Worldwide Server Market Continues Growth in First Quarter as Windows and Unix Server Markets Generate Equal Revenues for First Time

Worldwide IDC: 'Factory revenue in the worldwide server market grew at 5.3% year over year to $12.1 billion in the first quarter of 2005, marking the eighth consecutive quarter of positive overall revenue growth. Volume server revenue grew 15.6% year over year and continues to represent the primary growth engine for the server market overall. Revenue for midrange enterprise servers grew 6.1% year over year, marking the second consecutive quarterly increase in that segment. This may reflect increased IT spending to run more scalable workloads and consolidation/virtualization initiatives than can be deployed onto volume servers. Conversely, the high-end enterprise server market, which grew from the fourth quarter of 2003 through the third quarter of 2004, declined 13.9% year over year, its second consecutive quarter of reduced spending. One factor in this drop could be continued price compression, which reduces average sales prices for servers from the high-end enterprise into the midrange enterprise space.

While the market is not accelerating at the same pace that it did in 2004, IT spending remained strong in the first quarter as customers continued to invest in new infrastructure,” said Matt Eastwood, program vice president of Worldwide Server Research at IDC. Although scale-out computing continues to gain favor with customers for an increasing variety of workloads, increased spending for midrange enterprise systems indicates that other form factors continue to be attractive for large, monolithic applications and for consolidation workloads.

• Year-over-year unit shipment growth of 13.5% - the lowest unit growth in two years - reflects moderating unit growth in the volume server segment and more difficult annual comparisons.

• Linux servers posted their eleventh consecutive quarter of double-digit growth, with year-over-year revenue growth of 35.2% and unit shipments up 31.1%. Customers continue to expand the role of Linux servers into an ever increasing array of workloads in both the commercial and technical segments of the market.

• Microsoft Windows servers showed strong growth, as revenues and unit shipments grew 12.3% and 10.7% respectively year over year. Significantly, quarterly revenue of $4.2 billion for Windows servers represented 34.4% of overall quarterly factory revenue, pulling even with quarterly revenue in the Unix server market.

• Unix servers experienced 2.8% revenue growth year over year and 5.0% unit shipment growth over 1Q04. Worldwide Unix revenues of $4.2 billion for the quarter, coupled with revenue and shipment growth, reflect continued IT investment in this server market segment.

• IBM held on to its top ranking as HP moved into a statistical tie for number 1 in the worldwide server systems market with 28.3% and 27.6% factory revenue share respectively.

• Dell and Sun tied for third place in factory revenue with 10.8% and 9.9% share respectively. This is the third consecutive quarter that Dell and Sun have been within one point of market share as Dell experienced 16.6% year-over-year revenue growth while Sun’s revenues increased 2.7% when compared to 1Q04.

• In terms of unit shipments, HP maintained its number 1 position worldwide with 30.4% server shipment share. Dell maintained the number 2 spot in terms of worldwide server shipments with 24.5% share, growing shipments 17.4% compared to 1Q04.

x86 Industry Standard Server Market Dynamics

Although demand for x86 servers continued to be strong, growth has moderated. Factory revenue grew 13.2% to nearly $5.8 billion worldwide while unit shipments grew 14.2% to nearly 1.5 million servers worldwide. Dell, HP, Fujitsu/FSC and Sun all outpaced the category's growth rate, posting year-over-year revenue growth in excess of 15%.The volume ramp of x86-64 servers continued in the first quarter, on a worldwide basis. HP was able to leverage the ramp of its AMD Opteron-based servers to become the only tier 1 vendor in the lucrative 4-way x86 server segment to grow revenue year-over-year. The gain in 4-way x86-64 servers indicates that enterprises see strong performance and scalability benefits from Opteron-based systems in their data centers."

Linux Servers Surpass the $1 Billion Mark in Revenue for the Third Consecutive Quarter

Linux server revenue exceeded $1.2 billion in quarterly factory revenue in 1Q05 as Linux server revenues showed 35.2% growth, reaching 10.3% of overall quarterly server revenue - an all-time high, as a percent of total quarterly revenue. Worldwide investment in Linux servers for both technical and commercial workloads remains strong as Linux servers continue to expand their presence in data centers around the world. HP maintained its number 1 spot in the Linux server market, with 27.7% market share in terms of revenue, while IBM was second with 19.8%.

Unix Servers and Windows Servers Nearly Tied in Worldwide Revenue

Unix server and Windows server revenue was statistically tied in 1Q04. This is the first quarter in which this has occurred, reflecting increased IT spending in Windows servers to run a wide range of workloads. "Both platforms have a rich inventory of ISV applications, but Unix servers have traditionally gained more revenue from sales in the midrange enterprise and high-end enterprise server segments, based on their ability to support scalable workloads and high RAS levels for mission-critical-workloads," said Jean S. Bozman, vice president of Enterprise Computing. "The equal level of spending in both segments this quarter showed that Windows servers are gaining traction in the enterprise server space with a combination of deeper investment and richer configurations."

Bladed Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed continued growth in the quarter, with shipments increasing by 68.2% year over year and factory revenue gaining 106% year-over-year. Overall, bladed servers accounted for $409 million in the first quarter, representing 3.4% of quarterly server market revenue. IBM maintained the number 1 spot in the server blade market, with 39.2% market share, while HP maintained the number 2 position with 35.2% share. Dell was able to increase its share of the blade market to 9.4% in Q105.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, First Quarter of 2005, see Quarterly Server Tracker

Quarterly Server Tracker Publ 20050526