Despite 7.2 percent drop in Q4 revenue, worldwide server market revenues rise 5.8 percent in 2011

FRAMINGHAM, USA: According to the International Data Corp.'s (IDC) Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market decreased 7.2 percent year over year to $14.2 billion in the fourth quarter of 2011 (4Q11). This was the first quarterly decline in factory revenue in two years. Worldwide server shipments increased 2 percent to 2.2 million units in 4Q11 when compared with the year-ago period. For the full year 2011, worldwide server revenue increased 5.8 percent to $52.3 billion when compared to 2010, while worldwide unit shipments increased 4.2 percent to 8.3 million units.

On a year-over-year basis, all three classes of servers experienced decreased factory revenue totals in the fourth quarter. Volume systems experienced a 2 percent year-over-year factory revenue decline to $8.8 billion, while midrange revenue decreased 4.6 percent to $1.8 billion when compared to 4Q10. Additionally, high-end system revenue declined 18.4 percent to $3.7 billion in the quarter. This is the first time all three server classes have experienced year-over-year declines in revenue since the third quarter of 2009.

"Despite experiencing the first quarterly decline in factory revenue in two years, the server market was in many ways in alignment with IDC's fourth quarter expectations, which included generally strong year-over-year compares and product lifecycle challenges across several key market segments," said Matt Eastwood, group VP and GM, Enterprise Platforms at IDC. "Although the server market is nearly back to pre-recession spending levels, the market continues to evolve in terms of the technologies and supplier choices being made across core market segments and geographies. IDC believes that server demand will begin to improve in the second half of 2012 following a number of critical product refreshes occurring in the first half of the year."

Overall server market standings, by vendor
IBM held onto the number 1 spot in the worldwide server systems market with 36.5 percent market share in factory revenue for 4Q11, as revenue declined 7.6 percent year over year. IBM experienced continued improvement in demand for its Power Systems while revenue for its System z mainframes declined significantly in the quarter due to the combined effects of a strong year-over-year compare and an end of refresh cycle.

HP held the number 2 spot with 26.4 percent share for the quarter as the revenue decreased 16.2 percent compared to 4Q10. HP experienced demand challenges for both its x86-based ProLiant servers and Itanium-based Integrity servers in the quarter.

Dell maintained third place with 14.8 percent factory revenue market share in 4Q11. Dell was the only top 5 server vendor to grow in 4Q11, experiencing 9.7 percent year-over-year revenue growth due to strength in demand from SMB and enterprise customers. Fourth-ranked Oracle experienced a year-over-year revenue decline of 11.5 percent in 4Q11 to a 5.2 percent share of market, while Fujitsu, ranked number 5, experienced a 10.5 percent decrease in factory revenue holding 3.4 percent revenue share in 4Q10.

Top server market findings
* Linux server demand was positively impacted by high performance computing (HPC) and cloud infrastructure deployments, as hardware revenue improved 2.2 percent year over year in 4Q11 to $2.6 billion. Linux servers now represent 18.4 percent of all server revenue, up 1.7 points when compared with the fourth quarter of 2010.

* Microsoft Windows server demand subsided slightly in 4Q11 as hardware revenue decreased 1.5 percent year over year. Quarterly revenue of $6.5 billion for Windows servers represented 45.8 percent of overall quarterly factory revenue, up 2.6 points over the prior year's quarter.

* Unix servers experienced a revenue decline of 10.7 percent year over year to $3.4 billion representing 24.2 percent of quarterly server revenue for the quarter. IBM grew Unix server revenue 2.5 percent year-over-year and gained 7.9 points of Unix server market share when compared with the fourth quarter of 2010.

