Strong x86 and Virtualisation push Server market up 0.8% in Q2 2014

For the first time in 6 quarters the server market grew, albeit by just 0.8%. We saw strong sales of x86 servers, despite the expectation in the market for the new Intel E5 processors, which have just arrived. x86 servers grew by 2.6% to $11.3B in the quarter, while non-x86 (IBM Mainframe and Power, HP Itanium, Oracle Sparc) servers declined by 21.2% to $2.6B. Who would have believed back in 2008 that by the middle of 2014 x86 machines would account for 81% of market revenues?

One factor driving the x86 market is virtualisation – especially VMware’s – allowing users to break the tradition of maintaining one machine for each application. The Figure shows unit shipments of servers by quarter from 2003 to 2014 – a more optimistic picture than revenue tracking of course. since Moore’s Law continues to give us all far more bang for our bucks. In Q2 2014 we estimate that 35% of servers sold were virtualised by their users, leaving 65% which were ‘physical-only machines’: this compares with just 8% at the beginning of 2003. But this is only part of the story. Calculating the average number of virtual machines running on virtualised servers as 4 means that 68% of the ‘machines’ used for processing shipped last quarter were virtual, rather than physical. Needless to say this epidemic of virtual machines is creating its own challenges: virtualisation itself was used to help with server consolidation 10 years ago. We now need better infrastructure and systems management software to protect us from virtual machine sprawl. In the physical world we had to remember to scrap the servers we replaced to stop them from creeping back into use. In the virtual world we need to keep tabs on the life cycle of the virtual machine, scrapping it when its no longer needed.

There have been a number of evolving changes to market shares resulting in the snap shot of the year to the end og June 2014 we show in this Figure. In the overall market HP was in front with a 22.6% share, followed by Dell (17.1%) which replaced IBM as the second largest supplier at the end of 2013. IBM with a 13.8% share has been suffering from the life cycle of both its System z and Power processors. It is set to do better with Power now it has launched Power 8, which it is expanding to run Linux as strongly as AIX. Cisco has done very well with its UCS products over the years and was in fourth place with a 4.3% share. Oracle and Fujitsu followed with 3.7% and 2.6% respectively. We’ve positioned Inspur in seventh – the most successful Chinese server supplier to date, but soon to be eclipsed by Lenovo once it takes over IBM’s System x business.

The 2 major players in the x86 server market are HP (25.9%) and Dell (21.2%). Cisco (5.4%) in third has overhauled IBM (4.4%). Fujitsu (2.4%), Hitachi (2.3%) and Inspur (2.2%) took up the other leading market positions.

We expect the server market to continue to grow during the rest of the year with the introduction of Intel’s new Xeon E5 machines. The expansion of IBM into Cognitive Computing and the early beginnings of an ARM processor market make this one of the most interesting areas of the ITC market to watch.