IDC Concurs that Q2 Was Pretty Good for Servers

by Timothy Prickett Morgan

The box counters at IDC have offered their second opinion of the server market's health in the second quarter of 2005, following a similar status report from rival Gartner. IDC pegs the server market a smidgen higher, with $12.2 billion in sales for the quarter across all architectures and vendors, up 5 percent compared to the same quarter last year. Significantly, this is the ninth consecutive quarter of revenue growth for the server market, and it basically represents a return to sales levels we saw in 2001.

Revenue in the volume server segment, which is IDC-ese for X86 and now X64 servers with a smattering of Power and Sparc entry boxes, was up 11.1 percent in the quarter, and is obviously the growth engine for the server market in terms of shipment growth and, increasingly, revenue growth. X86/X64 server sales grew by 15.1 percent to $5.7 billion; unit shipments of X86/X64 boxes grew by 13 percent to hit 1.5 million machines shipped in Q2, according to IDC. X64 machines accounted for more than 64 percent of spending in this platform category. Since the early 1990s, the X86 platform has been the dominant server architecture, and now, with Linux, Windows, and soon Solaris driving growth on that platform (and arguably OpenVMS and HP-UX on Itanium variants), it probably will not be long before X64 iron represents the bulk of revenue growth, too.

And that is despite IBM's impressive growth with its Power RISC platform, which is driven by sales of AIX, Linux, and OS/400. IDC says that midrange gear--which includes Itanium and RISC servers as well as some high-end X86 and X64 servers--saw 4.3 percent revenue growth in the second quarter, echoing similar growth in the first quarter of this year. This is the first time in many moons that the midrange market has grown, in fact. Sales of high-end servers, which are comprised of mainframes as well larger proprietary, Windows, and Unix midrange boxes, declined 3 percent in the quarter, however. Held up by very impressive mainframe sales in late 2003 and through the first three quarters of 2004, the high-end market took a turn downward in the second quarter as customers awaited IBM Corp's new System z9 servers. And, surprisingly, even though Unix customers awaited new RISC or Itanium boxes from Sun Microsystems, IBM, and Hewlett-Packard, sales of big Unix boxes actually grew in the quarter.

This growth at the high-end as well as a resurgence in the midrange helped drive Unix server sales up 2.5 percent in the quarter, says IDC, to $4.3 billion. However, unit declined 8.7 percent. This would seem to suggest that Unix shops are upgrading to get new features--such as faster processors, better price/performance, and more storage and expansion--as always. But it also suggests that server consolidation, which is much more developed in the RISC/Unix market than in the Wintel or Lintel spaces, is a driver of new Unix server sales. People are, ironically, buying a few servers to get rid of a lot more of them. How this affects the long-term prospects for growth in revenues and shipments in the server racket remains to be seen, but it is a boom time now. IDC says that high-end Unix servers had revenue growth of 19.2 percent, and sales of midrange gear grew by 15.6 percent; sales of entry Unix boxes declined by 19 percent, primarily as Lintel boxes came in and ate their lunch. Linux also kicked the entry Unix server market's books out of its hands, threw sand in its face, and stole its milk money. IDC crowned IBM as the king of the Unix market, with a 31 percent share, beating out Sun's 30 percent share and HP's 29.5 percent share. (Gartner ranked them Sun, HP, IBM. Someone has to be is wrong.)

IDC says that Linux server shipments topped $1 billion for the third quarter in a row, with revenue growth of 45.1 percent to over $1.4 billion in sales, driven by unit shipment growth of 32.1 percent. Because Linux is also being installed on mainframes and RISC/Unix or RISC/proprietary boxes, the revenue growth associated with these Linux partitions is growing faster than the unit shipments of Linux. This seems to suggest that Linux is actually taking off among larger enterprises and that SMB customers have by and large stuck to Windows as their core server platform. Linux servers accounted for 11.5 percent of total server revenues in the second quarter, according to IDC--the highest share Linux boxes have attained yet. HP was the dominant Linux server shipper, with 24.3 percent of sales, ahead of IBM, with 20.3 percent of the pie.

The Windows server platform continued to eat market share, but in much smaller bites. Windows server revenues increased 14.3 percent to hit $4.3 billion, again larger than the Unix slice of the server pie, but unit shipments only grew 10.9 percent. Like Linux, Windows sales growth is being driven by bigger boxes even as the average selling price of entry Wintel boxes continues to plummet. Server virtualization, by virtue of Microsoft's Virtual Server 2005 and VMware's GSX Server and ESX Server, has helped propel bigger, virtualized Wintel iron as well. Hewlett-Packard shipping of Itanium-based Integrity big iron running Windows is also a factor driving up Windows revenues. HP had the biggest piece of the Windows server market, with a 38.2 percent share, followed by Dell with a 22.9 percent share and IBM with a 17.5 percent share.

By vendor, IBM was the dominant supplier of servers in the second quarter, with $3.892 billion in sales, up 4.1 percent and accounting for 31.9 percent of the market. HP was number two, with $3.48 billion, up 11.5 percent and giving it 28.5 percent of the market. HP is clearly--and finally--getting some traction after many years of merging itself with Compaq. Sun was third with $1.372 billion in sales, down 5.3 percent and giving it 11.3 percent of the market. Dell, as the fourth vendor by revenue ranking, with $1.285 billion in sales, is up 22.3 percent, giving it 10.5 percent of the pie. Sun had better start growing soon if it wants to stay ahead of Dell, and the same holds true for IBM if it wants to keep ahead of HP. (Provided HP and Dell can continue to grow server sales, of course. Neither is a given.) Fujitsu-Siemens rounded out the top five server makers, with $300 million in sales, up 11.5 percent, and garnering 2.4 percent of the market. Other server makers made up the remaining $1.863 billion in sales, growing only 4.1 percent (lower than the 5.6 percent of the market at large), and attaining a 15.3 percent share of the server pie.