Server Market Grows in the Third Quarter

by Timothy Prickett Morgan

Gartner and IDC, which long ago became the two arbiters of market share and harbingers of doom (if you happen to be one of the vendors or architectures losing money), have announced their market share results for the third quarter. The good news is that the server market has once again shown some signs of life, which is encouraging for the IT market as a whole. Server shipments are booming, and even with big price cuts, revenues are growing a bit.

As has been the case for many years, the X86 server market is the engine that is driving shipment growth. Those X86 shipments are, in turn, driving modest revenue growth across the whole server industry, masking the declines in Unix and proprietary midrange server sales. I have created a detailed table outlining the server market statistics from IDC and Gartner so you don't have to read through lots of text to see what happened for each vendor. Suffice it to say that vendors have more or less held their shares. But there is a lot of interesting stuff going on underneath those market share numbers.

The analysts at IDC say they believe that the so-called volume server market (by which it means servers that cost under $25,000) saw revenue growth of 18.2 percent in the third quarter, while midrange machines (by which IDC means machines that cost between $25,000 and $499,000) saw sales decline by 10.2 percent. Buoyed by strong mainframe sales from IBM and decent sales of big X86 and RISC/Unix boxes, the enterprise server market (meaning machines that cost $500,000 or more) grew by 1.9 percent in the quarter. That is a whole year of positive growth for enterprise servers, but many people are beginning to think that server consolidation and other factors driving growth on these machines may begin to head south. (IDC did not say anything about it, but that's the word on the street.) Overall, IDC says, the server market accounted for $11.5 billion in sales in the quarter, up 5.5 percent, and shipments were up 18.7 percent. IDC did not give a total shipment number, but said that X86 server shipments were up 18.3 percent, to 1.4 million units, driving $5.4 billion in server sales. IBM and Dell both grew faster than the X86 market as a whole, with shipments up 26 percent and 25.5 percent respectively. Within this X86 market, vendors shipped 60,000 servers with 64-bit memory support (that's Xeon-64s and Opterons), with Opteron server growing by a factor of five compared with last year, when sales were just getting started.

From a platform perspective, IDC reckoned that Linux servers accounted for $1 billion in sales, with sales up 42.6 percent and shipments up 31.7 percent. This suggests that Linux is being put on bigger and more expensive boxes than many people might have expected. Windows server sales grew by 13.3 percent, to $3.9 billion, pushed by Windows server shipment growth of 19.1 percent. The Windows market, says IDC, accounted for 33.9 percent of the all server revenue in the quarter, equal to the size of the RISC/Unix market. Unix sales were down 2.3 percent in the quarter, to $4 billion. Hewlett-Packard maintained its lead, with $1.27 billion in sales, even though its Unix sales were down 6 percent. Sun Microsystems saw its Unix sales erode by 2 percent, to $1.14 billion, and IBM grew Unix sales by 2 percent, to $1.05 billion. Other server architectures, including the iSeries and IBM mainframes, accounted for about $2.65 billion in sales, down 2 percent. The iSeries, with sales down 26 percent, was a big factor in that decline, but so was HP's AlphaServer line, which is seeing sales decline at about the same rate. (IBM believes iSeries declines are due to transitions, unlike the AlphaServer, which is being killed by HP. Here's to hoping IBM is right, which we believe is the case.)

IDC said that, across all architectures and chip types, vendors shipped 75,000 blade servers, for $287 million in sales, and IDC said that this form factor should account for $1 billion in sales for all of 2004. Blade server shipments were up 44 percent, but sales were up only 22.5 percent. With Dell entering the market a few weeks ago, pricing pressure is expected to increase as IBM and HP try to keep market share against the onslaught of Dell.

Over at Gartner, the analysts had very similar numbers for the quarter, saying that worldwide server sales were up 6 percent, to $11.8 billion, and overall shipments were above 1.65 million units, up 16.3 percent from the third quarter of 2003. Gartner said that servers using X86-64 processors shipped at a slightly higher rate (only a few points) than the overall market, which implies that companies are not going to replace their 32-bit systems with 64-bit machines just to get extra memory, but are going to buy 64-bit X86 servers when they feel they need to. Gartner, by the way, pegged Dell as the number-three server maker, behind IBM and HP, which is the first time Dell has held that position. IDC gave Sun a slight margin over Dell, but it seems clear that, unless Sun gets its volume server business up to speed soon, it will indisputably slip to the number-four position, perhaps permanently. Having cautioned that this is possible, only a fool would count Sun out just yet. Many of the the company's cool Opteron products have yet to hit the market, and it will innovate with pricing models that could drive substantial shipment and then revenue growth in the X86 space. Solaris 10 for X86 could, eventually, get Sun solidly back into that number-three position.

Gartner's assessment of the stats for various platforms was similar to those over at IDC. Gartner reckons that Linux server revenues grew 55.7 percent in the quarter, as unit shipments were up 45.2 percent. Gartner says that Windows server sales were $4.3 billion and that the Windows platform gained 2 points of market share. Unix server sales, say Gartner, declined 3.6 percent and sales of other platforms were down 5.8 percent.