Server Forecast Highlights
- The market has recovered well from the Credit Crunch
- Revenues were $63b, shipments 5.6 million and installed base 40 million in the year to the end of Q2 2011
- HP is currently market leader, but IBM is catching up fast
- Unix/RISC servers have fared badly in recent quarters
- x86 machines in rack configurations dominate spending and growth
- IBM S/390 machines do well following product refresh
- Cloud Computing and centralised processing are driving sales
The following analysis is the result of ITCandor’s server market model, which is available as an Excel pivot table containing vendor, chip type, operating system and virtualisation data for all quarters from 2003 to 2016. Please contact us if you’d like to purchase or want to learn more. Please see our update here.
HP And IBM Lead The Server Market
The server market is unusual as part of the ITC market in being dominated by a handful of powerful vendors, as shown in Figure 1. In particular:
- HP and IBM remain the largest vendors despite having very different product ranges and strategies; HP focuses on industry standard (mainly x86) machines, complemented by three ‘business critical’ ranges running HP-UX, Non-Stop Kernel and OpenVMS on Itanium based servers; IBM has three ranges of machines – its Systemz, Power (running both AIX Unix and iOS) and its Systemx (based on x86 processors and running Windows and Linux); IBM’s business is very seasonal with the fourth quarter taking a large proportion of sales, while HP’s revenues are more balanced, with a small peak in the third quarter which includes the end of its financial year.
- Dell has grown its business consistently over the years based exclusively on x86 machines
- Oracle/Sun suffered badly during the downturn, partially due to a considerable delay imposed by the EU on the acquisition; it sells mainly Sparc-based Solaris Unix machines, while it also runs Solaris on its own x86 range
- Fujitsu, Hitachi are strong Japanese vendors, while NCR continues to do good business with its x86-based servers
- Cisco has made a valiant start to its server business with sales of its x86 UCS machines
The 10 or so smaller vendors include Unisys and Acer. In their entirety the account for around the same level of business as IBM or HP.
HP’s Leadership Is Tied To x86 Processors and Microsoft Windows
HP had a 30.4% share of the $45 billion x86 server market in the year to the end of June 2011 (see Figure 2) and a smaller 24.6% of the total market. IBM is in a strong second position with a 19.4% share of the overall market (worth $63 billion), although it was behind both Dell and Hitachi in the x86 space.
Windows Dominates Server Operating System Spending
While vertical integration has led to major changes in the smart phone and tablet markets – especially driven by Apple’s surge in success – Windows is still a common horizontal product in the server market. We’ve shown the hardware revenue associated with server hardware in Figure 3, including our forecast for each quarter to the end of 2016.
Linked to the upsurge in x86 machines, Windows has done exceedingly well during the recovery and is widely included in most users definition of ‘industry standard’. Servers running Windows were worth $40 billion in the year to the end of June 2011. Although it still lags in performance behind most Unix and mainframe operating systems, it is well understood and supported technically across the world.
Unix operating systems include IBM AIX, Oracle/Sun Solaris and HP-UX. They are operationally very tied to specific associated processors, effectively taking the place of proprietary operating systems of the 1980s. In total their machines suffered badly during the downturn and business has been slow to improve during the recovery. Sales of unix servers in the last year were worth $11 billion.
Linux continues to succeed as a genuine alternative to Windows on x86 machines and as a specialist operating system across all of IBM’s lines. Sales have grown slowly, although it is clear that Linux will fail to take a major stake of the market during our forecast period. Linux has the advantages of standardisation (compared with Unix) and a strong development community. The recent inclusion of the KVM hypervisor is helping Linux to play a major role in the development of Cloud Computing. In total Linux machines were worth $870 million in the last year
IBM’s S/390 operating system is the engine behind most of the transactional processing in the Financial sector. It introduced the z196 and z141 in the last year, allowing its users to upgrade from previous versions and making IBM around $5.4 billion in revenues as a result.
X86 Processing Continues To Grow As A Proportion
Intel and AMD are major server players through the provision of x86 processors to their OEMs. As with Windows, the business model in the x86 market remains horizontal: in fact Apple recently withdrew its own servers from the market. A view of the development and forecast for the server hardware market by processor type is shown in Figure 4.
RISC machines are very much tied to Unix operating systems. As higher priced machines sales of these were very badly affected by the downturn in capital spending by larger user organisations following the credit crunch. The slow recovery looks likely to be stalled by similar moves in the gathering storm of the double-dip recession we’r about to enter.
As A Mature Area Growth Will Be Hard To Find
We show the historical and forecasted growth of server revenue, unit shipments and installed base in Figure 5. It clearly shows the steep decline during the Credit Crunch and strong recovery afterwards (although this was less strong than in the pC market).
Due to the large number of projects in buiding private Cloud Computing, we don’t see as strong a decline in coming quarters. Rather we see a slow reduction in growth rates due to the maturity of the market and constant pressure on prices.
Some Conclusions – Server Virtualisation Is A Vital Component Of Cloud Computing
The server market is idiosyncratic, being dominated by a handful of major vendors. Despite high seasonality and vulnerability to cuts in capital spending, the market has recovered well and looks likely to survive the coming recession better than the last.
The trends towards centralisation and Cloud Computing are very dependent on server virtualisation. It is certain that the success of hypervisors restricted hardware spending in the years following VMware’s entry into the market in 2003. It looks likely that the vital role servers are playing in modern computing will increase sales in future.
Please contact us if you need more stats on servers or other ITC offerings.