HP, IBM and Unix, Windows Tied in the Server Market

by Timothy Prickett Morgan

The box counters at IDC get their say this week about how the server market did in the first quarter after Gartner jumped the gun on IDC and got its numbers out a little earlier. The story is largely the same either way, but different in some of the details, since the two dominant market analysts in the information technology arena do not and cannot agree on the details (at least until they merge some day).

According to IDC, worldwide server revenue was up 5.3 percent in the quarter, to $12.1 billion. This is the eighth quarter that server sales in the aggregate increased. However, IDC said the pace of growth in the server market has been slowing even as IT spending has remained strong. Basically, the economy is still not great, and IT shops are still watching every dollar and euro carefully.

As has been the case for many years, the so-called volume server segment, by which most of us mean X86 and now X64 servers, saw sales increase 15.6 percent and this is the main reason why the overall server market is growing at all. Surprisingly, however, midrange machines (by which IDC means servers with a base sticker price between $25,000 and $499,000) increased 6.1 percent in the first quarter, buoyed a bit by sales of Unix and some proprietary midrange boxes (including IBM's iSeries line). The high-end server market, which means machines that cost $500,000, had a nice run for four quarters running from Q4 2003 through Q3 2004, driven by an upgrade cycle for IBM mainframes and somewhat better sales of big Unix boxes. But at the end of 2004, sales in the high-end started declining, and dropped off sharply in the first quarter of 2005, declining by 13.9 percent according to IDC. The analysts at IDC speculate that the midrange is seeing renewed growth because midrange boxes typically have more sophisticated virtualization features than volume servers, and companies are consolidating workloads that might otherwise end of up X86 or X64 server farms. As for the high-end, IDC believes that one of the factors for declining sales might be price competition. While there is reasonably direct price competition in the high-end Unix and Windows server market, there is no direct competition for IBM mainframe or high-end iSeries boxes. Price erosion is probably a function of customers not wanting to buy any more capacity right now rather than due to competitive pressure. I think server makers peddling big boxes are using price to grease the skids, to make whatever deals they can, and that it is a buyer's market. And that is why sales are decline. It isn't pressure from competition so much as pressure from salespeople who don't want to get fired.

The X86/X64 segment of the server market continued to dominate the worldwide server market in the first quarter of 2005, with sales growing 13.2 percent to $5.8 billion and unit shipments growing 14.2 percent to reach just under 1.5 million units. IDC believes that Hewlett-Packard, Dell, Fujitsu-Siemens, and Sun Microsystems all outpaced the shipment growth in the X86/X64 segment, all growing by more than 15 percent.

During the quarter, IDC says sales of Unix and Windows server were more or less equal for the first time. (Gartner says that Windows machines have been outselling Unix boxes for several quarters. You decide who is right.) HP was the dominant Unix supplier according to IDC, and even posted double-digit growth in the high-end Unix segment. (Of course, HP has been due for a rebound, with sales getting hammered in the past two years during the transition from various chip architectures to Itanium.) Unix server sales were $4.2 billion, up 2.8 percent on shipment growth of 5 percent, and Windows server sales were $4.2 billion, up 12.3 percent to on shipment growth of 10.7 percent. While this all sounds so even, there is nearly an order of magnitude in the number of Windows machines shipped compared to Unix boxes. Windows is still largely an entry server play, and Unix is still largely a midrange and larger machine play. Linux server sales were $1.2 billion in the quarter, the third quarter in a row where sales of Linux-based machines topped $1 billion. Linux server sales grew by 35.2 percent in the quarter, and attained 10.3 percent market share in the worldwide server market. HP was the top seller of Linux systems, with 27.7 percent of the market, followed by IBM with its 19.8 percent share.

In the much-ballyhooed blade server market, total sales came to $409 million, representing 3.4 percent of the total server sales in the world for the quarter and an increase of 106 percent. Shipments for blade servers only increased by 68.2 percent, however, showing that customers are moving to a much beefier mix of blades. While IBM kept its top share in the blade server market with 39.2 percent of sales, HP came up fast from being knocked down a few years ago and reached a 35.2 percent share. Dell is a distant third, with 9.4 percent of blade server sales.

In terms of overall server market share in the first quarter, IDC says IBM and HP are in a dead statistical heat, with IBM posting $3.428 billion in sales (up a miniscule 0.5 percent) compared to HP, with $3.342 billion in sales, up 8.8 percent. (I suspect some people at IBM are not getting bonuses, if they are managing to hold onto their jobs.) Dell continued to grow more than three times faster than the market, booking sales of $1.314 billion, up 16.6 percent. IDC was gracious enough to say it was also a tie for second place, but the numbers are not that close, with Sun's sales growing only 2.7 percent to $1.205 billion. Fujitsu-Siemens came in at the number five position (which has been its aspiration since the partnership between Fujitsu and Siemens was announced several years ago), with $985 million in sales, an increase of 7.2 percent compared to the first quarter of 2004. The remaining vendors in the market accounted for $1.836 billion in sales, up a mere 2.2 percent, with these vendors continuing to lose market share to the big five.

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