Windows Continues to Gobble Up Server Market Share

by Alex Woodie

Windows' share of the server market continues to grow at about three times the rate of the market as a whole, and is now vying with Unix for market supremacy, according to the latest from IDC. While the overall server market grew about 5 percent to $14.4 billion during the fourth quarter of 2004, Windows grew more than 15 percent to $4.6 billion, and it now holds nearly one third of the server market by revenue, according to IDC.

While we're not returning to the go-go days of the late 1990s by any means, the server market is experiencing some respectable growth for a change. For all of 2004, IDC found that worldwide server revenue grew 6.2 percent to $49.0 billion, while worldwide unit shipments grew 19.3 percent to 6.3 million units. The numbers from Gartner, IDC's primary competitor in the IT analyst business, are very similar, with 6.7 million servers sold worldwide last year, an increase of 20.5 percent. In terms of revenue, server makers brought in $49.5 billion last year, an increase of 7.2 percent, according to Gartner.

As you might imagine, sales of X86-based servers running the Windows and Linux operating systems are continuing to drive the bulk of this revenue growth. According to IDC, the only segment of the server market that actually grew during the fourth quarter was the so-called "volume server" segment, which represents servers that cost less than $25,000 (and which is almost entirely made up of X86 servers). Sales of midrange servers ($25,000 to $499,999) and enterprise servers ($500,000 and up), where most Unix, mainframe, and OS/400 server sales are recorded, declined for the quarter, which means sales of X86 Linux and Windows servers more than made up for declining sales of bigger boxes.

In terms of revenue, Windows is now vying with Unix for the biggest chunk of the server business. According to IDC, Unix server revenues rebounded from a poor fourth quarter of 2003 and grew almost 3 percent last quarter. Unix server sales accounted for $5.2 billion of all server sales, which gives Unix a 36 percent share of the market, when counted by revenue. If Windows continues to grow at a 15 percent clip, it will pass Unix as the dominant platform by revenue in 2005.

Not too far behind Windows is Linux, which is growing more than twice as fast as Windows, and which posted spectacular fourth-quarter numbers of its own. According to IDC, sales of Linux servers generated $1.3 billion in cash last quarter, representing a 36 percent year-over-year growth rate. Linux now accounts for 9 percent of all of worldwide server revenue.

Blades and virtualization technologies are enabling companies to make better use of their X86 horsepower, according to IDC. "Volume servers are being deployed in rich configurations, and in scale-out cluster configurations, to take on a wider range of enterprise workloads," said Matthew Eastwood, program vice president of IDC's Worldwide Server Group.

Jean Bozman, research vice president in IDC's worldwide server group, says Windows growth is driven by "deployment of richly configured Windows servers for mission-critical workloads and an upgrade cycle from Windows 2000 to Windows 2003."

In terms of vendor positioning, Hewlett-Packard continues to be the dominant X86 server vendor, with roughly a third of that market. Dell and IBM each get about 20 percent of the market, according to Gartner's analysts.

At current growth rates, the X86 server business will account for more than half of all server sales in 2005. X86 servers already dominate shipments, accounting for 91 percent of shipments in 2004.