Guild Companies

The battle for the leadership position in the server market continued to be brutal between Hewlett Packard and Dell in the first quarter, according to research from Gartner's Dataquest unit. While server shipments were better than expected, it's still tough out there, according Dataquest's analysts. The dynamics within the server market are complex right now as companies are shifting priorities and platforms, making it somewhat more volatile than the Dataquest shipment numbers suggest.

One thing that companies apparently are not doing is investing in big iron, something that both IBM and Sun Microsystems divulged in their most recent financial results. IBM attributed the slackening of mainframe sales to product transitions (the "T-Rex" mainframes are due soon), but something else might be at work here if Gartner is right. "The worldwide server market performed better than expected in the first quarter of 2003, but the threat of a lingering war with Iraq, combined with a weak economy, still had an effect on IT spending during the quarter," Shahin Naftchi, the principal analyst covering servers for Gartner's servers worldwide group, said in a statement accompanying the Dataquest figures. "As a result, the life cycle for existing large systems was extended and corporate buyers delayed purchases of high-end equipment, preferring the quick returns from short-term investments instead."

HP was the dominant server shipper in the first quarter of 2003, with 356,692 units sold in the quarter, giving it 29.1 percent of the 1.226 million servers shipped. The overall market (in terms of shipments) grew by 10.4 percent, up from 1.111 million units shipped in the first quarter of 2002. HP's unit growth was only 3.6 percent, and because of its high volumes, HP pulled down the growth for the market as a whole. Dell, which was the number two vendor worldwide, grew shipments by 27.9 percent to 248,227 units shipped, giving it 20.2 percent of the worldwide market. Obviously, HP would like to grow at the same rate as Dell, but it has not been able to do so. "HP's performance in the first quarter of 2003 could have been impacted in part by server seasonality, which is normally weaker in the first quarter of the year following a strong fourth quarter," said Jeffrey Hewitt, principal analyst for Gartner's servers worldwide group, in the same Dataquest statement. He attributed Dell's success in part to the strength of Dell's partnerships with storage vendor EMC and database maker Oracle. But the higher Dell shipment numbers probably have as much to do with the relationships it has established with tens of millions of actual customers as it does with these partnerships; HP is still largely pushing sales through a channel, although it has stepped up its direct sales efforts to compete with Dell.

It is also true there is a limit inherent in large numbers, and this is something that both Compaq and HP ran up against. Moreover, every vendor is targeting HP accounts, and this makes it tough on the company to counter with attacks of its own. No one expects HP to suddenly have 50 percent of the market, and it is unlikely that any vendor, including Dell, will pull off such a number, either. HP knows this and is sticking to its knitting. "HP's leadership in the server market reinforces the fact that our enterprise business strategy and robust sever portfolio is focused on the needs of customers," says Mary McDowell, senior vice president and general manager of HP's Industry Standard Servers unit. "We expect to see continued growth in our server business, especially with our innovative blades and Itanium-based servers."

On a worldwide basis, IBM was the number three vendor with 182,034 units shipped in Q1, up 20.2 percent and giving it a 14.8 percent share of the market. Sun was the number four vendor worldwide with 60,627 units out the door, down 13.2 percent compared to last year's first quarter, shaving 1.4 points of market share and dropping Sun to 4.9 percent of the server shipment pie. Fujitsu Siemens, the partnership between the Japanese and German server makers that bear those names, is starting to get some traction with 29.6 percent growth in unit shipments, which hit 28,709 in the first quarter and gave it 2.3 percent of the market worldwide. All other vendors in the server market accounted for 349,989 shipments in the quarter, according to Dataquest, which amounts to 28.5 percent of the market. These other vendors collectively saw growth of 6.3 percent in the quarter.

HP and Dell have been playing king of the hill in the US market and have been neck-and-neck for many quarters; the first quarter of 2003 was no different, although this time Dell came out on top by a smidgen. Dell shipped 135,215 units in the quarter, giving it 27.1 percent of the US market in terms of shipments, thanks to 23.9 percent unit shipment growth. HP was number two with 126,364 units shipped and 25.3 percent of the US market. HP's unit shipment growth in the US was 13.2 percent, the same growth as the overall US market experienced to get to a total of 499,609 units shipped. IBM was the number four vendor, with 61,531 units shipped (up 19.9 percent), giving it 12.3 percent of the US market, and Sun shipped 29,690 boxes in the quarter (down 17.2 percent), giving it 5.9 percent of the market. Struggling server wannabe Gateway pushed out 3,300 boxes in the US according to Dataquest, down from the 4,000 units it shipped this time last year. Other vendors comprised 28.7 percent of total shipments in the US with 143,509 units, up 10.7 percent.

A lot of vendors have been hurt by companies that were hesitant to spend in the quarter as the threat of war loomed large. But Gartner didn't think this was as much of a factor as others might believe. "Since the war with Iraq started toward the end of the first quarter of 2003, it didn't have a severe effect during the quarter," said Joseph Gonzalez, analyst for Gartner's servers worldwide group. "The major question remaining is when the economic recovery will start. It is unlikely that the market will experience a strong surge as it has during past economic recoveries, but rather will undergo a gradual uplift as purchasing activity returns to normal."