The box counters at IDC tried to put their best face forward with their revised server forecasts this morning, saying that the market has shown some signs of stabilization. But the forecast that IDC put out today is probably going to cause server makers and their resellers to freak out.
Everyone is expecting the second quarter to be bad, so that's not any cause for alarm. Unless, of course, you are trying to make your sales commissions peddling boxes these days.
The server market could show a 29.6 per cent revenue decline to $10.6bn - which will be the largest decline in the history of systems and servers, worse than even the first quarter - given that the global economy is still down and the second quarter of last year was pre-meltdown and therefore not bad. And everyone knows even if the third quarter is flat and the fourth quarter is flat or even up a bit, those are easier compares. So there will be no joy if this comes to pass, but not much panic, either.
What will have the server channel freaking out and bracing for a profit-challenged and prolonged price war is IDC's forecast that the market will see eight quarters of year-on-year revenue declines running from the second quarter of 2008 through to the second quarter of 2010. This will wipe out some $19.1bn in server spending (on a four-quarter rolling average) and is down 30.3 per cent from the four-quarter rolling average running from the second quarter of 2007 through the first quarter of 2008.
"IDC has lowered its 2Q09 forecast by 8.5 per cent or nearly $1 billion from our previous forecast as the depth of the worldwide recession increased in the first half of 2009," explained Matt Eastwood, group vice president of Enterprise Platforms at IDC in a statement accompanying the server forecast.
He continued: "Although we are now forecasting a 22.1 per cent year-over-year decline in server spending for 2009, the worst of the market contraction is behind us. In fact, by the end of the third quarter this year, nearly 90 per cent of the cumulative market contraction will have been realized as the market begins exhibiting significant signs of stabilization. It's important to note that IDC believes many IT users will begin making strategic compute platform decisions during the remainder of 2009 in advance of improving business conditions and server demand in 2010."
While that is meant to be reassuring, the Virtualisation Crunch seems to be at least one of the culprits looking ahead that will keep server revenues down, even as workloads are growing. (IDC didn't bring this up in its statement.) When people can interleave their server workloads on one big box, they just don't buy as much capacity, and Moore's Law is more than enough capacity growth for a lot of back-office workloads.
There are not enough Googles in the world that need more and more capacity to make up for the millions of companies that just don't. Virtualization has flatlined server growth on mainframes and proprietary and Unix midrange kit once it touched it - with some wiggles up and down, to be sure - so it is hard to believe that the x64 space, dominated by Windows and Linux with a smattering of Unix, could be immune to this crunch.
No one in the server racket wants this crunch because it will kill profits, and for customers, it will cut back on competition severely. (Moore's Law plus virtualisation is good for customers, but not necessarily for suppliers and their reseller channels that are used to selling expensive capacity to customers planning for peaks on each box.)
IDC says that it expects server spending for all of 2009 to drop by 22.1 per cent to $44.5bn, with sales of volume systems declining by 21.5 per cent to $24.6bn, midrange systems falling by 9.6 per cent to $11.3bn, and enterprise servers dropping by 35.2 per cent to $8.5bn. The new "Istanbul" Opteron chips from Advanced Micro Devices and "Nehalem EP" Xeon chips from Intel are no doubt going to help the volume and midrange segments have a less awful year. (In IDC's lingo, a volume server costs under $25,000, a midrange box costs between $25,000 and $500,000, and an enterprise server costs more than $500,000.)
Looking ahead to 2010, IDC is projecting server sales will only rise by four-tenths of a per cent, to $44.3bn, with volume server sales growing 4.3 per cent to $25.65bn, midrange server sales falling 1.7 per cent to $11.1bn, and enterprise servers continuing with a 12.2 per cent slide to $7.5bn. Global server sales are predicted by IDC to rise by 2.9 per cent in 2011 to $45.5bn, by 3.3 per cent to $47.1bn in 2012, and by 3.1 per cent to $48.5bn in 2013. The volume server space is projected to show growth, the midrange does eventually, but enterprise servers do not throughout this term.
IDC didn't talk about server shipments, but with virtualisation going mainstream in the x64 space, which dominates the volume market and the overall market in terms of shipments, it is hard to believe that server makers will be pumping out more than 8 million machines ever again. A lot depends on how well or poorly server virtualisation products are received and the budget pressures that IT shops are under to make virtualisation work in order to drive up utilisation and cut down on footprints.
Of course, if cloud computing takes off and SMB companies learn how to do without servers and just use cloud applications, millions of units could just go away. If virtualisation crunches server footprints by allowing the interleaving of workloads, cloud computing does it even more through the interleaving of the workloads at different companies and by allowing companies to not even have to worry about planning for peaks for their interwoven workloads.
Isn't increasing efficiency fun? ®