According to the International Data Corporation (IDC), factory revenue in the worldwide server market increased 4.2% year over year to $12.7 billion in the third quarter of 2011 (Q3 2011). Although this is the seventh consecutive quarter of year-over-year revenue growth, it is the slowest quarterly growth rate since the market recovery began in Q1 2010 as year-over-year compares become more difficult.
Market Stabilizes Amid Uncertain Macroeconomic Condition
"After nearly two years of steady revenue growth, the server market began to decelerate in Q3 2011 as demand stabilized for many system categories," said Matt Eastwood, group vice president and general manager of enterprise platforms at IDC.
Server unit shipments increased 4.0% year over year in Q3 2011; however, server shipment growth moderated slightly from the 8.7% year-over-year shipment growth reported in the second quarter of 2011.
Improved market conditions were seen across all three server classes - volume, midrange enterprise, and high-end enterprise. Volume systems experienced a 5.0% year-over-year revenue increase, the eighth consecutive quarter of positive growth for the segment. Midrange enterprise demand improved for the fifth time in the past six quarters, with a 4.7% year-over-year revenue increase. Finally, the improving market conditions extended to the high-end enterprise segment, as quarterly revenue increased 1.1% when compared to Q3 2010. This is the third consecutive quarter that all three segments of the server market have experienced a year-over-year revenue increase in the same quarter.
"Asia/Pacific and Japan exhibited strong revenue growth while server demand in EMEA, North America, and Latin America was flat to slightly down year over year. IDC continues to believe that weakening macroeconomic conditions around the world will serve to further moderate demand for new servers in 2012," added Mr. Eastwood.
IBM and HP Jointly Hold No. 1 Position, Continue to Account for 60% of All Server Revenue
IBM and Hewlett-Packard jointly held the number 1 position in the worldwide server market with 29.8% and 29.8% factory revenue share respectively for Q3 2011, a statistical tie.
IBM experienced 3.5% year-over-year growth in factory revenue with particular strength in Power Systems demand.
HP lost 2.5 points of share in Q3 2011 as factory revenue declined 3.8% year over year largely because of weakening demand for Itanium-based Integrity systems.
Dell maintained third place with 15.1% factory revenue market share in Q3 2011. Dell gained 1.2 points of share year-to-year on 13.1% revenue growth driven in part by driven by richer product configurations.
Oracle maintained the number 4 position in the worldwide server market, with a year-over-year revenue decline of 3.2% in Q3 2011 and now holds 6.0% market share.
Fujitsu, which rounded out the top 5 vendors, experienced a 0.4% decrease in factory revenue, holding 4.8% revenue share in Q3 2011.
Top Server Market Findings
Linux server demand was positively impacted by strong x86 server deployments, as hardware revenue improved 12.3% in Q3 2011 to $2.3 billion over Q3 2010. Linux servers now represent 18.6% of all server revenue, up 0.9 points when compared with the third quarter of 2010.
Microsoft Windows server demand also improved in Q3 2011 as hardware revenue increased 5.3% and unit shipments increased 2.0% year over year. Quarterly revenue of $6.3 billion for Windows servers represented 49.7% of overall quarterly factory revenue.
Unix servers experienced 1.6% year over year revenue growth to $2.6 billion representing 20.1% of quarterly server revenue for the quarter. IBM grew Unix server revenue 14.0% year over year and gained 5.1% of Unix server market share when compared with the third quarter of 2010.
After four consecutive quarters of growth driven by strong demand for IBM's zEnterprise mainframes, revenue for System z servers running z/OS declined 4.5% year over year to $970 million representing 7.6% of all server revenue in Q3 2011.
Bladed Server Market Results
The blade market experienced solid growth in Q3 2011 with factory revenue increasing 16.4% year over year, while shipment growth increased by 2.4% compared to Q3 2010. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $2.0 billion in revenues, representing 16.0% of quarterly server market revenue.
89.0% of all blade revenue is driven by x86-based blades, which now represent 20.8% of all x86 server revenue. HP maintained the number 1 spot in the server blade market in Q3 2011 with 51.0% revenue share, while IBM finished with 18.5% revenue share. Cisco and Dell rounded out the top 4 with 10.7% and 7.2% factory revenue share, respectively.
"Blade systems represented the fastest growing segment in the server industry and now account for 16.0% of total server revenue – a historic high. Blades are a key element of convergence that integrates server, storage, and networking to simplify IT complexity. Customers are supplementing their blade platforms with automation and resource tools to create an agile IT environment and speed deployment times," said Jed Scaramella, research manager of enterprise servers at IDC
x86 Industry Standard Server Market Dynamics
x86 server revenues continued to improve in Q3 2011, growing 6.0% in the quarter to $8.7 billion worldwide as unit shipments increased 4.0% to 2.0 million servers.
Although HP led the market with 35.8% revenue share, they did experience a 0.2% year over year revenue decline and a 2.2% share loss in the quarter. Dell retained second place, securing 22.1% revenue share and gaining 1.4% of share on 13.1% year over year revenue growth. IBM grew x86 server revenue 0.8% and now holds 17.7% revenue share.
Overall, this was the tenth consecutive quarter with year-over-year increases in average selling prices (ASPs) for x86 servers. Additionally, this was the eighth consecutive quarter of year-over-year factory revenue growth for x86 servers.
"With the x86 server market recovering from the economic recession for almost two years now, there are fewer server refreshes than a year ago. The x86 market continues to experience positive growth, but with a decrease in refreshes from a year ago, annual growth rates for both unit sales and revenue have begun to level off and resemble rates prior to the recession," said Reuben Miller, senior analyst of enterprise servers at IDC.
Hyper-Scale Servers: New Type of Server Machines
Starting Q3 2011, IDC began to track the new form-factor called hyper-scale servers.
In response to evolving market demand within large scale, web 2.0, hosting, and HPC environments, new server designs have been developed for these markets. Hyper-scale 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. Hyper-scale servers forego the full management features and redundant hardware components found in traditional enterprise servers as these capabilities are accomplished primarily through software.
Hyper-scale server demand grew 8.7% year over year in Q3 2011 to $428.5 million as unit shipments increased 4.3% to 118 888 servers. Hyper-scale servers now represent 3.4% of all server revenue and 5.7% of all server shipments. 73.6% of all hyper-scale server revenue was generated in the U.S. in the quarter.