X64 and Blade Servers Lead the Server Recovery

March 1, 2010 Timothy Prickett Morgan

A recovery of sorts is underway in the server market, according to the latest statistics from Gartner that dices and slices the server metrics for the final quarter of 2009. While by no means a full-blown recovery–something no one expects–in server spending, the market seemed to be a little bit stronger than expected, signifying that companies are willing to dedicate some funds to new iron to support new and existing workloads.

“The recovery that began in the third quarter of 2009 based on x86 servers extended into the fourth quarter,” said Jeffrey Hewitt, the research vice president at Gartner who does server box counting, in a statement put out with server sales and shipments by revenue, vendor, and type. And then Hewitt sprayed a little cold water on any excitement you might have for robust spending on servers, which is a leading indicator for overall IT spending as far as I can tell. “However, it is important to put this into context. The fourth quarter of 2008 was quite weak, so the fourth quarter of 2009 did not have to produce huge x86 server numbers to result in an increase. At the same time, other segments like RISC/Itanium Unix and mainframes remained constrained and that exerted downward pressure on overall vendor revenue results.”

This stands to reason, with IBM‘s System z10 mainframes and Power Systems stalling a bit at the end of last year because the existing z10 and Power6/6+ products are at the end of their run and everyone was anticipating system refreshes in 2010. Ditto for Hewlett-Packard, whose high-end and midrange Integrity line is set to be refreshed with Itanium 9300 processors (the quad-core Itaniums code-named “Tukwila” that were announced the same day as the Power7 chips and systems from IBM back in February). All X64 server makers were getting set for the six-core Xeon “Westmere” refresh on two-socket servers and the eight-core Xeon “Beckton” refresh on four-socket and larger boxes, which we now know are both due in March.

That said, there are always companies that need servers today, and they can’t wait. So they don’t. And that is why server sales never go to zero. By Gartner’s reckoning, server makers and their reseller partners sold $12.6 billion in servers in the fourth quarter (with server sales outside the U.S. translated into dollars), a decline of 3.2 percent compared to the pretty awful fourth quarter of 2008, when the economic meltdown was heating up like crazy. Gartner believes that 2,235,185 servers were sold in Q4 2009, an impressive 4.5 increase over Q4 2008. This is something approximating what has come to be normal in the past few years.

In the analysis that Gartner provides to the public, it breaks servers down into three families: X64 boxes, RISC/Itanium boxes running Unix, and Others. This time around, it was clearly the X64 boxes that did well, pulling up the class average, while the Unix and Others took it on the chin. You will remember that the inertia of Unix and Other server sales at the end of 2008 allowed the declines to be less here than they were for X64 boxes, so this is the flip side of that inertia. When you add in expected product transitions for several Unix and proprietary systems to the inertial damping the economic meltdown had on just about every aspect of the economy (excepting microbrew sales) in 2009, this is precisely what you’d expect.

As was the case in the third quarter, the X64 server space was a mixed bag. The top five vendors were able to sell heavier configurations and increase their average selling prices (ASPs), but the other vendors in the market had to compete on price. All told, 2,165,272 X64-based servers were sold in Q4 last year, according to Gartner, up 6.3 percent compared to shipment levels in the year ago quarter; in aggregate, X64 revenues increased by a stunning 14.3 percent to $7.6 billion. When you do the math, as I usually do, that means the average selling price on an X64 box rose by 7.6 percent to $3,507 per box. Not too shabby in a crappy economy, eh? But it gets better. If you look at the top five server makers–IBM, HP, Dell, Sun Microsystems (now Oracle, and Fujitsu–they accounted for 1,588,352 boxes and $6.33 billion in sales, for an ASP of $3,986 (up 10.8 percent). Those vendors not blessed by being in the top five of the X64 racket sold more boxes than they did a year ago, a tiny bit ahead of the growth rate of the top five in fact, but ASPs fell by 5.9 percent to $2,189. Now here is the funniest statistic, and it helps explain how IBM has been able to see a resurgence in its X64 sales, which were truly awful in the second half of 2008. IBM sold 293,716 X64-based servers, up an impressive 14.6 percent. But IBM sold a lot of hefty machines apparently, because its revenues grew at 37 percent, to $1.42 billion, and its ASPs rose by 19.5 percent, to $4,875 a pop, for X64 boxes. Look at that spread between whitebox and IBM X64 ASPs.

You can see who is benefiting from the virtualization wave in the data centers–and you can also figure out who is not going to do anything to upset the server virtualization hypervisor vendors.

By Gartner’s estimates, RISC/Itanium servers running one or another flavor of Unix fell by 20 percent to $3 billion. Shipments across all Unix boxes fell by a staggering 30.5 percent, thanks again to the virtualization effect, but ASPs rose when you do the math. Up 15.1 percent to $48,271, if you want to be precise. To IBM’s credit, its Unix server shipments fell by only 20 percent to 20,407 units, and its revenues dropped by only 11.1 percent to $1.21 billion, according to Gartner. So its ASPs for AIX machines actually rose by 11.3 percent to $59,453. HP’s Unix shipments and sales were down 20 percent, to 10,700 boxes and $876.3 million, with ASPs flat, but at a much higher $82,000 a pop. Sun was able to boost Sparc/Solaris server ASPs as well, up 15.4 percent to $26.097. But shipments were hammered down 38.5 percent, to 28,885 units and revenues dropped 29.1 percent, to $753.8 million.

That leaves Others. If you subtract X64 and RISC/Itanium Unix from the totals from Gartner, you get Others comprising a mere 7,837 units (down 39.7 percent), but just a bit over $2 billion (down 23.4 percent). And that means ASPs for non-X64 and non-Unix boxes–what most of us still call proprietary machines–rose by 27 percent to $257,275 a pop. My assumption is that machines running the i operating system are in this mix, as mainframes certainly are. IBM’s share of this Others category came to 5,884 boxes and $1.48 billion in revenues, both down a tad more than 25 percent, with ASPs holding steady at $251,534.

Gartner did not provide a lot of detail on blade servers, but did say this was one very bright spot in the fourth quarter of 2009. Blade servers had 11.1 percent growth in shipments, and revenues grew at twice that rate in the quarter. For the year, blade shipments were down 11.4 percent, but sales rose by 1.3 percent. Yeah, that’s a pretty choppy year for blades.

In terms of aggregate revenue rankings, IBM still came out at the top of the server heap, with $4.12 billion in sales (down 5.9 percent) in the quarter. HP was not too far behind, as is usually the case, with $3.95 billion in sales, up a smidgen compared to the year-ago quarter. Dell took its traditional number three spot (and one that used to be held by Sun a decade ago) with its $1.52 billion in server sales in Q4, up a rather smart 8.3 percent. Adding up Sun’s X64 and Sparc servers gave the formerly independent vendor $960.8 million in sales, but because of the woes related to its Sparc product line and the uncertainty surrounding the Oracle acquisition as well as the freezing of the Unix market, that represented a 23.5 percent decline compared to a year ago. Fujitsu saw sales rise by a half point to $563.4 million, and other vendors added together accounted for just under $1.5 billion in revenues, up six-tenths of a percent.

Looking ahead, Gartner’s analysts said they expect server shipments to grow “in the middle or high single digits” and that revenues would grow “at a slightly lower level.” That sure sounds like a lot of price competition to me.

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