Nov 26, 2003 (09:11 AM EST)
Server Market Grows For Second Consecutive Quarter

Read the Original Article at InformationWeek

The worldwide server market grew by 2 percent in the third quarter, a higher-than-expected jump that was driven primarily by demand for low- and medium-priced systems, a market research firm said Wednesday.

The factory revenue increase from the beefy computer systems used to run corporate data centers and business applications was the second consecutive, year-over-year quarterly jump, which followed nine straight quarters of decline, International Data Corp. said in releasing its Quarterly Server Tracker report.

The increase, which amounted to factory revenue of $10.8 billion, was one percentage point higher than IDC expected.

Overall, unit shipments grew a surprising 19.5 percent, reflecting solid demand for small servers priced less than $25,000. Revenues from those systems grew 9.5 percent, while sales of midrange systems, $25,000 to $499,999, increased by 7 percent. Revenue from servers priced more than $500,000 declined by 14 percent.

The drop in high-end server revenues was due to tight IT budgets and a shift in the market toward lower priced servers, IDC said in a statement.

"This shows that the IT community has embraced volume server deployments as a mainstream technology to meet a wide range of data-processing requirements and to support a wide variety of computing workloads," IDC analyst Vernon Turner said. "However, two quarters of positive growth do not necessarily mean that a long-lasting economic rebound is in place."

IBM held on to its No. 1 spot in the worldwide server market with 31.1 percent market share in factory revenue, gaining 1.4 percent over the same quarter a year ago. Hewlett-Packard Co. was No. 2 with 27.7 percent, increasing 0.4 percent over a year ago.

For the sixth consecutive quarter, Dell Inc. recorded positive revenue growth, taking a 9.5 percent share and closing in on No. 3 Sun Microsystems Inc. Sun's revenue share declined 9.3 percent to 10.8 percent of the total market.

Revenue from servers based on microprocessors from Intel Corp. and Advanced Micro Devices Inc. increased 8.3 percent, with unit shipments jumping 21.4 percent. The server blade market, an important new element in this segment, continued to expand, with 50,000 units purchased in the third quarter, bringing the year-to-date total to 120,000.

"The x86 sever market continues to outpace our expectations with respect to unit shipment demand and customer spending," IDC analyst Mark Melenovsky said.

Revenues from servers based on the open-source Linux operating system grew by 49.8 percent to $743 million, while unit shipments increased 51.4 percent. The performance demonstrated Linux servers' "traction in the worldwide server marketplace as they take on more different types of workloads from other types of servers," IDC analyst Jean S. Bozman said.

"Linux servers have demonstrated six consecutive quarters of year-on-year revenue growth, proving that they are not a flash-in-the-pan technology and that they are meeting real-world computing requirements," Bozman said.

Microsoft Corp.'s Windows also continued its growth in the market, with revenues increasing 10.3 percent and unit shipments gaining 21.4 percent. Overall, Windows accounted for 31.7 percent of market revenue in the quarter, or $3.4 billion.

The growth in Windows servers was due to upgrades in the large Windows NT server installed base to Windows 2000 or Windows 2003, the research firm said. Increases in the average sales prices for Windows 2003 servers with four or more processors also contributed to the revenue growth.

Revenues from Unix servers, on the other hand, declined by 3.8 percent to $4.1 billion. But the news wasn't all bad. It was the lowest rate of decline in seven consecutive quarters. Lower prices helped drive Unix server shipments up by 4.3 percent.

HP toppled Sun from the No. 1 spot in the Unix server market, grabbing 33.8 percent of overall factory revenue. Sun's Unix revenue declined 10.1 percent, but its unit shipments grew by 17.4 percent, reflecting the company's focus on low-cost computing.

In terms of revenue, Sun had a 28.4 percent share, followed by IBM with a 25.6 percent share. IBM's share jumped by 2 percent, which was the highest gain among the top 5 Unix server vendors.