Guild Companies

Every time the economy slows, the companies that sell the cheapest servers see a surge in sales while the stalwart established vendors see a decline in sales. These economic cycles have driven the acceptance of server platforms as much as technological advances--plug compatible mainframes in the late 1960s, minicomputers in the mid-1970s, Unix servers in the late 1980s and early 1990s. And now, Wintel and Lintel iron in the early 2000s is getting a push from bad times.

According to research performed by International Data Corp, spending on Intel-based server platforms grew to $5 billion in the third quarter of 2002, the first time since early 2001 when this sector of the server market saw revenues increase. Price competition is heated in the Wintel and Lintel server markets, so achieving any revenue growth at all is something of an accomplishment. Sales of all servers will be flat at best for calendar 2002, IDC predicts, and that is if the fourth quarter holds up. In 2001, the server market contracted by 20 percent to $54.5 billion, and the third quarter was the deepest part of the trough, with only $12 billion in sales. While seeing improvement in the third quarter is heartening, it is hard to imagine a worse time in the server market than Q3 2001. If 2001's server sales levels had contracted to levels not seen since around 1994, the third quarter of last year was pushed back to the early 1990s, when mainframes and minicomputers still ruled the world.

The analysts at IDC say they expect spending on servers in the United States to have increased by 4.7 percent in the third quarter of 2002 and up sequentially from Q2 2002 by 8.6 percent, with sales of entry-level servers being more robust than for other platforms. IDC says that most of the vendors of so-called volume servers--which is shorthand for Intel platforms--were strong in July and August, and the market researchers say further that RFP and RFQ activity across several vertical markets was up in the third quarter. However, because the first half of 2002 was pretty weak in the U.S., server sales across all platforms are expected to decline by 9 percent in the U.S. for all of 2002. We're turning the clock back to the last recession, it seems. Vernon Turner, group vice president of global enterprise server solutions for IDC, cautioned that the server market has not broken free of the economic freeze and that companies are buying the minimal amount of capacity that they need, but this is an indication that the market is improving. Turner's team of analysts reckon that conditions in the U.S. and in some emerging markets in the Asia/Pacific region are improving, but conditions in Latin America, Western Europe, and Japan are not doing so hot. IDC says further that the fact that customers are buying smaller increments of processing capacity is causing aggressive pricing across all server tiers.

Earlier this year, IDC was predicting that server revenues worldwide would hit $70 billion in 2006, but it's latest forecasts call for the server market to grow at an annual compound growth rate between 2001 and 2006 to reach $63.4 billion. (I think that even this is optimistic, to be honest.) Under its current server market forecast, IDC expects sales of Linux servers (mostly on Intel platforms) to triple from their current levels to $6.5 billion in 2006. Over the same time, sales of Windows servers (exclusively on Intel platforms) will increase by 36 percent to $19 billion, an increase in sales of $5 billion. Unix server sales will be crowded out of the entry and midrange sectors of the server market by 32-bit Linux and Windows servers and to a certain extent by 64-bit servers based on Intel Itanium and Advanced Micro Devices Opteron chips. But Unix servers will still comprise $27.7 billion in server sales in 2006 according to IDC's estimates, or about 44 percent of the total worldwide market. That leaves another $10.2 billion in sales for IBM proprietary mainframe and midrange machines, Hewlett-Packard Tandem Himalaya and some OpenVMS servers, and a dwindling number of other exotic HPC and parallel machines.