Someone has turned the volume knob on the x64 server market from 11 down to 9. And that someone is the economic meltdown.
In the fourth quarter of 2008, when the meltdown was flaring up, server spending dropped off dramatically. The analysts at IDC who track the server space reckon that server sales contracted "sharply" in Q4, falling 14 per cent to $13.5bn, with shipments dropping by 12 per cent.
Those declines might not be as severe as the ones we have all seen in our retirement funds in recent months, but for the tectonically moving server space, where change comes in small increments, this is akin to an earthquake like we haven't seen since the dot-com bust. And it looks like it can - and likely will - get worse.
"The server market experienced its sharpest decline since the middle of the dot-com slowdown nearly seven years ago," confirmed said Matthew Eastwood, group vice president of IDC's enterprise platforms group, which puts together the server stats each quarter.
"All server vendors, geographies, and technology segments were impacted significantly as the global recession gained momentum and market conditions weakened as the quarter progressed. It now appears the slowdown will worsen before any improvement is seen in late 2009 or early 2010.
"In the near term, IT customers will increasingly look for IT optimization projects with strong ROI potential and extend virtualization, consolidation, and migration programs in order to lower capital and operational costs while improving efficiencies."
The economic meltdown was still heating up in the third quarter, as we previously reported, with server makers pulling in $12.6bn in sales, down 5.2 per cent and representing the largest quarterly decline since the fourth quarter of 2002. Shipments in Q3 fell by 2.8 per cent, the worst decline since the final quarter of 2006. Well, until the fourth quarter of 2008 came along.
The so-called volume server segment, where machines cost less than $25,000, saw the biggest revenue decline in Q4, with sales off 16.8 per cent. Enterprise-class machines, which cost $250,000 or more, had a less dramatic decline, only dropping 7.5 per cent compared to the final quarter of 2007. The midrange segment, which is for machines that cost more than $25,000 but less than $250,000, had a 14.5 per cent revenue decline.
It is noteworthy that this is the first time since 2002 that all three segments have declined. As high-end and midrange machines took it on the chin during the last recession early this decade, the volume segment - dominated by x86 machines - picked up the slack as companies cut costs and transitioned whatever workloads they could from proprietary and Unix boxes to x86 machines running Windows and sometimes Linux. This time around, Windows took the big hit.
How big? Well, big enough that Unix server sales - and not counting Linux as a kind of Unix, which you can and maybe should do - beat out Windows sales this quarter. This is the first time in years that Unix had a bigger piece of the revenue pie in a quarter than Windows.
In Q4, Windows server sales fell by 17.8 per cent to $4.8bn, with unit shipments off 10 per cent. Clearly, there were some pretty severe pricing issues here, and it is very likely that customers that did buy machines also downshifted their technology, perhaps opting for slower processors, fewer sockets, and less main memory than they might otherwise. Windows had a 35.3 per cent share of the $13.5bn revenue pie in the quarter, but Unix edged it out with $4.9bn in sales, down only 6.2 per cent from the year-ago quarter.
This gave Unix a 36.2 per cent share of server revenues in Q4. Linux server sales declined slightly more, down 7 per cent to $1.8bn, and if you count Unix and Linux together as Unix, then Unix climbed back to its high point of just under 50 per cent market share, where it was at during the dot-com boom.
The Windows and x64 server segments go hand-in-hand, since Itanium represents a tiny fragment of Windows server sales, so it is no surprise that x64 server sales dropped by 17 per cent in Q4, to $6.5bn and that shipments fell by 11.7 per cent, to 1.8 million units. Among the top five x64 server makers, only Sun Microsystems had revenue growth, with sales up 21.3 per cent by IDC's reckoning (which measures factory revenue, not aggregate sales including channel markup).
For the fully year, x64 server revenues fell by 5.3 per cent, to $27.8bn, and shipments rose by 2.8 per cent to 7.7 million. Across all server architectures for the full 2008 year, server makers pushed 8.1 million units out the door, the first time shipments have broken through the 8 million barrier - and maybe the last time for a while thanks to the economy and the ramping up of server virtualization. In 2008, server revenues declined by 3.3 per cent to $53.3bn.
If there was one bright spot in the quarter, aside from Sun's market share gains in the x64 space, it was blade servers. Across all processor architectures and makers, blade servers accounted for $1.4bn in sales in the fourth quarter of 2008, up 16.1 per cent, with units up only 8.8 per cent. While blades only made up 10.4 per cent of all server revenues in Q4, they accounted for 18.5 per cent of x64 server sales worldwide. Hewlett-Packard had a commanding 54.8 per cent of the blade server revenue in Q4, compared to IBM's 21.7 per cent share. IDC says that Sun, Dell, and Fujitsu are all seeing 60 per cent or higher revenue growth in blades. For the full 2008 year, blade sales rose by 33.3 per cent, to $5.4bn.
IBM explained a few weeks ago that its x64 sales were hammered in the fourth quarter, and rival HP caught a break it seems because its year end hits in October, before a lot of customers slammed on the brakes on IT spending. HP said a few days ago in reporting its financials for the first quarter of fiscal 2009 that its x64 server sales hit a wall in January, so it won't escape the full impact of the economic meltdown when IDC's Q1 2009 server numbers come out. But in the meantime, HP's sales declined less than IBM's in calendar Q4 of 2008, and it gained a small bit of market share.
That said, IBM is still the top money maker in the server racket, with $4.89bn in sales, down 15 per cent, compared to HP's $3.91bn, down 10.1 per cent. That gives IBM a 36.4 per cent market share compared to HP's 29 per cent share. Dell, the number three server maker ranked by revenues, posted a 9.9 per cent sales decline by IDC's count, to $1.42bn, followed by Sun with $1.25bn in sales (down 14.1 per cent) and Fujitsu with $567m (down 14.9 per cent). All other server makers added up grabbed $1.42bn in sales in Q4, down an astonishing 23.5 per cent.
For the full year, HP and IBM are a lot closer, and the question now is whether or not the gap will widen in 2009 if the x64 server space continues to decline at a faster pace than the overall market. (HP is probably wondering if tying its Unix to Itanium was a good idea right about now, with Big Blue the revenue leader in Unix server sales). IBM posted just under $17bn in server sales for all of 2008, down 2 per cent, with HP not that far behind with $15.7bn in sales, down 1.8 per cent. Dell pulled in $6.2bn (down 1 per cent), Sun got $5.38bn (down 8.4 per cent), and Fujitsu had $2.57bn (down 4.1 per cent). All other server makers accounted for $6.45bn in sales in 2008, down 7.2 per cent. ®