Server revenues down 4% in Q3 as market demand remains soft

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This is the fourth consecutive quarter of year-over-year revenue decline, as server market demand continued to soften following a strong refresh cycle that characterized the market in most of 2010 and 2011. After declining in 2Q12, server unit shipments increased 0.6 percent year-over-year in 3Q12 to 2.1 million units. This was the 11th time in the past 12 quarters that server units have grown on a year-over-year basis. On a year-over-year basis, volume systems experienced a 0.5 percent revenue decline. At the same time, demand for midrange and high-end systems experienced year-over-year revenue declines of 14.0 percent and 8.9 percent respectively in 3Q12. All three segments were impacted by difficult year-over-year compares combined with transitions in the technology refresh cycles. “Worldwide server revenue declined for the fourth consecutive quarter in 3Q12. The market was constrained by poor macro-economic conditions in many geographies coupled with a number of technology transitions that served to further hamper the market,” said Matt Eastwood, group vice president and general manager for enterprise platforms at IDC. “In fact, every geographic region except Asia-Pacific experienced revenue contraction in the quarter. The growth in Asia-Pacific was largely driven by strong demand in China, which helped a China-based server vendor ? Inspur ? into a top 10 factory revenue position for the first time.” Overall server market standings by vendor IBM held the number 1 position in the worldwide server market with 28.7 percent factory revenue share for 3Q12. IBM experienced a 7.6 percent year-over-year decline in factory revenue losing 1.1 points of share in the quarter on soft demand for System z ahead of a recently announced product transition. HP held the number 2 position with 27.3 percent factory revenue share following an 11.9 percent year-over-year revenue decline in 3Q12. HP continued to experience declines in HP Integrity server demand combined with relatively weak performance in their x86-based ProLiant server business. Dell maintained third place with 17.1 percent factory revenue market share in 3Q12. Dell’s factory revenue increased 8.2 percent compared to 3Q11, helping Dell to its highest server market share in any quarter. Oracle maintained the number 4 position with 4.8 percent factory revenue share; Oracle’s 3Q12 factory revenue decreased 23.1 percent compared to 3Q11. Fujitsu ended the quarter in the number 5 market position with 3.8 percent factory revenue share following a 22.2 percent year-over-year decline in server revenue. Top server market findings Linux server demand continued to be positively impacted by high performance computing (HPC) and cloud infrastructure deployments, as hardware revenue increased 6.6 percent year over year to $2.6 billion in 3Q12. Linux servers now represent 21.5 percent of all server revenue, up 2.1 points when compared with the third quarter of 2011. Microsoft Windows server hardware demand was down 0.9 percent year over year in 3Q12 with quarterly server hardware revenue totaling $6.2 billion representing 51.1 percent of overall quarterly factory revenue, up 1.6 points over the prior year’s quarter. This is the second time in the past three quarters that Windows has been responsible for driving more than half of all server spending worldwide. Unix servers experienced a revenue decline of 14.2 percent year over year to $2.1 billion representing 17.3 percent of quarterly server revenue for the quarter, the lowest percentage of server spending in more than 10 years. IBM’s Unix server revenue increased by a modest 0.8 percent year over year; however IBM still managed to gain 7.9 points of Unix server market share when compared with the third quarter of 2011. The market for non-x86 servers, including servers based on RISC, EPIC (Itanium-based), and CISC processors, declined 17.1 percent year over year to $3.3 billion in 3Q12. This is the fifth consecutive quarter in which non-x86 servers have exhibited a revenue decline. Non-x86 based systems now comprise 27.0 percent of the server market, the lowest percentage of server spending ever recorded by IDC. “The Unix server market continued to struggle ahead of year-end refresh cycles,” said Kuba Stolarski, research manager for enterprise servers at IDC. “IDC expects a short-term easing in the high-end market’s decline as technology refreshes, including Intel’s Poulson update to its Itanium line, begin to take their course. However, mission critical applications continue to migrate to x86 platforms, placing increasing pressure on the high-end server market.” x86 industry standard server market dynamics Demand for x86 servers continued to improve in 3Q12, with revenues growing 2.0 percent in the quarter to $8.9 billion worldwide as unit shipments were up 1.5 percent to 2.1 million servers. HP led the market with 32.0 percent revenue share based on an 8.7 percent revenue decline when compared to 3Q11. Dell retained second place, securing 23.4 percent of revenue share while gaining 1.3 points of share when compared with the third quarter of 2011. IBM rounded out the top three positions, holding 16.5 percent revenue share following a 4.7 percent year-over-year revenue decline. Overall, this was the thirteenth time in the previous fourteen quarters with a year-over-year increase in average selling prices for x86 servers as both the mix of systems and average system configurations continue to move up-market, helped in part by the increased focus leading suppliers have on converged infrastructure. Bladed server market results The blade market continued its solid growth in the quarter with factory revenue increasing 2.9 percent year over year and shipment growth declining by 1.1 percent compared to 3Q11. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $2.1 billion in revenues, representing 17.2 percent of quarterly server market revenue, a record high. More than 91 percent of all blade revenue is driven by x86-based blades, which now represent 21.5 percent of all x86 server revenue. HP maintained the number 1 spot in the server blade market in 3Q12 with 45.9 percent revenue share, while IBM finished with 19.0 percent revenue share. Cisco and Dell rounded out the top 4 with 15.0 percent and 8.1 percent factory revenue share, respectively. “Modular form factors continue to gain favor with server customers”, said Jed Scaramella, research manager for enterprise servers at IDC. “Many enterprises are exploring converged systems, which are built on top of blades. These platforms present vendors with the opportunity to increase their customer share of wallet through the attached sale of storage, networking, and services. ?On the opposite side of the spectrum, large cloud datacenters and service providers value the efficiencies and scalability of density optimized servers. Together these two form factors account for 22.9 percent of server revenue, gaining 3.3 points from a year ago.” ]]>

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