Server Buyers Shop Like It’s 1999 in the Second Quarter

September 2, 2008 Timothy Prickett Morgan

If the economies of the Western countries are heading into recession, the purchase orders for servers at companies sure don’t seem to be a reflection of this yet. And the Asia/Pacific, Eastern European, and South American markets still seem to be booming, despite more than a year of jittery economies where their indigenous companies have their own customers. And so, the second quarter looked pretty good in terms of server sales, according to research from box counter Gartner, with server sales up 5.7 percent to $13.8 billion and shipments up 12.2 percent to 2.34 million units.

Of course, such good numbers could be, in hindsight a few quarters from now, a buying binge before the inevitable fall that will undoubtedly occur with server spending if there is a sustained recession in the United States and Europe that might have already started. (Economists are arguing about such things now.) I happen to be of the opinion that companies are looking to toss out racks and racks of 32-bit X86 iron and replace it with newer X64 iron with more oomph, and in some cases with iron that can be virtualized to offer better price/performance for supporting various workloads. And this will be a driver of server sales whether there is a recession or not. In fact, a recession might speed up the virtualization effect, compelling companies to get a lot more efficient with their server budget dollars and therefore embrace virtualization even more quickly and pervasively than they might otherwise.

“In spite of economic constraints in some markets like the United States, on a worldwide basis, servers continued to grow in the second quarter of the year,” explained Jeffrey Hewitt, research vice president at Gartner, in a statement accompanying Gartner’s Q2 server stats. “The most significant driver in the quarter continued to be an upswing in X86 server replacements that started in the first quarter. This, coupled with Web data center build outs and growth in emerging markets, produced solid Q2 results.”

The X86 and X64 server market accounted for $7.25 billion in sales in the second quarter, according to Gartner’s estimates, representing a 52.5 percent share of total sales in the quarter; more significantly, the X86 and X64 servers accounted for 2.23 million units, accounting for 95.4 percent of all server shipments in the quarter. That the remaining 107,716 server units shipped in Q2 can add up to $6.56 billion in sales just goes to show you the kinds of premiums you can charge for legacy minicomputer and mainframe platforms and RISC/Unix servers. The average X64 server cost $3,245 in Q2 across all machines shipped, while all other boxes averaged just under $61,000. This is not the kind of business you walk away from or undermine in any way, regardless of how much you might love X64 iron or volume economics.

Hewlett-Packard was, as usual, the king of the X64 server space, getting 33 percent of total revenues by driving $2.39 billion in sales and 691,487 units. However, HP’s sales actually shrank by 1.4 percent in the quarter, which was reflected in the company’s fiscal Q1 results ending in April. (HP showed a 2 percent rise in ProLiant sales in the second fiscal quarter ended in July after showing flat sales in fiscal Q1, which was helped by a December end-of-calendar-year push.) A resurgent Dell was clearly doing a lot better in Q2 than in past quarters, with shipments up 24.2 percent to 577,163 units and revenues up 15 percent to just under $1.8 billion in sales. IBM was the number three X64 server shipper, with 281,747 units, and ranked third in terms of sales, with those boxes bringing in $1.14 billion in the quarter, says Gartner. Fujitsu-Siemens and Sun Microsystems rounded out the X64 server arena, with the former having $241.5 million in sales and 58,862 shipments and the latter having $218 million in sales and 37,654 shipments. Overall, X64 server shipments rose by 13.7 percent, while sales only grew by 3.4 percent.

RISC/Itanium servers running Unix accounted for plenty of money even if the shipments were not large. Gartner reckons that these Unix machines accounted for $4.19 billion in sales, up 9.4 percent in the second quarter of 2008, even though shipments actually fell by 7.9 percent to 99,107 units. (That yields an average selling price of $42,249–more than 13 times the ASP of an X64 box.) Even though IBM has merged its System p and System i products, Gartner is still only counting its true AIX boxes in this category and believes IBM sold some $1.47 billion in Power Systems iron running AIX, up 28.9 percent and giving it 35.1 percent of the Unix pie. This gave Big Blue slightly more Unix share than Sun, which had $1.41 billion in sales, down 8.8 percent and giving Sun a 33.8 percent slice of the Unix pie. HP came in third in the Unix space, with $1.07 billion in sales, up 12.8 percent but only giving HP a 25.6 percent of the Unix market in Q2. Fujitsu-Siemens had just under $100 million in sales (down 23.1 percent), followed by Bull with $71.7 million in sales (up 120 percent) and all other Unix vendors with $60 million in sales (up 145 percent).

The interesting bit, of course, is what is running on the remaining 8,609 servers that are not RISC/Itanium running Unix or X86 and X64 boxes running anything (mostly Windows and Linux but also a smattering of Unix and MacOS). This “Other” and unspecified part of the market, which must be mostly Power Systems machines running the i operating system in terms of volumes and the System z mainframes for a big piece of the revenues, accounted for $2.38 billion in sales in the second quarter, and grew by 6.7 percent. Yes, that means it outgrew the X64 space by a factor of two and grew faster than the market at large. And that is with an average selling price in the quarter of $276,115.

In terms of overall sales, IBM was once again crowned the king of servers–and this time without Gartner having to recast its numbers, as it had to do for its Q1 estimates after bestowing that honor on HP after overestimating average selling prices that HP was getting for ProLiant machines. IBM took down $4.32 billion in sales in Q2, up 11.5 percent and driven by 308,835 boxes. That gave Big Blue 35.1 percent of global server sales in the quarter, an increase of over six points of market share. (Looks like someone is getting a bonus.) HP had $3.81 billion in total server sales, up only 2.9 percent, followed by Dell, again with just under $1.8 billion in sales, up 15 percent. (Dell doesn’t do RISC, Itanium, Power, or anything other than X86 and X64 servers.) Sun held onto the fourth place ranking in total server sales, with $1.63 billion in revenues, but down 6.8 percent, followed by Fujitsu-Siemens with $492.8 million in sales, basically flat from last year’s Q2. Other vendors accounted for $1.76 billion in sales, an increase of 5 percent compared to the Others category in the year-ago quarter.

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