Guild Companies

Hey, it could be worse. Server sales and shipments in the United States could have dropped from last year's third quarter. But according to analysts at Gartner's Dataquest unit, server shipments and revenues were up in the States. But don't get too excited. Analysts at the company say that sales in Europe and Asia will probably not be so great when it compiles those figures later this month, and worldwide server sales could slip a bit, despite gains in the U.S. sector.

Server sales, like PC and certain software sales, are a kind of leading indicator for economic recovery, as well as one of the rafters supporting the floor in the global economies. Companies are usually adding new users and new software to their machines--unless something is wrong in the economy--so a certain amount of growth in IT is driven by general business activity. Moreover, the fact that server sales have stopped plummeting and stabilized more or less on a global basis means that stingy and conservative companies that don't want to spend a dime on new IT equipment have run out of excess capacity and are at least buying some new servers to support their applications. No economy ever goes to zero, but some days it sure can feel like it might.

Dataquest's view of the server market is often a little more skeptical and pessimistic than those of its rival International Data Corp. IDC has not yet announced its reckoning of server sales and shipments in the third quarter of 2002, but it will do so soon. We profiled Dataquest's preliminary server shipment data for the worldwide market and the U.S. market at the end of October. Dataquest has tweaked these shipment numbers a bit and added revenue figures for the United States. The table below is a summary of server shipments and sales by vendor and by operating system platform.

According to the revised U.S. server shipment numbers from Dataquest, Dell is the number-one supplier, having shipped a few more thousand servers than Hewlett-Packard after growing its shipments by an incredible 26.7 percent in the third quarter. If you don't think companies are pinching pennies, the fact that Dell is increasing shipments in a down economy is the best indicator that something is still wrong out there. Companies that have most of their applications running on mainframe, iSeries, or Unix servers would, all other things being equal, keep loading applications on these machines. They are better servers, but not on a tight budget. IBM's unit shipment growth in the third quarter is similarly being driven by a revamped pSeries Unix server line, which offers excellent bang for the buck and a revamped xSeries Intel-based server line, which offers even better value if you can make do with Windows or Linux as an operating system for applications instead of OS/400, z/OS, or Unix.

The fact that Dell's average selling price for a server has only dropped by a few bucks, to about $3,900, in the past year is another signal that companies are shifting some applications to Intel iron that might have otherwise gone on Unix and proprietary servers. Dell raked in $495 million in server sales in the United States in the third quarter, giving it 12.2 percent of sales. But Dell doesn't get anywhere near as much business as IBM, which sold $1.3 billion in servers in the quarter in the United States, giving it 32.7 percent share of the $4 billion U.S. market, and revenue growth of nearly 18 percent compared with last year's stunned third quarter, which was going badly even before the terrorist attacks in America. IBM increased it shipments by 15.8 percent in the quarter to 56,985, according to Dataquest, and even boosted its average server selling price by a few hundred bucks, to over $23,000 apiece. This was due in part to IBM's continuing efforts to sell its Power4-based servers against HP's rp Series and 9000 Series Unix servers and Sun Microsystems' Sun Fire Unix servers. IBM is succeeding here. IBM's Unix server sales were up 21.5 percent in the third quarter, to $358 million, but Sun's revenues dropped by 17.6 percent, to $700 million. More significant, Sun's average server selling price dropped from over $28,000 to just under $22,000 in the past 12 months, a result of its customers adopting its less expensive V-class volume servers (the Sun Fire 280R, V480, and V880 machines, which compete against two-way, four-way, and eight-way Wintel boxes) over its much more expensive Sun Fire 3800, 4800, and 6800 midframe machines. HP's aggregate Unix server sales rose by 11.2 percent, to $389 million, in the third quarter of 2002, but Sun's declines pushed total Unix server sales down 4.2 percent, to $1.49 billion.

Overall, HP's combined server business in the United States had sales of $912 million, a decline of 3 percent. Other vendors--including Fujitsu Siemens, Unisys, Apple, and Gateway--accounted for 149,961 shipments out of a total 493,727 units shipped. Those other vendors, which includes myriad white box vendors, may account for more than 30 percent of total shipments in the U.S. server market and may have grown shipments by an impressive 17.3 percent from last year's third quarter, but they only account for about 15 percent of total revenues in the United States and were only able to grow revenues by shipping more boxes. The average selling price in the "others" category dropped to just over $4,100, down from $4,600 a year ago.

Now look at the operating system platform data in the table above. What is immediately obvious is that proprietary platforms still represent 29.5 percent of server shipments and 22.8 percent of server sales in the U.S. Windows, Linux, and Unix have not taken over completely. The collective Unix platforms are under pressure from Windows and Linux platforms, however. Unix vendors managed to keep the average Unix selling price at around $28,500 for the third quarter, down about $1,100. Average selling prices in the "others" category were down a few grand, but ASPs didn't change all that much between Windows, Linux, Unix, and other platforms. This suggests that server vendors are not cutting prices to push a particular platform but are setting different prices for different platforms and letting the market decide.

The exception, of course, is Linux. The average selling price for Linux servers in the United States is on the rise--it was about $5,400 in the third quarter--and will continue to rise as Linux scales better across four-way, eight-way, and even larger machines someday. Windows may get the lion's share of server shipments--311,921 machines in the third quarter, up 7.5 percent, according to Dataquest's research--but the Windows platform revenues are stagnating at 2.1 percent growth, to $1.2 billion in sales. Unix server sales declined by 5 percent, to just under $1.6 billion. Both Windows and Unix are under pressure from Linux platforms, which saw shipments skyrocket by 55.7 percent in the third quarter, to 63,027 units, and saw revenues explode even further to $341 million, up 68.3 percent. Linux is just starting to roll in the commercial server market, and it won't be long before it has a much bigger slice of the server pie in the United States and the world at large.