Server Market Highlights Q2 2012
- Revenues dropped 5% in the quarter to $14.1B
- Revenues fell 5% in the year to June to $58.8B
- Shipments decline by 1% to 3.7M, while he installed base rose 9% to 45.9m
- Despite falling 3% in the quarter HP continues to lead with a 25.1% share (24.0% for the year)
- Dell was the only one of the top 3 to gain share
- x86 servers accounted for 75% ($10.5B) of the total in Q2
- Windows accounted for 65% ($9.2B) of the server market
- Virtualised servers accounted for 40% ($5.6B) against 60% ($8.5B) for physical-only machines
- The Americas accounted for 43% ($6.0B), EMEA 32% ($4.5B) and Asia Pacific 25% ($3.5B)
- VMware-based machines account for 31% ($1.7B) of virtualised servers and 12% of the total
- In the x86 market VMware accounts for 67% of virtualised and 16% of all
- The server market will drop 6% to $56.5B in 2012, followed by 1% growth in 2013
Our research on servers is one of our most popular areas and we’re sure you’ll be interested in learning about how the market developed in Q2. Since our last publication we have made some changes to our model – in particular rethinking NCR and Teradata business – reducing the latter (we consider its business to be mainly kiosks) and introducing some for the latter. We’ve also reduced the size of the ‘Other’ category somewhat. The revision has the result that our findings are more negative than before and that the increase we reported for Q1 now looks like a decline. Still we hope that you’ll be happy that we’re making improvements as part of our continuous process. We’ve also added a forecast for the first time in this article.
Overall Market Development
The server hardware market was worth $14.1 Billion in Q2 2012 – 5% down on the previous year. HP led the market with a 24.0% of the total in the year to the end of June (see Figure 1), followed by IBM (19.5%). Dell (12.9%) is the only one of the top 3 to show growth in the year, although it is still long way off from challenging IBM for 2nd position. Cisco, whose servers are ‘compute nodes’ in its UCS strategy, also grew, although it has only a 1.9% share of the total market. Oracle/ Sun’s business continues to fall behind – we hope it is more open with its customers than it is with analysts, with whom it shares almost no information. See Figure 1 for more details.
x86 Server Market Movements
For many users the server market is about x86 products, with processors mainly from Intel and a few (c 8% currently) from AMD. These machines accounted for 75% of ($10.5B) total server revenues in the quarter. Figure 2 shows that HP has a stronger leadership position, with a 29.0% share of the annual market, followed by Dell (17.5%). IBM is a strong player, with a 6.5% share, although the main focus of its server business is still with System z mainframes and Power based Unix and iOS systems. As All of Cisco’s systems are x86 based, it has a stronger position here, although its share was only 2.5% for the year. Teradata’s data analytics machines appear for the first time in our stats in 7th position.
x86 Servers Maintain Their Lead
Since the Credit Crunch recession the server market has moved distinctly towards x86 machines, which accounted for three quarters of revenue in Q2 (see Figure 3). From a unit point of view they accounted for 98% shipments. RISC processor based machines represented 19% of the market and IBM’s System z mainframes, 7%. Of the three main RISC suppliers IBM now has a 35% share, followed by Oracle/Sun (25%) and HP (%15%). There are still many applications which perform more effectively on non-x86 servers, but the hardware suppliers are finding it hard to get their message across and stem the flow of revenues to x86 systems.
Windows Is The Predominant OS
Associated with the rise of x86 servers is Microsoft’s Windows Server operating system, associated with 65% of server hardware revenues in Q2 (see Figure 4). Many users have delayed purchases until the arrival of Windows Server 2012, which accounts for the slight fall in quarterly revenue in recent quarters. Linux is the only other growing operating system, accounting for 7% ($930 Million) of the hardware sales in the quarter. Linux is especially important for large public Clouds and we expect it to keep growing as a proportion of the server market in coming years.
Physical-Only Beat Virtualised Machines
It is important to remember that all non-x86 servers were already virtualised before the introduction of VMware’s hypervisor in 2003: therefore the decline in the sales of mainframe and Unix machines is also a decline in virtualised servers. While virtualised machines continue to grow as a proportion of x86 revenues, their revenues did not offset the decline in traditional virtualisation in the last 2 quarters – hence the development you will see in Figure 5.
Of virtualised servers VMware accounted for 31% ($1.7B) overall – 67% of the x86 market. From a hardware vendor point of view IBM was far and away the strongest supplier of virtualised servers, accounting for 33% ($1.9 Billion) of all revenues.
