Volume 17, Number 9 -- March 3, 2008

Linux and Windows Server Sales Outpace the Market in Q4

Published: March 3, 2008

by Timothy Prickett Morgan

Well, it is probably not a big surprise to anyone that revenues for servers running Linux or Windows outpaced the sales of the rest of the market in the final quarter of 2007. In fact, one way of looking at the market statistics just released by analysts at IDC is that Linux and Windows boxes are the main reason why the server market managed to grow revenues by 2.4 percent to $15.7 billion, driven by a 9 percent growth in shipments.

However, as a similar modeling of the server market for Q4 and all of 2007 from Gartner reckoned, IDC agrees that the pace of shipments and sales is slowing.

And despite the urge to virtualize and consolidate servers by corporations large and small and some notable upticks in particular parts of midrange and high-end server lines, in the aggregate it is the volume server space, machines that cost under $25,000 and that are mainly X64 platforms these days, that is driving the market. Again, this is not a new trend. The X86 and now X64 processor architecture accounted for the majority of server shipments by the early 1990s and became dominant only a few years later; in the past few years, as X64 servers have gained larger main memories, multicore processors, and more rugged operating systems like Linux and Windows, these type of boxes are pushing revenues now, too. By IDC's numbers, the so-called volume server space grew sales by 8.2 percent in the fourth quarter of 2007, compared to a 5.7 percent decline in high-end boxes (which cost $250,000 or more) and a 0.5 percent decline in midrange boxes (which cost between $25,000 and $250,000).

The rapid decline in mainframe sales in Q4 as companies held back on spending because of the impending System z10 mainframes, which were announced last week, was a major factor in pulling down high-end sales, and it is probably a safe bet that the first quarter will be weak unless IBM can really begin shipping in volume as it says it can as of last week. That gives IBM five weeks of z10 mainframe sales in the first quarter--probably not enough to make up for the six weeks it was not selling the boxes--which means 1Q 2008 is probably not going to be great, either, for the high-end server space. It all depends on how many boxes IBM can push out of its factories in Poughkeepsie, New York. The stagnation in the midrange is in part due to the cratering of sales of HP 3000, HP 9000, and AlphaServer sales at Hewlett-Packard and due in part to the downshifting of form factors among server buyers as multicore chips allow companies to buy less expensive boxes to do a certain amount of work. IBM said that its System i business actually grew by 2 percent in the fourth quarter, and for once this platform helped rather than hurt the midrange numbers--particular thanks to the Power6-based System i 570, which started shipping in late September.

"Server demand remained strong across most major market segments in the fourth quarter driven by a continued shift towards modularization as customers expand and refresh their IT infrastructures while embracing blade computing as well as scale-out and scale-up server technologies," explained Matthew Eastwood, group vice president of IDC's enterprise platforms group in a statement accompanying the release of server shipments and sales for the fourth quarter and for the year. "As the market continues to look for signs of an economic slowdown, spending for new IT projects could be impacted. However, IDC believes that recent gains in both system performance and manageability will continue to drive consolidation, virtualization and other infrastructure refresh projects where changing datacenter economics help CIOs build defensible business cases necessary for continued strategic IT investment."

In terms of platforms, the Windows platform continued to dominate server sales in the fourth quarter, unless you do not consider Linux a variant of Unix. The kernels are obviously different between Linux and any one Unix, but then again, so are the kernels different between various Unixes. It is the API set, which programs talk to, that is more important than the kernel. Linux is not completely compliant with POSIX, or the Portable Operating System Interface, as the three remaining important Unixes--Solaris, AIX, and HP-UX--are, but the APIs used in Linux are similar enough that recompilation of Unix applications usually works without any changes to the code. The Linux Standards Base is gradually bringing full POSIX compliance to Linux distributions. Who knows when this will happen. At any rate, I think of and system administrators usually think of Linux as a cheaper version of Unix that runs on X64 iron. Hence, I think that you need to add Linux sales and Unix sales together if you want to stack up platforms.

