All the gadgets and gizmos and marketing spiel in the world didn't make much of an impact on IT shops in the first quarter, with box counter IDC reporting this morning that the run from January through March was the worst quarter for server sales in the dozen years that the market researcher has been releasing quarterly server figures.
No market ever goes to zero, of course, no matter how poorly the global economy is doing. But the server racket sure did take a haymaker to the chin in Q1, with revenues across all server types down 24.5 per cent to $9.9bn and server unit shipments down 26.5 per cent to 1,485,490 units.
This comparison is against a pretty healthy first quarter of 2008, of course, before the economic meltdown got into full swing. According to Daniel Harrington, a server analyst at IDC, we can expect similarly bad numbers in the second quarter of this year, because Q2 2008 was pretty good and IDC is expecting Q2 2009 to be bad. Incidentally, IDC was forecasting a 22 per cent revenue decline last fall for Q1 2009, and it wasn't that far off the mark.
If the economy holds up, says Harrington, Q3 could see some stabilization - mostly because Q3 2008 was when the server market stalled - and sales could be flat by the fourth quarter. Of course, the fourth quarter of last year was pretty bad, with server sales down 14 per cent to $13.5bn and shipments dropping 12 per cent.
The volume server market (machines that cost under $25,000) took the biggest hit in Q1 2009, with revenues falling 30.5 per cent. Midrange machines (which cost between $25,000 and $500,000) held up relatively well, with only 13.6 per cent revenue decline. High end systems, despite all the blathering about the benefits of running virtual and logical machines on big iron, nonetheless saw a 19.5 per cent revenue decline in the quarter.
You can see which kinds of machines run out of capacity and customers have to buy and which ones they can do without. It is also likely that enterprises put the clamps down on volume server spending to be able to afford to upgrade central systems, that all server buyers bought smaller configurations than they might have otherwise, and that there was plenty of gear already in the channel, putting pressure on shipments out of vendors' factories into their channels. Most servers sold in the world go through a channel.
Harrington said that as was the case in Q4 last year, in Q1 this year channel partners were burning off their inventories, which means they didn't have to take as much new gear from their suppliers. They will be burning inventories for a while yet, but at some point customers will want the latest gear, particularly if they want to virtualise server workloads, despite the economy.
"Market conditions worsened in all geographic regions during the first quarter as customers of all types pulled back on both new strategic IT projects and ongoing infrastructure refresh initiatives," explained Matt Eastwood, group vice president of enterprise platforms at IDC in a statement accompanying the sales figures for Q1. "Most enterprise organizations are deferring new IT procurements and instead focusing on extending server lifecycles and improving existing asset utilization. IDC believes that while these strategies are effective in the near term, server demand will begin to improve in the second half of the year as customers begin to rebuild their IT capabilities in advance of a meaningful economic recovery in 2010."
By hardware platform, the x64 server space accounted for $5.1bn in sales, down 28.8 per cent, and 1,421,040 shipments, down 26.3 per cent. Sales of all other kinds of servers lumped together - mainframe, Power, Itanium, Sparc, you name it - accounted for $4.8bn in sales, down 19.4 per cent, and shipments of 64,450 units, down 30.6 per cent.
If you do the math, companies are buying fewer but more expensive non-x64 boxes, which suggests virtualisation and consolidation projects. Harrington suggests that when the rebound comes, it will be in x64 spending, and it is fair to assume there will be massive server consolidation efforts based on the latest chips from Intel and Advanced Micro Devices, chips that do a much better job of supporting virtualised servers than prior generations of products, mainly because they have more main memory.
In terms of operating system breakdown, IDC reckons that the Windows platform held its lead, with $3.7bn in sales, down 28.9 per cent. Unix server sales accounted for $3.3bn in Q1 2009, falling only 17.5 per cent, and Linux server sales hitting $1.4bn, dropping 24.8 per cent. Given the drop that Linux platforms showed, Linux is now a mainstream operating system, not an outlier, as it has been for many years. It is clearly more tied to x64 platforms, and hence took more of a hit than Unix, which is largely tied to RISC/Itanium platforms.
If you consider Linux a kind of Unix - and I do for the purposes of server categorization - then Unix-oid server sales hit $4.7bn, down 19.8 per cent. According to IDC, IBM accounted for 31 per cent of the Unix (real Unix, not Unix plus Linux) pie, compared to Sun Microsystems and Hewlett-Packard, which had 27.7 percent of the Unix pie each.
All other platforms, including proprietary servers like OpenVMS, i OS, and mainframe machines, had a 26.7 per cent decline in the quarter, with sales of $1.5bn. IDC reckons that the IBM mainframe accounted for $889m, with only an 18.9 per cent decline and gaining market share.
Blade servers, which have been the darling of the server makers and box counters for years, saw shrinkage year-on-year for the first time in the commercial blade server market's nine year history. Blade server shipments across all processor architectures fell by 14.4 per cent, to $1.1bn, in the first quarter of 2009, and shipments fell by 18.1 per cent. HP continued to dominate here, with 52.2 per cent of blade revenues in the quarter.
HP was the top money maker in the server racket in Q1 2008 (and by a long shot over Big Blue), but this year HP's lead was shrank to noise in the data thanks to the collapse of the x64 server racket. HP had $2.913bn in global server sales compared to IBM's $2.904bn in sales. Dell came in third with $1.093bn in sales, but was followed closely by Sun, which had $1.018bn in sales in Q1. Fujitsu had sales of $667m, and other vendors comprised $1.32bn in sales. ®