Server Sales Chug Along in the Third Quarter
December 6, 2010 Timothy Prickett Morgan
There is still plenty of pent up demand out there in the data centers and data closets of the world for servers thanks to the dearth of server spending during the Great Recession. According to the box counters at Gartner, who released the market stats for the third quarter last week, companies shelled out some $12.3 billion acquiring 2.19 million servers in the 13-week period running from the beginning of June through the end of September.
Everyone wants to throw a party because that represented 15.3 percent revenue growth and 14.2 percent shipment growth compared to the third quarter of 2009, when the server market was just getting some of its legs back underneath it. But if you have a long memory–and I do, if you count the Internet as an auxiliary memory as I have to at this point in my life–then you will recall that in the third quarter of 2007, when the Great Recession was just starting to ramp up, server revenues added up to $13.4 billion against 2.22 million shipments. The box count has recovered by Gartner’s numbers, thanks in large part to a virtualization wave out there in the X64 base, but high-end proprietary and Unix servers are still a bit sluggish.
In the third quarter of this year, Hewlett-Packard solidified its position as the top revenue generator in the server racket, with $3.94 billion in sales, up 22.5 percent compared to the year-ago period when IBM was still the revenue leader. IBM was able to grow its sales by 9.9 percent in Q3, thanks in large part to pent up demand for its new System zEnterprise 196 mainframes, improving midrange Power Systems sales, and better traction with its System x and BladeSystem lineup (particularly at the high-end of the X64 products). HP shipped a total of 715,481 servers in Q3 according to Gartner, an increase of 16.2 percent, while IBM shipped 287,574 boxes, an increase of 16.7 percent. At this rate it is hard to imagine IBM will ever become the revenue leader in servers again and the company would have to buy Dell to become the shipment leader. (There’s an idea. . . .)
Dell ranked number three by server revenues in the quarter, up 25.6 percent to $1.79 billion against shipments of 501,593 servers (Dell only sells X64 iron at this point, but may do ARM RISC servers soon), up 14.7 percent. Fujitsu was the number four vendor ranked by revenue, with $582.2 million in sales, and number four in shipments, with a mere 75,479 boxes. Oracle thanks to its Sun Microsystems acquisition was able to rake in $763.9 million in server revenues, down 2.6 percent from Q3 2009. Other vendors accounted for $1.49 billion in server sales in the third quarter, rising at 15.2 percent and keeping pace with the overall market. The top five vendors accounted for 87.8 percent of total server revenues and 73.7 percent of total shipments in the quarter. Yes, this is a massively consolidated market–much more so than storage and networking, but not any more so than PCs.
By Gartner’s calculations, 2.14 million X64-based servers were sold in the third quarter, up 14.9 percent versus a year ago; aggregate revenues for X64 servers were $8.19 billion, up 29.5 percent. Companies are indeed buying fatter machines to support virtualization, but I also think many companies are buying fatter X64 boxes instead of midrange and high-end Unix boxes. When you can pack 32 or 48 cores into a “midrange” X64 server using Intel Xeon or Advanced Micro Devices Opteron processors and buy that machine for a lot less money than it takes to buy an equivalent proprietary or Unix box, it is small wonder that the X64 server racket is growing and RISC/Itanium Unix machines are stagnating. (And proprietary operating systems running on Power or Itanium processors, too.)
By Gartner’s count, only 49,052 machines running Unix, based on a RISC or Itanium chip, were shipped in the third quarter of 2010. That is 10.1 percent fewer boxes than a year ago. So there is no surprise that revenues for Unix boxes fell by 9.5 percent to $2.35 billion. But even more astounding is the fact that in the third quarter of 2007, before the recession began, Unix vendors pumped out 103,259 boxes, accounting for $3.76 billion in sales across all vendors.
If you take out the X64 and Unix machines, you are left with Others, which includes IBM’s System z mainframes and presumably the Power Systems machines running the IBM i operating system. The number of machines that Gartner said shipped in this category (which also would include any HP machines running OpenVMS) was a paultry 4,895 in Q3, down 11.5 percent, but these boxes accounted for $1.75 billion in revenues, up six-tenths of a percent. If you back IBM’s Other systems out of the Gartner numbers, IBM shipped 3,033 boxes, down 15.7 percent, but accounting for $1.28 billion, up 8.4 percent. In the third quarter of 2007, IBM’s Other systems added up to 8,047 machines and generated over $1.36 billion in sales. IBM is also selling bigger proprietary boxes that cost more–and fewer of them. The average selling price three years ago for an IBM Other machine was $169,058 using Gartner’s numbers, and this figure rose to $423,039 in the third quarter of this year.