"The Unix server market has not returned to pre-recession levels due to a new set of market dynamics," said Jean S. Bozman, research vice president, Enterprise Platforms group at IDC. "Fourth-quarter results show that Unix servers generated 24 percent of quarterly revenue share, and 21.8 percent of 2011 annual server revenue share, compared with 31.6 percent market share in 4Q 2008 and 30 percent of annual revenue share in CY2008. Intense competition between the top three Unix server vendors — IBM, HP, and Oracle — and erosion of the overall Unix server market share due to platform migration have combined to reduce worldwide Unix server revenue in the fourth quarter of 2011."

X86 industry standard server market dynamics
In anticipation of Intel's Sandy Bridge server launch in 1Q12, growth in the x86 server market slowed somewhat in 4Q11, declining 1.7 percent in the quarter to $9.1 billion worldwide as unit shipments increased 2.9 percent to 2.1 million servers. Even with the slowdown, this was still the second highest quarterly revenue ever reported for x86 servers as the architecture accounted for 64.1 percent of all server spending. Although HP's x86 factory revenue declined 11.7 percent, it continued to lead the market with 33.3 percent revenue share.

Dell experienced the sharpest growth and retained second place securing 23 percent revenue share – a 2.4 point year-over-year share gain. IBM continues to hold third place with 18.2 percent revenue share, while Fujitsu and Oracle hold 3.1 percent and 2.7 percent share, respectively. As a result of a strong demand throughout the year, worldwide x86 server revenue for 2011 increased 7.7 percent to $34.4 billion, while worldwide x86 unit shipments increased 3.7 percent to 8 million units.

"This is the first quarter since the height of the recession that x86 server unit shipments have outperformed server revenue," said Reuben Miller, senior analyst, Enterprise Servers at IDC. "Through 2011, there has been an increased deployment of smaller form-factor systems within the entry-level server market, resulting in the overall cost of a server to slightly decline and allow the level of server units shipping to surpass the generated revenue."

Bladed server market results
The blade market continued to experience growth in 4Q11 with factory revenue increasing 8.3 percent year over year, while shipment growth increased by 1.7 percent compared to 4Q10. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $2.3 billion in revenues, representing 16.1 percent of quarterly server market revenue.

IDC data shows that 89.6 percent of all blade revenue is driven by x86-based blades, which now represent 22.5 percent of all x86 server revenue. HP maintained the number 1 spot in the server blade market in 4Q11 with 47.4 percent revenue share, while IBM generated 21.5 percent revenue share. Cisco and Dell rounded out the top four blade server vendors with 11 percent and 8.7 percent factory revenue share, gaining 5.3 and 1.3 points of blade market share, respectively.

"While there was softness in other segments, blades remained a strong point and continued as a driver of growth for the server market. The blade server category achieved both its highest reported revenue and revenue share in the fourth quarter of 2011," said Jed Scaramella, research manager, Enterprise Servers. "IDC believes blades are a key element in a server vendor's portfolio as they are a strategic footprint in the datacenter and important for vendor revenue and profitability. A converged blade platform is an opportunity for additional pull-through revenue beyond the server, including storage, networking, software, and services."

Density optimized servers
In November 2011, IDC introduced a new form factor called Hyper-Scale Servers. Beginning with the 4Q11 Tracker, IDC is now referring to these servers as Density Optimized systems in order to reduce confusion with the broader Hyper-Scale market segment which spans large scale, Web 2.0, hosting, and HPC environments.

This category, in addition to Density Optimized servers, also consumes significant numbers of traditional Rack Optimized servers. Density Optimized servers are designed for large scale datacenter environments where parallelized workloads are prevalent. The form factor serves the unique needs of these datacenters with streamlined system designs that focus on performance, energy efficiency, and density.

Density Optimized server demand grew 33.8 percent year over year in 4Q11 to $458 million as unit shipments increased 51.5 percent to 132,876 servers. Density Optimized servers now represent 3.2 percent of all server revenue and 6.1 percent of all server shipments. Dell maintained the number 1 spot in the Density Optimized market in 4Q11 with 45.2 percent revenue share, while HP finished second with 15.5 percent revenue share.