318,500 (all it ships is X86 machines), Dell bested HP once again in the U.S. market for X86 machines in Q4 2003, with 172,850 machines sold, compared with HP's 151,250 units. HP trounces Dell in Europe, with 201,277 X86 servers, compared with Dell's 73,350 units. These two are hammering each other in every market, every country, and every account for shipment dominance.
IBM was the number-three maker of servers, with its direct sales force, Web sites, and vast reseller channels pushing 273,527 units, up a stunning 38.8 percent, compared with the shipment rates IBM experienced in the fourth quarter of 2002. IBM has stuffed its server channel in the past, and if IBM's server shipments come down further than the rest of the pack in the first and second quarters of 2004, that will be a pretty good indication that resellers took a lot more units than they could sell in the fourth quarter. Then again, there could be something else at work here. IBM launched its BladeCenter in early 2003, and shipped 50,000 units. Say that around 30,000 of those units shipped in Q4. If you subtract those out of the IBM picture because they are new and interesting and selling well, all of IBM's other server units would account for about 243,000 units, and that would represent about 23.5 percent growth, compared with the IBM before the blade server came along. I think IBM is experiencing a nice uptick in server count because of the rapid adoption of its BladeCenter machines among its enterprise customers, which are more times than not offloading work from more expensive mainframe, iSeries, and Unix boxes to these very capable servers. Incidentally, HP's shipment numbers have been similarly buoyed by the advent of blade servers, too.
Sun, which has had a tough couple of years, had growth that almost matched IBM's, with shipments up 33.3 percent year-on-year in the fourth quarter and 83,833 machines sold. As Sun continues to embrace X86 technology and boost the capabilities of its Solaris and Linux offerings on these new machines, Sun's growth should continue a-pace. However, it is going to take a long, long time for Sun to catch up to even IBM's shipment rates, and Dell and HP seem well beyond Sun's reach in terms of server shipments.
In the report issued by Gartner, the analysts who track server sales showed more optimism than we've seen in quite a few years. They said that the uptick in server shipment numbers has to do with traditional seasonality returning--the fourth quarter has, for budgetary reasons, always been the blowout quarter for IT spending because of the "use it or lose it" budgeting practices in business--but they also said that there were signs that the increase in IT spending that many analysts were predicting for 2004 already got underway in the fourth quarter of 2003. "Overall market growth is very close to the 32-bit X86 market growth, suggesting that the entire market, not just the industry architecture segment, is experiencing growth," the Gartner report said. "Although most user demand is still focused on the lower-priced one- and two-way x86 systems, it should be noted that the third quarter of 2003 was the first quarter of growth for the RISC market in more than two years, and the current estimates suggest that this trend may continue."