The Server Boom Goes From Sonic To Nuclear
September 10, 2018 Timothy Prickett Morgan
The smartphone, the second wave of Internet applications, the shift to cloud computing, and the normal expansion of processing and storage as companies hoard more and more data in the hopes of doing something useful with it have all combined to send the server market skyward.
In the second quarter, worldwide sales of servers experienced an astonishing 43.7 percent growth rate, to $22.53 billion dollars, the largest quarter for server sales in the history of information technology – even if you adjust for inflation and probably even if you take out the effects of DRAM and flash memory price hikes that have helped drive the revenue curves to the right and more sharply up than we are used to. Server shipments, say the box counters at IDC, rose by 20.5 percent to 2.94 million units, also a record number.
All segments of the server business saw a sharp rise in the quarter, which is a good sign. The volume segment, where machines cost $25,000 or less, grew by 42.7 percent to $18.4 billion, more or less tracking the market overall because these volume machines constitute the majority of system sales. So this stands to reason. But sales of midrange machines, which cost between $25,000 and $250,000 and which is where a lot of Power Systems sales come from, also rose, and by a more astounding 63 percent to $2.5 billion. This is the first time in a long time that midrange servers saw such a spike in sales, and we credit this at least in part to sales of machines stuffed to the gills with GPU accelerators to do machine learning training or to run HPC simulations and models. Sales of high end systems, according to IDC, rose by a less dramatic 30.4 percent to $1.7 billion, driven in large part by the rebound in mainframe sales by Big Blue as the System z14 generation starts its ramp in earnest.
Speaking of IBM, it looks like Big Blue is now barely beating out Lenovo, which bought its System x X86 server business nearly four years ago to embiggen itself, for the third position in IDC’s revenue rankings. In the second quarter, IBM’s overall server sales came to $1.64 billion, up 57 percent. But Lenovo grew by 85.7 percent to $1.55 billion and almost caught up with IBM, and if Power Systems sales do not pick up in the coming quarters, Lenovo will probably knock IBM down to position four in the rankings. We have no idea how many machines IBM sold, but it is probably a couple 10 thousand and no more than that.
Hewlett Packard Enterprise surely knows what this feels like. After leading the server market in shipments and revenues since acquiring Compaq back in 2001, Dell has emerged as the dominant shipper and seller of servers in the world. Nearly one in five of the servers sold in the second quarter had the Dell brand on it, but with only 16.6 percent shipment growth to 574,600 units, Dell actually lost seven-tenths of a point of market share compared to this time last year. HPE fared a lot worse as it is backing away from sales of minimalist machines (actually manufactured by Foxconn in China) aimed at large service providers; consequently, its shipments fell by 12.4 percent to 443,700 units and have it only 15.1 percent of shipments compared to 20.7 percent in the year ago period. HPE brought in $3.74 billion in server sales, up 11.7 percent and we think largely driven by higher DRAM and flash prices as well as richer configurations with more expensive CPUs and with some GPU accelerators. Inspur, Cisco Systems, and Huawei Technologies are basically in a three-way statistical tie spanning positions five through seven in the IDC market stats, with Inspur and Huawei growing very fast. If they maintain this growth, Cisco could be knocked out of the top five.
Sales by the collective group of original design manufacturers (ODMs) that sell directly to the hyperscalers and cloud builders of the world rose by 55.9 percent to $5.49 billion, and show no signs of slowing down. Dell has a huge business selling custom machines to the same customers, and Inspur, Lenovo, and Sugon all have similar deals with Baidu, Tencent, Alibaba, China Mobile, and JD.com in the Middle Kingdom helping to fuel their explosive growth.
Seeing all of this demand for compute, it is natural, given all of the technical prowess in the Power9 systems that IBM has delivered, to wonder when the Power Systems business will see this kind of growth. We are ready.