Linux Server Market to Boom Though 2008

by Timothy Prickett Morgan

While Linux has been a hot item for a decade amongst an increasing number of intrepid or disgruntled consumers, companies, and other organizations (such as government research institutions), it has only recently been adopted by the big IT players and pushed as a means of doing what IT vendors do: make money. And if market researcher IDC turns out to be correct, Linux is going to eventually drive nearly a third of server sales worldwide.

Eventually. For now, server makers are more concerned with the prospects for 2004, and the prognosis apparently looks good for revenue growth this year. For all the chatter about virtualization and automatic reprovisioning for server platforms, the major server makers and platform component suppliers can thank their lucky stars that this technology has not yet taken off. Because most people are still putting one application or database on one server, which means the slight recovery in IT spending is driving server sales this year. The IDC researchers do not say this, but the limited adoption of virtualization and reprovisioning software for servers is what allows the company to predict that worldwide spending on servers will increase by 5 percent this year, to around $53 billion.

"A good environment for hardware and software replacement and migration is helping fuel new enterprise spending for IT infrastructure," said Steve Josselyn, the director for IDC's global enterprise server solutions research unit, in a statement accompanying the projection. "We anticipate growing demand in emerging markets, such as Eastern Europe and Asia, as well as mature markets like the U.S. and Western Europe."

IDC says that unit shipments have been up 20 percent or more in the last three quarters, mostly driven by shipments of X86 platforms. Windows and Linux are the obvious drivers of this boom in shipments, ranging from puppy servers for small businesses to giant clusters of machines with hundreds of nodes for very heavy workloads in data mining, transaction processing, or simulation.

IDC clearly thinks that such shipment levels cannot hold long-term, and is only projecting that the server market will grow by a compound annual growth rate of 3.8 percent between 2004 and 2008, to $60.8 billion. If it takes five years to roll out old servers that are not capable of supporting virtualization technologies, if shipments grow at a reasonable rate, and if pricing doesn't race to the bottom, this might be a reasonable projection. But the perfect storm of server consolidation, ever more powerful server processors, and virtualization that can triple the amount of work a machine can do with the same amount of engine power, might conspire to radically downshift the server market's aggregate revenue by 2008--unless vendors intend to charge through the nose for such technologies.

IDC says that, by 2008, blade servers will account for 29 percent of shipments and just under 15 percent of sales (about $9 billion in iron). That means that the remaining 71 percent of shipments and 85 percent of sales will be comprised of the regular tower and rack machines most companies still buy today.

By operating system platform, IDC's projections call for Linux-based servers to comprise about 29 percent of shipments in 2008 and about $9.7 billion in sales (16 percent of sales). Windows machines are expected to capture a whopping 60 percent of shipments that year and $22.7 billion in sales (about 37 percent of the total revenues from servers). In 2003, Windows and Linux together comprised 37 percent of total server revenues, and by 2008, IDC expects these two powerhouses of the server market to make up 53 percent of sales. That leaves a thin slice of only 11 percent of shipments of Unix and proprietary servers to make up the remaining 47 percent of revenue.