Guild Companies

Mirror, mirror on the wall, who has the biggest server revenue market share of them all? Well, that depends on who you ask, and when you ask them. As the fairy tale seems to imply, there are two mirrors. The flacks at IBM and Hewlett-Packard have had an exciting couple of days as first International Data Corp and then Gartner's Dataquest unit revealed their estimates for revenue market share in the first quarter of 2003. Dataquest has also revised upward some sales statistics for HP's sales in 2001, which made the drop in 2002 in the wake of the Compaq merger seem a lot more dramatic.

The analysts who generate the sales statistics for the server market were also on the hot seat, trying to justify their rankings of IBM or HP as the top server maker in the world in terms of revenues. IDC placed HP in a firm lead over IBM, with $2.94 billion in total sales worldwide compared to IBM's $2.68 billion in a total market of $10.54 billion, down 4 percent from the first quarter of 2002. The analysts at Dataquest generally agreed about the size of the server market in the first quarter, reckoning the total worldwide sales of servers being $10.57 billion, down 1 percent from last year's first quarter. But they differed radically from their colleagues at IDC about how much revenue IBM and HP each raked in. Dataquest put IBM on top with a comfortable lead over HP, with Big Blue having $3.17 billion in sales compared to HP's $2.61 billion. IDC and Dataquest were in general agreement about where Sun Microsystems Inc, Dell Inc, and other vendors in aggregate came in during the quarter.

So what gives? Well, it all depends on what you call part of a server acquisition and what you don't. "None of these numbers are perfect, and it is all a bit of a black art," explains Jeffrey Hewitt, principal server analyst at Dataquest. "While companies follow reporting and accounting rules, there are no rules about internal reporting. There are a lot of things that go into a sale--services, storage, software, and so forth." Pulling it all apart is apparently very tricky. Both companies have roughly the same methodology--they build their models, run their numbers by the vendors, listen to a lot of complaining about them, and put out the best estimates that they can to describe what they think is going on out there in server land. IDC and Gartner are the only two organizations that have enough feet on the street asking customers questions so the vendors can't ignore them, but they do not always have to be helpful. Which is why there are sometimes revisions.

In any event, both analyst organizations agree that IBM and HP are going to be slugging it out for the top spot for the foreseeable future. "HP has enough sales people, channel partners, market presence, and feet on the street to go toe-to-toe with IBM in the server market," says Jean Bozman, research vice president of global enterprise solutions at IDC. "I think that from here on out, IBM and HP are going to be battling it out on a quarter to quarter basis." This was precisely why HP bought Compaq last year--to get into that position. With largesse in servers comes entrée into services and software, as IBM has so clearly demonstrated in its history. Dataquest's Hewitt concurs with this opinion, even if he doesn't agree with IDC's revenue figures. "Bragging rights per quarter is not what we are after here when we do our models, but that is unfortunately how this information is used," he says. "I agree that it is going to be a back and forth fight between IBM and HP. It's dog eat dog out there in the server market. There's no revenue growth, and the only way for vendors to grow is for them to take it away from each other."

That said, Hewitt thinks that there are some bright spots in the server market. Windows-based servers are still selling well, with revenues up 10 percent. Sales of Intel-based servers were $4.39 billion in the quarter, up 11 percent. IBM's Intel-based server sales were up 21 percent to $703 million, HP's were down 1 percent to $1.29 billion, and Dell's were up 23 percent to $938 billion. Dataquest figures that sales of Linux-based servers (across all architectures) were up 51 percent to $609 million in the quarter, with the market pretty evenly split between IBM, HP, Dell, and others. Hewitt also believes that the Itanium processor family from Intel Corp is finally going to get traction going forward, enough for Dataquest to conservatively predict that it will grow to become a $4 billion market by 2007. "We may be a bit conservative here," he says, suggesting that if market uptake and economic conditions change, that estimate could get revised upward. Unix/RISC server sales (not including Unix on X86 and other non-RISC platforms) were down 10 percent in the quarter to $3.91 billion. Dataquest believes that Sun is the clear leader in Unix servers during the quarter, with $1.39 billion in sales, followed by HP with $1.16 billion and IBM with $971 million.

Over at IDC, the analysts believe that the Unix server market is a bit larger at $4.27 billion (down 13 percent in the quarter), and that HP and Sun are neck-and-neck tied with $1.35 billion and $1.34 billion in sales, respectively. IDC pegs IBM's Unix sales in the first quarter of 2003 at $924 million. On the Linux front, IDC figures that the Linux market grew by 35 percent in the quarter to $583 million, with IBM, HP, Dell, and others carving the pie up somewhat more unequally--with HP getting a $185 million slice compared to IBM's $91 million and Dell's $124 million--than Dataquest's estimates showed. In the Intel-based server market, IDC figures that sales are up 9 percent to $4.53 billion, with HP getting $1.48 billion of the sales in this sector, followed by Dell with $985 million, IBM with $697 million, and others with $1.37 billion.