IDC Says Linux Server Market Grew 36 Percent in
Q4 2004

by Timothy Prickett Morgan

The growing adoption of Linux as a server platform is helping push the X86 server market to new heights and is similarly propping up the sales of non-X86 platforms that support Linux. According to market research from IDC, sales of X86 servers were up 14.4 percent in the fourth quarter of 2004 to $6.3 billion as unit shipments increased by 16.8 percent to 1.6 million X86 units shipped. Interestingly, 25 percent of the X86 servers that shipped in the fourth quarter has 64-bit main memory support from either Intel or AMD.

IDC said that the volume server segment (machines that cost less than $25,000) saw revenue growth, but sales of midrange and high-end servers continued to slump. Midrange and high-end machines saw a decline in both shipments and average selling prices, which shows how so-called entry machines are putting pricing pressure on so-called midrange boxes, and so on up the line. This also shows how nonsensical it is to characterize servers--entry, midrange, or high-end--by price tag when customers buy based on raw performance and feature sets. As mainframe-class features make their way into Unix servers and Unix server features make their way into X86 servers, and as the performance of machines doubles every 18 to 24 months, it makes no sense at all to bracket sales of machines in this manner. Why IDC continues to do this is a mystery. My guess is that it is one of those "we have always done it that way" situations.

In any event, IDC said that the worldwide server market grew by 5.1 percent in the fourth quarter of 2004 to $14.4 billion in sales, the seventh consecutive quarter of revenue growth for the market. Server shipments grew by a more modest 15.7 percent, dragged down a bit by slumping server sales in the midrange and high-end.

Sales of new servers running Linux as their primary operating system accounted for $1.3 billion in the fourth quarter, an increase in 35.6 percent compared to the same quarter in 2003. This is the second quarter that Linux server sales were above $1 billion. Linux servers accounted for 9 percent of new server sales during Q4 2004, which is a big share gain compared to last year. Unit shipments of Linux servers increased by 29.1 percent, suggesting that average selling prices for Linux servers are increasing as the scalability of Linux increases and the acceptance of the operating system for supporting real applications, like databases and ERP systems, as well as infrastructure workloads such as print, file, and Web serving. In terms of market share, Hewlett-Packard had the lion's share of Linux server revenue share, with 26 percent of the pie, followed closely by IBM with 23.5 percent share and Dell with 15.8 percent share.

Somewhat surprisingly--and in stark contrast to market statistics put out a few days earlier by rival Gartner --IDC reckons that the Unix server market has rebounded. IDC said that Unix server sales across all architectures was up 2.7 percent in the quarter to $5.2 billion, which was all the more surprising given a tough compare to the prior year's fourth quarter. Perhaps more significantly, compared to the third quarter of 2004, Unix server sales in the fourth quarter were more than $1 billion higher. While Gartner also put IBM in the lead in the Unix server market in the final quarter of 2004, so did IDC. But IDC reckons that IBM's take in the Unix market was a lot larger than either HP's or Sun Microsystems' share. IBM took 36.3 percent of the Unix server pie, says IDC, compared to 27.6 percent for HP and 25.3 percent for Sun. IDC said that IBM and Sun both had unit shipment growth in the quarter for their Unix servers. Any proclamations about the ultimate demise of Unix servers is way off the mark. Linux is certainly putting pressure on Unix, but there are plenty of companies who want to stay with the Unix they know and love.

The Windows server market grew at more than five times the rate of the Unix server market, but less than half that of the Linux server market. Windows, unlike Linux, is only available on X86 platforms, and over time that will be a limiting factor for Windows growth. (IBM says that 40 percent of its Linux sales are on non-X86 platforms, and presumably, if it supported Windows on RISC and mainframe boxes, it could sell a lot of Windows server capacity, too.) In fact, Windows server sales were $4.6 billion in the final quarter of last year, lower than Unix server sales but up 15.5 percent. Windows server shipments were up 17.9 percent in the quarter, and this suggests that ASPs on Windows boxes, in contrast to Linux boxes, are continuing to drop.

On the blade server front, which is an architecture that many companies are tracking but not yet buying into, blade boxes accounted for just over $1.1 billion in sales in the fourth quarter, almost double the sales levels set a year earlier in Q4 2003. IDC said that in the United States, blade servers accounted for nearly 7 percent of overall X86 server shipments.

To see a breakdown of sales by vendor for the fourth quarter and the full year of 2004, click here.