The Four Hundred

With all of the hemming and hawing about the humdrum economic situation, you would think that server shipments would be falling. But for the last two quarters, they have, seemingly miraculously, been up modestly, according to research from Gartner. This suggests that many companies are continuing to add capacity despite the downturn and, perhaps most significant, that what really seems to have changed is not their appetite for server capacity but the makeup of their server diet.

According to the latest statistics from Gartner, worldwide shipments of servers in the second quarter of 2002 were up a scant .5 percent. If you have been following the server vendors' financial results, you know their revenues are off 20 percent, 30 percent, and even more in some cases, compared with the second quarter of 2001, which was a pretty weak quarter itself, now that I think about it. What is clear from these statistics is that processor and server vendors, who are keen on keeping their factories building the same number, or an increasing number, of servers in a year, have been using price to maintain demand for their products in the face of intense competition. The server market, we see, is extremely sensitive to the economic times, but it is also a very elastic market when driven by intense competition. This is how markets are supposed to work, and it is heartening to see.

That's not to say that this is a cause for celebration as far as server vendors are concerned--it is just a good time to buy a server, if you can get the budget, because IBM, Hewlett-Packard, and Sun Microsystems will do just about anything they can to keep you from buying a server made by Dell. (As you will see from the numbers in Figure 1, this strategy has put a damper on Dell's growth, but Dell and Sun are the only two vendors that saw decent growth in the second quarter.)

According to preliminary estimates of shipments for the second quarter, Gartner reckons the combined HP-Compaq was the top server shipper in the world, and by a considerable margin over Dell and IBM, which are the number-two and number-three shippers respectively. (Dell had briefly ousted IBM as the number-one vendor, in terms of shipments, before HP's acquisition of Compaq.) Take a gander at Figure 1, which shows how the top four vendors fared against each other and against all the other vendors lumped in aggregate.

As you can see, shipments in the United States, which were up 9.9 percent, helped buoy the market in the rest of the world, which was down 6 percent. The United States only accounts for less than half of worldwide shipments, which is why shipments were essentially flat.

"The weak business environment worldwide continues to have a great impact on the server industry," said Shahin Naftchi, the senior analyst for computing platforms at Gartner. "Because of customers' uncertainty of their own business, purchasing high-end servers, changing to a new platform and signing big contracts are still deferred, which elongate the sales cycle. For the time being, customers are focusing on deployments that can yield quick return on investments by purchasing less expensive systems or upgrading their established systems if necessary." These numbers, incidentally, include server upgrades, as well as whole new server shipments. They are also factory shipments, which means they are a count of what left each manufacturer's factories, not of how many machines were sold to users, either directly or through the channel. Vendors have been known to stuff their channels when times are tough, and it always comes back to haunt them one or two quarters later.

Gartner is now finalizing these numbers and is also working on a breakdown of shipments by operating system, as well as a breakdown by revenues, which should see IBM and HP jockeying for the top spot. IBM might be the number-three vendor in terms of shipments, but it has always raked in more money than any other server vendor. If HP starts clicking, that could, of course, change. But only a fool bets against IBM in the long run. Both HP and IBM have extremely deep pockets.

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