Gartner Concurs: Second Quarter Server Sales Stall

September 10, 2012 Timothy Prickett Morgan

As we explained in last week’s issue of The Four Hundred in going over IDC‘s casing of the global server market in the second quarter, it was no big surprise to anyone that with so many server processor transitions underway and the global economy somewhat skittish that the second quarter would be a little soft in terms of sales. The box counters at Gartner concur, and present a slightly different dicing and slicing of the market.

IDC counts vendor sales shipping out of the factory to large customers who buy directly and to master distributors who in turn peddle boxes to channel partners that actually sell the machines, at markup, to end user customers two layers down in the channel. Gartner looks at the value of servers consumed by end user customers during a quarter at that boundary between the end user and the channel, including all the layers of markups and discounts. In its publicly available data, IDC dices the server sales further by operating system, while Gartner chops it up coarsely by processor type. Both vendors give data for sales by the top five vendors as well. Looking at both sets of data can give you a kind of binocular, 3-D view of what is going on out there in Server Land.

The IDC data showed both server revenue and shipments declining, but Gartner, which gathers data at a different boundary in the server system, believes that shipments at the end user level actually rose by 1.4 percent to 2.37 million units, with revenues falling 2.9 percent to $12.86 billion. It could be a whole lot worse, given the large number of server processor and system transitions underway, and in fact, it is a bit surprising that it was not worse. This may be an indication that on a global basis at least that the economy is not as bad as many of us might be inclined to believe. Nationally and regionally, of course, the economies of Earth are a different matter entirely.

A couple of interesting points. First, Chinese PC and server maker Lenovo has knocked Oracle out of the top five vendors in terms of shipments by peddling 52,409 boxes during the quarter, a shocking 44.7 percent increase and showing that the company is getting a much bigger slice of its home market and maybe sales throughout Asia, Europe, and maybe North America, too. Oracle still ranks fourth in terms of server revenues and it will take many years before Lenovo catches up to Fujitsu, much less catches Oracle when it comes to revenues. And Cisco Systems, which has a blade server business that is still nearly doubling every year, will probably knock out Fujitsu from the top five before Lenovo does. The other interesting tidbit is that among the top five vendors, Dell was the only one to grow at all, and even more remarkably, grew shipments by 5.9 percent to 541,693 boxes and revenues by 5.1 per cent to $1.98 billion. Dell beat Hewlett-Packard to the punch on the Xeon E5 processor revamps, and it shows.

That said, HP is still king of the server hill, pumping out 678,963 boxes (down 5.6 percent) and driving $3.75 billion in revenues (down 5.1 percent). IBM came in second in terms of revenues, with just under $3.5 billion in revenues (down 7.8 percent), and third in terms of shipments, with 228,138 boxes out to customers in the second quarter (a 16.7 percent drop, and something Big Blue must surely be concerned about). Fujitsu ranked four by shipments, with 60,602 machines out (down 15.7 percent against a very tough compare when it shipped thousands of server nodes to the Japanese government in the year-ago period to build the 10.5 petaflops K supercomputer, which is based on its own Sparc64 processors). Fujitsu raked in $494.2 million in revenues in Q2, down 41 percent against that tough compare with the K box, which cost hundreds of millions of dollars. Oracle ranked fourth in terms of sales, with revenues of $772.8 million in the second quarter, down 17.5 percent. Gartner did not say how many boxes Oracle shipped in the quarter, but it has to be fewer than 52,000 boxes.

“The slight unit growth for the second quarter of 2012 was contrasted by a decline in revenue on a global level with geographic variations continuing to be shown based on the ongoing differences in economic conditions by region,” explained Jeffrey Hewitt, the research vice president at Gartner in charge of server counting, in a statement accompanying the figures. “In terms of revenue growth, only Asia/Pacific and the United States produced growth for the quarter–all other regions declined.”

The Unix market accounted for 37,771 total machines shipped in the second quarter, a 14.5 percent decline from the year-ago period, and revenues dropped an even steeper 17.9 percent to $2.15 billion. Gartner reckons that despite the impending Power7+ chip launch, IBM was able to push $1.2 billion in Power Systems iron running AIX, down 4 percent from last year’s second quarter. Oracle took a 31.9 percent revenue hit in Sparc/Solaris sales, to $456.7 million. And HP, which has been slammed by Oracle’s decision in March 2010 to not support its software on future Itanium processors, took a 29.1 percent hit, falling to $412.8 million in HP-UX system sales. Fujitsu and Group Bull made up nearly all of the remaining Unix system sales on RISC and Itanium iron, a total of $70.8 million across these two vendors.

On the X86 server front, revenues were up 5.6 percent to $9.19 billion against shipments up 1.8 percent to 2.33 million boxes. Cisco shows up in this data, shooting past Oracle to take the fourth slot in the X86 server revenue rankings, pushing $376.3 million of tin compared to Oracle’s $316.1 million. Now, remember that Oracle has largely abandoned the low-profit X86 server racket and this revenue mostly represents sales of its Exadata, Exalogic, and Exalytics “engineered systems.” Cisco is peddling both modular and rack systems, and most of its sales are going for greenfield cloud installations where tight integration between servers, storage, networking, and virtualization are the rule. Cisco’s sales were up 54.2 percent according to Gartner, which is a lower growth rate than Cisco itself was reporting in its latest financial results. (Go figure, that’s the difference between factory and end user revenues.)

HP’s ProLiant rack, tower, and blade servers are still the dominator in the data center, with HP and its channel partners peddling 672,857 boxes (down 5.3 percent) and driving $3.2 billion (down six-tenths of a point). IBM was third in terms of X86 server shipments, with 213,263 boxes out the door and falling 16.5 percent (oops, someone ain’t getting a bonus). IBM was third in the X86 server revenue rankings, falling 7.2 percent to $1.24 billion.

If you do the math, which I tend to do, only 2,296 other servers shipped in the quarter, down 46.5 percent, and revenues for these machines were $1.52 billion, declining 20.8 percent. If you extract IBM from this Others category, Big Blue had $1.05 billion in sales (down 12.5 percent) and 1,315 boxes shipped (down 37.7 percent) that were not RISC/Unix or X86 iron. As I have said many times before, it is not clear if Power Systems machines running IBM i (or Linux for that matter) are in this IBM Others category. I happen to think that both IDC and Gartner are undercounting IBM i system sales, since the numbers I have heard whispered seem low to me and sources at IBM have told me in confidence are too low. That means were really have no idea how large the IBM i systems business is, but Big Blue surely knows. And seems content to have it make the AIX business look stronger than it really is.