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Worldwide Server Market Shows Second Consecutive Quarter of Revenue Growth

Posted on: Wednesday, 26 November 2003, 06:00 CST

FRAMINGHAM, Mass., Nov. 26 /PRNewswire/ -- The worldwide server systems market continues to gain ground, showing 2% revenue growth in the third quarter of 2003 (3Q03), according to IDC's Worldwide Quarterly Server Tracker. This gain was nearly one percentage point higher than expected. Worldwide server factory revenue topped out at $10.8 billion. It was the second consecutive quarter of positive growth for server revenues worldwide, following nine quarters of decline during the economic downturn.

Overall, server unit shipments grew dramatically by 19.5%, reflecting the underlying demand for volume servers, which are small servers priced less than $25,000. This demand led to volume server revenue growth of 9.5% year-over-year. Sales of more expensive server systems in the midrange enterprise. Sales of more expensive server systems in the midrange enterprise ($25,000 to $499,999) grew revenues by 7% year-over-year, and high-end enterprise servers (priced $500,000 or more) declined in revenue by 14% year-over-year. IDC believes this is due in part to IT budget constraints and to shifts in server deployments that favor volume servers.

"Volume servers are generating most of the positive momentum in the worldwide server market," said Vernon Turner, group vice president of IDC's Worldwide Server Group. "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. However, two quarters of positive growth do not necessarily mean that a long-lasting economic rebound is in place."

Overall Server Market Standings

IBM held onto its number 1 spot in the worldwide server systems market with 31.1% market share in factory revenue, gaining 1.4 points of share year-on-year. HP took the number 2 spot with 27.7% share, gaining 0.4 points of share year-on-year. The gap between Sun and Dell continued to close with number 3 Sun showing revenue share of 10.8% worldwide, while number 4 Dell showed revenue share of 9.5%. Dell has been growing its worldwide revenue market share for six consecutive quarters, IDC research shows.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue,

Third Quarter of 2003

(Revenues are in Millions)

Q3 2003 Market Q3 2002 Market Revenue Growth

Vendor Revenue Share Revenue Share 2003/2002

IBM $3,368 31.1% $3,160 29.7% 6.6%

Hewlett-Packard $2,997 27.7% $2,895 27.3% 3.5%

Sun Microsystems $1,165 10.8% $1,285 12.1% -9.3%

Dell $1,025 9.5% $919 8.6% 11.6%

Fujitsu/

Fujitsu Siemens $684 6.3% $702 6.6% -2.5%

Others $1,590 14.7% $1,663 15.7% -4.4%

All Vendors $10,830 100.0% $10,625 100.0% 1.9%

Source: IDC, November 25, 2003

x86 Industry Standard Server Market Dynamics Boost Overall Growth

The x86 server market dynamics drove much of the quarterly revenue growth year-over-year. In all, revenue derived from the sales of x86 servers (servers based on Intel and AMD microprocessors) expanded 8.3% and unit shipments grew 21.4%. The server blade market, an important new element of this segment, continued to expand its share of the market with more than 50,000 server blades purchased in the third quarter and more than 120,000 year-to-date. "The x86 server market continues to outpace our expectations with respect to unit shipment demand and customer spending," said Mark Melenovsky, program director in IDC's server research group. "Strong growth for Windows and especially Linux-based solutions, modular scale-out server deployments of rack-optimized servers and blades, as well as a very good replacement cycle environment for servers purchased before the IT spending recession are all contributing to exceptional market demand."

Linux Server Growth is Nearly 50% Year-Over-Year

Linux server platforms posted a 49.8% growth in factory revenues, year-over-year, while unit shipments grew 51.4% year-over-year. "Linux servers generated $743 million in the quarter, demonstrating their traction in the worldwide server marketplace as they take on more and different types of workloads from other types of servers," said Jean S. Bozman, research vice president in IDC's worldwide server group. "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 in HPC and commercial deployments."

Windows Server Market Continues to Grow

The Windows server market continued to grow, with factory revenues increasing by 10.3% year-over-year and unit shipments gaining 21.4%. Overall, Windows servers accounted for $3.4 billion in 3Q03, representing 31.7% of quarterly server market revenue. Several factors contributed to the continued growth, including upgrades in the large Windows NT server installed base to Windows 2000 or Windows 2003. Growing average sales prices for scalable servers (with four or more processors) running Windows 2003, contributed to revenue growth, as well.

Unix Server Declines are Slowing

Unix server revenues were $4.1 billion in the quarter -- a decline of just 3.8%, which is the lowest rate of decline in seven consecutive quarters. Driven by price competition as a sweetener, Unix server unit shipments showed an up-tick of 4.3% year-over-year. HP was the Unix server market leader in 3Q03, outpacing Sun, which had been the leader in 2Q03. Sun's Unix revenue declined by 10.1% year-over-year, but Sun's unit shipments grew by 17.4%, reflecting the company's focus on low-cost computing in CY2003. HP had 33.8% market share, in terms of factory revenue, driven by gains in Superdome shipments, while Sun had 28.4% share and IBM had 25.6% share. IDC notes that IBM gained 2 points of share in 3Q03 year-over-year, which was the largest share gain shown by the top 5 Unix server vendors.

IDC's Server Taxonomy

IDC's Server Taxonomy maps the eleven price bands within the server market into three price ranges: volume servers, midrange enterprise servers and high-end enterprise servers. The revenue data presented in this release is stated as factory revenue for a server system. IDC presents data in factory revenue to determine market share position. Factory revenue represents those dollars recognized by multi-user system and server vendors for ISS and upgrade units sold through direct and indirect channels and includes the following embedded server components: Frame or cabinet and all cables, processors, memory, communications boards, operating system software, other bundled software and initial internal and external disk shipments.

IDC's Worldwide Quarterly Server Tracker is a quantitative tool for analyzing the global server market on a quarterly basis. The Tracker includes quarterly shipments (both ISS and upgrades) and revenues (both customer and factory), segmented by vendor, family, model, region, operating system, price band, CPU type, and architecture. For more information, please contact Hoang Nguyen at 508-935-4718 or hnguyen@idc.com.

About IDC

IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. Additional information can be found at http://www.idc.com/

All product and company names may be trademarks or registered trademarks of their respective holders.

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