The Americas Stay Ahead Of EMEA And Asia Pacific
The relative positions of regions in server spending have remained consistent over time, with the Americas accounting for 43% ($6.0 Billion) in Q2
(see Figure 6): EMEA is the next strongest region, accounting for 32% ($4.5 Billion), with Asia Pacific third at 25% ($3.5 Billion). Growth in Q2 varied by region, with the Americas declining 4%, EMEA 7% (a 4% growth in local currency) and Asia Pacific declining 4% (-5% in local currency).
Server Revenues Will Decline By 6% In 2012
We have updated our forecast to take into account Q2 findings and now predict that the total server market will decline by 6% to $56.5 Billion in the full calendar year. Prospects for 2013 look slightly better and we predict a 1% rise in spending to $57 Billion then. On a quarterly basis we expect Q3 2012 to show a 10% decline, followed by a 5% drop in Q4. See Figure 7 for a long-term quarterly view of server revenues and growth, complete with a forecast to Q4 2017.
Some Conclusions – The Server Market Feels The Pinch Of The Recession
Our revision of our numbers show that the server market is being increasingly affected by the current recession, although surprisingly there was some local currency growth in Europe, where the worst effects will be felt if the Euro crisis worsens. Server markets are not directly affected by the fall in consumer spending on ITC, although they are certainly being used in Cloud data centres to support apps and social media. The coming introduction of Windows Server 2012 will help sales of x86 machines, overcoming the noticeable slowing of the market ahead of introduction.
Please contact us if you’d like more details about the server market.
Hi!
any data on how many servers Google or Facebook bought and what make they were and whether or no these are included in your data?
Nothing for those 2 Rich, although they’re both in my revenue model. Rackspace bought around 2.5k servers and has an installed base of 85k in total. In the case of Google, they certainly used to build their own – not sure whether any of the brand owners have persuaded them to change yet. We collect data on brands and will capture white box sales as part of ‘Other’ vendor business – so all purchases from these users are covered in our stats.
Best WIshes
Martin
Hi! thanks for your reply, I know you are busy with heaps of data..
I fully assume the rackspace total number of servers is 85k physical metal servers (one has to be double careful nowadays).
Hi!
since the other Operating Systems apart from MS Windows are free, don’t you think it is confusing to show that MS is dominant?
Taking a view 5 years hence;
MS is clearly in decline and becoming a relative side player in Cloud, and will likely collapse in future unless the plan they recently filed with the USA govt ( to re-model the group as a Cloud Company) is put into implementation quickly.
I see very little future for companies charging a lot for Operating Systems.
This is a result of the Cloud as a Utility model and no reflection on the quality of MS products (which are comparable to free O/Ss in quality- an amazing feat bearing in mind only one company is working on enhancements) but on the retail price they are overtly charging and the other proprietal costs.
For example, everyone is very happy with their tablet or Smart phone, which does not run MS O/Ss (I think they have 1.5% of units), in fact it is hard to find someone who runs MS on these devices in the world-though they are more common in The West.
Equally Apple must slip as cheap Smart devices are sold worldwide. The current Patent actions are likely to delay it’s demise though (at the cost to consumers forced to pay more for Smart devices).
Equally, the excessive cost of VMWare products would currently rule it out as an option which the whole world could adopt from Cloud services in future.
In the mean time both MS and VMware are seemingly making $billions from monied customers. Sadly there is much mis-spent UK public money too- a tradegy in this depression.
Rich
I appreciate your comments. My view is that all operating systems make money for someone, but where it gets charged for (user, advertiser, supplier) is important. Even Linux has a commercial model with Red Hat, SuSe and other distributions making service revenues from patching and systems management.
It’s true that Microsoft and VMware have a proprietary approach, making money from users for licenses and many are suggesting alternatives. Linux is big with public Clouds, but they are still a minority of users. KVM is growing as a Hypervisor, but is much smaller than VMware or even Hyper-V (which comes free with Systems Center by the way).
If operating systems and hypervisors become commodities, suppliers will charge up for systems management and services.
Linux and KVM are cheaper, Android is a can of worms – but small users in particular will find them more complex to deploy.
Best
Martin
Hi!
thanks again, as usual there is much info included in your reply and I will ponder on it. “Beware of Greeks bearing gifts” sums up my view on proprietal freebees.
Of course my case and my view is that there will be very few, a handful, of Cloud providers providing 95% of the worlds Cloud resources (whether used for “publc” or “private” purposes).
If they can be pursuaded to supply Windows and VMWare products to their customers MS and VMWare will stay at the forefront of I.T.