Server market takes a pause in 2019 – still dominated by Windows and x86

The server market took a pause in the last year – spending for the year was down 1% at $81b, while in the quarter it was down 11% at $19b. This is not a sign of decline in an enterprise market being overcome by cloud computing; rather it shows a return to normal levels following the spate of new processors and scarce and expensive memory and storage devices the previous year.My Figure above shows market shares for vendors, processor type and operating system for the year – splitting the $80b spending. A number of things are apparent:

• Dell EMC is now a clear leader, gaining a 21.4% share of spending and beating HPE into second position with a17.0% share. Dell’s business took a significant boost from its acquisition of EMC in 2015. In particular its vxrail and vsrack converged infrastructure systems have added significantly to revenue and shipments.
• Windows is the dominant operating system, taking 72.8% of the market in the last year. Linux’s 13.2% share makes it two and a half times the size of Unix, which was always tied to a specific supplier’s equipment. IBM’s OS/390 took 1.9% – less than its share of the processor pie because of the large number of its System z machines running Linux of course.
• x86 processors took an even larger share of the server market than Windows; as 87.1% of the server market was made up of machines using Intel and (to a lesser extent) AMD processors, it’s hardly surprising that many build their IT strategies just on these processors.

As it has just launched the new z 15 servers, I expect the System z share of the processor market to grow substantially in the next year. I also expect HPE and Huawei to grow their business as they pursue the industrial and Asia Pacific markets respectively. Linux will also grow in the server market, although its main use is at the heart of the systems used by cloud service providers.

Dell EMC now leads the market by a considerable margin over HPE, which was a long term leader (see my Figure above for the quarterly positions of the leading seven venodrs on a rolling four quarter basis). Lenovo and Huawei have both been climbing in recent years, Cisco has reached a plateau with its rack-based virtualized machines, while Oracle has indeed seen a revival in the recent past. IBM has a growth challenge for both its System z and Power servers made no easier by the stochastic nature of its business with users unlikely to spend much in the quarters leading up to new processor introductions. HPE’s management changes have stalled its long-term status as a low-priced server supplier; it will be interesting to see if its targeting of industrial markets and composable cloud strategy helps it to grow its revenues in coming years.

For the last few quarters virtualized machines (for me – the virtual servers running on top of hypervisors) have declined in terms of unit shipments. My Figure above shows the quarterly shipments of these, the virtualized servers on which they run and the ‘physical only’ servers which make up the rest of the market. The down-tick in virtual machine shipments in the last few quarters is partially due to the growth of container applications, which use a different form of virtualization (and for which I haven’t yet found a method to measure accurately).

The Americas still lead in terms of unit shipments (my Figure above shows the quarterly shipments of all servers by region), although there was a decline in unit shipments in the last half of 2018. EMEA has fallen behind Asia Pacific. In the year to the end of June 2019 24 million servers were shipped in total – down 7% on the previous year – and the total installed base of servers stood at 77 million, which was the same level as the year before.

There are good prospects for the server market looking forward despite the rise of cloud computing, especially as enterprise customers look to combine on and off premise computing in hybrid multi-cloud strategies and the increasing success of hackers lead some cloud enthusiasts back to on premise computing, which should be easier to protect.

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