Windows server sales grew by 6.9 percent to $5.7 billion in the fourth quarter, giving the Windows platform a 36.6 percent share of total server sales in the quarter. Unix servers, which have seen a bit of a resurgence in recent quarters after years of sliding, saw sales across all brands rise by 1.5 percent to $5.2 billion, giving Unix a 33 percent share of the server pie in Q4. IDC says that the midrange part of the Unix space, which accounted for $2.8 billion of the total for Unix sales (53.8 percent), grew with "particular strength" in Q4. IDC did not elaborate on how much growth midrange Unix boxes saw, but with the System i platform up a bit in the midrange and Unix strong, something had to lose some ground in the midrange to have a 0.5 percent decline. Go figure. Linux servers broke through the $2 billion barrier for the first time, growing by 11.6 percent in the quarter and giving Linux boxes a 12.7 percent share of revenue in the quarter. If you add up Unix and Linux, then the Unix-oid platforms of the world accounted for $7.2 billion in sales in the quarter, up 6.75 percent compared to the 6.9 percent growth of Windows and giving Unix-oid boxes a 45.9 percent share of server sales. That is, by the way, about the historical revenue share that Unix had during the dot-com days when Unix dominated the market. The leaves the Others category in the server space, which saw sales decline by 14 percent to $2.8 billion, mostly because of a decline in mainframe sales.

"Growth in the top three operating-system segments of the server market by revenue--Windows, Unix and Linux--underscores the diversity of the workloads that are running in customer sites, and the continuing demand for all three operating environments in the worldwide server marketplace," said Jean Bozman, a research vice president of the enterprise computing group at IDC. "All three environments compete for workloads in the Internet infrastructure, Web 2.0, high performance computing, and enterprise computing spaces."

X86 and X64 servers accounted for $7.8 billion in sales in the fourth quarter, up 7.6 percent, with shipments up 10.3 percent to 2.1 million units. For the full year, X86 and X64 server sales rose by 10.4 percent to $28.7 billion, and shipments rose by 8.3 percent to 7.6 million units. HP had a 35 percent share of X86 and X64 server sales, and IBM and Dell tied for second place with 20 percent of sales each in this segment of the market. Blade server sales across all architectures rose by 54.2 percent to $1.2 billion, and a little more than 95 percent of blade server shipments in the quarter were driven by X86 and X64 processors. For the full 2007 year, blade server sales rose by 40.9 percent to $3.9 billion. Blade server sales are accelerating even as the overall server market is seeing a sales growth slowdown.

For all of 2007, IDC says that global server sales rose by 3.6 percent to $54.4 billion and shipments rose by 6.7 percent to 8 million units. While this is the best year for server sales since 2001, it is still lower than the $61.6 billion peak the market joyfully experience in 2000 during the dot-com, Y2K, and ERP booms.

IDC measures factory revenues by each vendor, as opposed to end user sales (which Gartner measures), so the gap between IBM and HP is larger in the IDC numbers than in the Gartner figures because HP pushes a larger percentage of its sales through the channel, which adds its own markup. For 2007, IBM maintained its top spot in the IDC rankings, with $17.3 billion in sales, up only 1.1 percent but giving Big Blue a 31.9 percent of the global server revenue pie for the year. HP was number two, with $15.4 billion in sales, up 8.1 percent, yielding a 28.3 percent share for the company. (How come HP doesn't have a nickname? Or, rather, one we can print? What about Big Gray?) Dell came in third for the year, with $6.15 billion in sales (up 12.9 percent), followed by Sun Microsystems with $5.86 billion in sales (up 1.9 percent) and the Fujitsu-Siemens partnership with $2.68 billion in sales (down 0.5 percent). Other vendors accounted for just under $7 billion in sales during 2007, and this part of the market declined by 3.1 percent.


Gartner Gives Annual Report Cards to Server Makers

IDC Says Server Buyers Weigh Economy and Power in Q3

Emerging Markets and Virtualization Drive Q3 Server Sales

Server Sales in Q2 Reach Heights Not Seen Since 2000

The Market for Servers in Europe Is Hot

Virtualization, Consolidation Drive Server Sales in Q1

Server Sales Up a Bit in 2006, But Q4 Looks a Bit Weak

Server Sales Perk Up a Little Bit in the Third Quarter

The Server Market Struggles for Growth in Q2, Says IDC

Server Sales Decline for the Second Straight Quarter

The Server Market Begins to Cool in Q4

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik, Brian Kelly, Shannon O'Donnell,
Mary Lou Roberts, Victor Rozek, Kevin Vandever, Hesh Wiener, Alex Woodie
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