Where Did The Midrange Go?
March 12, 2012 Timothy Prickett Morgan
There’s not much of a midrange server business left, if the latest numbers from IDC are any indication. If you were thinking that the server business was shaped like a multi-layer cake, with each layer representing the revenues from small, midrange, and high-end machines, that is not the case any more. The midrange–or what we used to think of as the midrange–is being pulled apart by Moore’s Law.
By IDC’s definition, a midrange box is one that costs somewhere between $25,000 and $250,000, including a server with base memory and disk capacity and an operating system. In the fourth quarter, the most recent one that IDC has data for since the first quarter of this year is not yet over, midrange servers accounted for a total of $1.8 billion in aggregate revenues, declining 4.6 percent in the quarter as gauged at the vendor factory revenue level. (This does not include the markup to end users as machines move through reseller channels.) By contrast, volume servers–those costing less than $25,000 and generally based on X86 processors, but sometimes other chips as well–accounted for $8.8 billion in revenues in Q4, down 2 percent year over year. High-end systems, dominated by big RISC or Itanium machines running Unix or proprietary operating systems from IBM, Hewlett-Packard, Oracle, and Fujitsu as well as mainframes from IBM, Unisys, and a few others, accounted for another $3.7 billion in sales, falling 18.4 percent.
This is the first time that the publicly available data from IDC actually put revenue figured on the volume, midrange, and enterprise server sectors, and hence I am bringing it to your attention. I was personally surprised at how small the midrange sector was, and it just shows the pressure that Linux and Windows on very capable X86 servers has put on Unix and proprietary systems in the same performance class over the past decade.
Here’s some interesting data just for a contrast. In the fourth quarter of 1990, IBM had hardly any measurable X86 server revenues to speak of, and had $1.26 billion in AS/400 sales, $220 million in RS/6000 server and workstation sales, and $635 million in midrange mainframe sales. Add those up, you’re talking about $2.1 billion in midrange server sales. Full-fledged, water-cooled ES/9000 mainframes accounted for $3.7 billion. The volume segment for IBM was basically zero. So the IBM pie, 21 years ago before PC servers essentially created the volume segment and then usurped the midrange, IBM was essentially 64 percent high-end and 36 percent midrange. The overall server market today, by contrast and as measured by the fourth quarter data from IDC, is 26 percent high-end, 62 percent volume, and less than 13 percent midrange.
By the way, IDC says that this is the first time that all three sectors of the server racket declined at the same time since the third quarter of 2009, when the server business was getting slammed by the Great Recession.
The IDC data is interesting in that it also talks about servers sold each quarter based on the dominant operating system that will be installed on those machines and discusses how the special sub-segments of blade servers and now density-optimized servers (these are not the same thing) are doing.
In terms of operating systems, Linux was the only platform to grow in the quarter, with hardware sales up 2.2 percent to $2.6 billion. Yes, the Linux server business is huge compared to where the AS/400 was two decades ago–more than twice as large in terms of dollars (not adjusted for inflation, of course, which would tend to deflate that comparison). Windows-based systems, perhaps slowed by the impending launch by Intel of its “Sandy Bridge-EP” Xeon E5 servers for two socket servers, shrank 1.5 percent (a third less shrinkage than the market overall, so gaining share still) to $6.5 billion. Linux was bolstered by early Xeon E5 server sales, which went into big supercomputers late last year, and by the explosion in so-called density-optimized servers.
These are minimalist server designs that resemble blades in that they have skinny form factors but they take out all the extra stuff that hyperscale Web companies like Google and Amazon don’t want in their infrastructure machines because they have resiliency and scale built into their software stack and have redundant hardware and data throughout their clusters. I called these kind of servers lean, mean, green machines eight years ago when I talked about building these myself.
These density-optimized machines usually put four server nodes in a 2U rack chassis or sometimes up to a dozen nodes in a 4U chassis and have processors, memory, a few disks, and some network ports and nothing else per node. By IDC’s reckoning these dense servers accounted for $458 million in sales, up 33.8 percent in a global server market that fell by 7.2 percent to $14.2 billion in the quarter. Density optimized machines accounted for 132,876 servers in the quarter, exploding 51.5 percent, against the overall market, which comprised 2.2 million shipments and rose 2 percent. Dell, by the way, owns this segment, with 45.2 percent of the revenue share, followed up by Hewlett-Packard with 15.5 percent of that density-optimized server pie.
Blade servers continue to do well, even as density-optimized machines eat into the business a little bit at supercomputer sites, says Jed Scaramella, research director for enterprise servers at IDC. But blade servers based on X86, Itanium, Power, and Sparc processors all told brought in $2.3 billion in sales, up 1.7 percent. The vast majority of blade shipments are based on X86 processors, and X86-based blades accounted for 22.5 percent of total X86 shipments in the quarter, too. Across all processor types, HP remained the leader for blades, with 47.4 percent share, followed by IBM at 21.5 percent, server upstart Cisco Systems at 11 percent, and Dell at 8.7 percent.
Despite coming to the end of its mainframe cycle and thanks in large part to market share gains in the Unix market and stable System x sales, IBM was able to easily retain the top revenue spot in the fourth quarter, even with a 7.6 percent drop, with its $5.18 billion in revenues. HP was hurt by competition from Dell and slowing Itanium-based server sales in the wake of its issues over Itanium processor support with Oracle, and Oracle was hurt because, well, it is still the Sun Microsystems server business no matter what name you put on it. HP’s server sales dropped 16.2 percent in Q4, to $3.75 billion. Dell totally bucked the trend, eating into HP’s hide a bit, too, with sales up 9.7 percent to $2.1 billion. Oracle ranked fourth by revenues, with $735 million in revenues (off 11.5 percent), followed by Fujitsu, with $484 million in sales (off 10.5 percent). Other vendors accounted for $1.96 billion in server sales in the fourth quarter, up nearly a point and bolstered significantly by Cisco and Lenovo.