Gartner Gives Annual Report Cards to Server Makers

Published: March 12, 2008

by Timothy Prickett Morgan

The analysts at Gartner have finished their box and sales counting for the worldwide server market for 2007, and the good news is that companies continued to invest in server technology, boosting worldwide sales by 3.8 percent to $54.8 billion compared with 2006. That revenue growth was driven by even faster increases in shipments of feature-packed boxes, with shipments worldwide up 7.4 percent to 8.84 million units. The server world may be going virtual, but there is a lot of iron--tens of millions of production servers--that need to be replaced.

The server market has had its ups and downs in the 21st century so far, with big declines in the wake of the dot-com bubble bursting in the early 2000s, leaving the market with lots of excess capacity. And customers, looking to save money, began consolidating onto Linux and Windows platforms based on X64 processors and moving off more expensive Unix and proprietary platforms, which also accelerated revenue declines in the market at large even as it boosted shipments somewhat because it has taken many X64 boxes to replace a single Unix or proprietary server that had virtual machine or logical partitioning. Then, several years ago, enterprise-grade virtualization that only used to be available on Unix or proprietary machinery became available on X64 iron at about the same time that 64-bit and multicore processors went mainstream, touching off a new wave of upgrades in the data center. While the server market started to cool a bit at the end of 2005, it clawed its way back to revenue and shipment growth in 2006 and, thanks in large measure to some aging machinery that dates from the dot-com days out there in the data centers and data closets of the world and to a desire to virtualize and consolidate servers, there has been a slight resurgence in server sales driven by an larger growth in shipments. Yes, that means that ASPs are down on average, even though companies are buying more heavily configured machinery (with lots more memory, disk, and I/O capacity) because virtualization software requires it.

By Gartner's count, seven of the top 10 server makers in 2007 had shipment increases, but IBM, NEC, and Sun Microsystems did not. Hewlett-Packard is still the king of server shipments worldwide, thanks to its acquisition of Compaq back in 2001, and managed to push out 2.64 million boxes, up 16.8 percent and giving it a 29.8 percent share of the global 8.84 million shipments in 2007. Gartner reckons that ProLiant branded shipments rose by 17.2 percent, Integrity shipments rose by 56.8 percent, and NonStop shipments climbed by 13.8 percent.

For all of its woes, Dell remains the number two vendor, and also boosted its shipments by 6.2 percent in 2007, to hit 1.89 million units shipped. IBM was the number three vendor ranked by shipments, declining by 0.9 percent to 1.28 million units, followed by Sun, with 338,048 units, down 8.3 percent. The Fujitsu-Siemens partnership rounded out the top five vendors ranked by shipments, with 292,486 units shipped in 2007, up 13.9 percent. Other vendors also grew shipments (when ranked as a single, artificial group), comprising 2.4 million units, up 5.6 percent and giving this group a composite 27.1 percent share of the server shipments in 2007.

Not every server has the same price, obviously, so not all shipments are equal. IBM was, once again, the leader for server revenues, and in 2007 the company raked in just over $17 billion in server sales, up a smidgen at 0.8 percent and giving IBM a 31.1 percent share of the global revenue pie for the year. HP is trying its best to catch and surpass Big Blue, which it should have been able to do given the combination of HP and Compaq brands, but IBM was able to boost mainframe sales more than expected in the past five years and has eaten a lot of Unix server market share, too, thus keeping big market share gains away from HP. Gartner analysts, providing some color on IBM's sales, said that System x sales rose by 10.2 percent (driven mostly by Windows and Linux), System p Unix server sales rose by 9.1 percent, but added that System z mainframe and System i proprietary Power server sales both dropped by 9.6 percent for the year.

Still, HP sold $15.5 billion in servers in 2007, according to Gartner, up 8.8 percent. IBM is going to need a big mainframe cycle in 2008 and pretty good Power system sales to keep HP, which garnered 28.3 percent of the server pie in 2007, at bay. Dell came in third in 2007, with $6.26 billion in sales, up 13.2 percent, followed up by Sun, with $5.91 billion in sales (up 3.5 percent) and Fujitsu-Siemens at $2.47 billion (down 1.5 percent). Other vendors sold $7.6 billion in servers, accounting for 13.9 percent of global sales in 2007, declining by 3.7 percent compared to the "other" category in 2006. So while others have a growing piece of shipments, they are getting squeezed on prices.

"RISC-Itanium Unix servers fell on a global basis for 2007 at 13.8 percent in shipments but grew 1.7 percent in revenue for the year," explained Jeffrey Hewitt, a research vice president at Gartner who does the server counting, said in a statement accompanying the numbers. "Comparatively, mainframes showed an 11.8 percent revenue decline which can be attributed to a slow period in the replacement cycle timing for this server class." Those mainframe numbers include other makers of mainframes, including Unisys, Siemens, and a handful of others.

Blades, blades, blades. Everyone talks about blades. And not just because they are cool (well, actually, they are kinda heat-dense), but because the market for blade servers continues to outgrow rack and tower server sales and shipments. Gartner says that in 2007, blade server sales rose by 44.5 percent and shipments rose by 19.9 percent, which suggests that ASPs for blades are rising and customers are eating up heavier blade servers so they can consolidate more and bigger workloads. In 2007, HP was able to reverse the drubbing it got from IBM in 2005 and became the market leader again, with 41.7 percent of blade server shipments, compared to IBM's 30.9 percent share of shipments.

So how did the server market do in the fourth quarter of 2007? Maybe better than expected, giving all the negative news in the real estate and financial services markets and the choppiness of the world's stock markets in the third and fourth quarters. "The server market did exhibit growth for the fourth quarter and for the year as a whole," said Hewitt. "In fact, the fourth quarter climbed almost 11 percent in shipments and just under 3 percent in revenues in spite of the fact that there have been concerns about a slowdown due to downturns in certain economic sectors of particular geographies."

To be specific, server sales in the fourth quarter rose by 2.8 percent to $15.5 billion, and shipments rose by 10.6 percent to 2.42 million units. HP shipped 702,100 boxes, compared to Dell's 499,687 units, IBM's 372,701 units, Sun's 84,778 units, and Fujitsu-Siemens' 75,882 units. Other vendors accounted for 686,837 units in the fourth quarter. Dell may ship nearly six times as many units as Sun, but Sun's boxes are more scalable and are used to run some of the most critical legacy Unix applications on the planet, and so it can command a premium price. And that is why Sun's $1.49 billion in server sales in the fourth quarter of 2007 nearly matched Dell's $1.58 billion. (Dell's sales rose by 4.1 percent, compared to Sun's anemic 1 percent revenue growth.) IBM topped server sales in the fourth quarter, with $5.31 billion in sales, down 0.8 percent but still accounting for 34.2 percent of all money spend on server capacity worldwide in the final quarter of 2007. HP came in second in the revenue rankings, with $4.43 billion in sales, up 7.6 percent and giving it 28.6 percent share of the money pie. Fujitsu-Siemens brought in $615.5 million in sales in the quarter, up 2.1 percent, and "others" comprised $2.09 billion in sales in the quarter, up 2.9 percent.

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