IDC: Demand for x86 aids bounce back in server market

Factory revenue in the worldwide server market increased 3.1% year over year to $14.6 billion in the fourth quarter of 2012 (Q412).

According to the International Data Corporation (IDC) Worldwide Quarterly Server Tracker, this was the first quarterly increase of factory revenue in five quarters.

Worldwide server shipments decreased 3.9% to 2.1 million units in Q412 when compared with the same period in 2011. For the full year 2012, worldwide server revenue decreased 1.9% to $51.3 billion when compared to 2011, while worldwide unit shipments decreased 1.5% year over year to 8.1 million units.

The volume segment and high-end systems were both buoyed by a favourable technology refresh cycle with volume systems benefiting from continued demand for x86 servers deployed as part of consolidation and virtualisation initiatives while increased spending for high-end systems was helped by strong demand for IBM System z mainframes.

"Despite experiencing the first quarterly growth in factory revenue in over a year, the server market continued to show signs of lumpiness in the fourth quarter," says Matt Eastwood, group vice president and general manager, Enterprise Platforms at IDC.

"IDC forecasted that server demand would begin to improve in the second half of 2012 following a number of critical product refreshes which occurred in the first half of the year. While this did happen in the fourth quarter, market demand was uneven with the U.S., Asia/Pacific and Latin America all experiencing sharp growth, while demand in all other regions remained soft. Average selling prices for servers increased sharply in the quarter as large and small enterprises continued to invest heavily in new server capacity to drive additional consolidation and virtualisation initiatives."

Overall Server Market Standings, by Vendor

IBM held onto the number 1 spot in the worldwide server systems market with 36.5% market share in factory revenue for Q412, as revenue increased 3.1% year over year. IBM experienced significant improvements in demand for its System z mainframes aided by a strong product refresh cycle.

The fourth quarter also delivered the highest quarterly revenue IBM has achieved in System z in more than a decade.

HP held the number 2 spot with 24.8% share for the quarter as revenue decreased 3.2% compared to Q411. Although HP experienced solid demand for its x86-based ProLiant servers, it was offset by weak Itanium-based Integrity server demand in the quarter.

Dell increased server revenue by 5.7% year over year and maintained third place with 15.1% factory revenue market share in Q412.

Three companies shared the number 4 market position, with Oracle, Fujitsu and Cisco all locked in a statistical tie (they all held a market share within 1% of one another) in Q412. What's more, this was the first quarter that Cisco maintained a position in the top 5 server rankings.

Top Server Market Findings

Linux server demand was positively impacted by high performance computing (HPC) and cloud infrastructure deployments, as hardware revenue improved 12.7% year over year in Q412 to $3.0 billion. Linux servers now represent 20.4% of all server revenue, up 1.7 points when compared with the fourth quarter of 2011.

Microsoft Windows server demand continued to increase in Q412 as hardware revenue increased 3.2% year over year. Quarterly revenue of $6.7 billion for Windows servers represented 45.8% of overall quarterly factory revenue, the same share as in the prior year's quarter.

Unix servers experienced a revenue decline of 24.1% year over year to $2.6 billion representing 17.6% of quarterly server revenue. This was the sixth consecutive quarter of revenue decline in the Unix server market and all major Unix server vendors experienced a revenue decline when compared with the fourth quarter of 2011.

After five consecutive quarters of revenue declines, IBM's System z mainframe running z/OS increased revenue 55.6% year over year to $1.8 billion, representing 12.3% of all server revenue in Q412.

"The IBM System z mainframe platform had its highest quarterly revenue since 1997, generating nearly $2 billion and driving the overall server market to positive growth in the quarter," notes Jean S. Bozman, Research Vice President in IDC's Enterprise Platforms Group.

"This dramatic growth was due to several factors: technology refresh, new products such as zEnterprise, new accounts in emerging economies, and consolidation of some enterprise Linux workloads onto IBM System z, using the Integrated Facility for Linux (IFL) specialty engines. Although revenue results for System z are traditionally heavier in the fourth quarter, this accelerated acquisition shows the breadth and depth of the IBM mainframe installed base," notes Bozman.

X86 Industry Standard Server Market Dynamics

The x86 server market experienced sharp revenue growth in Q412 as systems based on Intel's Sandy Bridge processor - which was launched in early 2012 - experienced strong demand which helped drive sharply higher average selling prices across the market. The x86 server market accelerated in Q412, increasing 6.0% in the quarter to $9.7 billion worldwide as unit shipments decreased 3.7% to 2.1 million servers. Despite the shipment decline, this is the highest quarterly revenue ever reported for x86 servers as the architecture accounted for 66.2% of all server spending.

HP's x86 factory revenue increased 4.4% and it continued to lead the market with 32.7% revenue share. Dell experienced 5.7% year-over-year growth in x86 server revenue and retained second place with 22.9% revenue share.

IBM continues to hold third place with 16.7% x86 server revenue share following a 2.3% year-over-year decline in revenue. Cisco moved into the fourth position in the market with 5.0% revenue share as a result of 50.7% revenue growth when compared to Q411, while Fujitsu and Oracle tied for fifth position with 3.1% and 2.7% share respectively. As a result of a strong demand throughout the year, worldwide x86 server revenue for 2012 increased 4.1% to $35.8 billion, while worldwide x86 unit shipments decreased 0.4% to 8.0 million units.

Modular Form Factor Market Results

Servers in the modular form factor categories performed well in Q412. There are two types of modular form factors, each with a distinct use case. Blade servers, which are highly leveraged in enterprises' virtualised environments, grew 3.3% year over year to $2.4 billion. Blades now account for 16.3% of total server revenue. HP maintained the number 1 spot in the blade server market in Q412 with 44.7% revenue share; IBM and Cisco followed in second and third with 21.7% and 15.3% revenue share, respectively.

Density Optimised servers, utilised by large datacentres, experienced very strong demand in Q412. Revenue grew 66.4% year over year in Q412 to $705 million as unit shipments increased 44.2% to just over 192,000 servers. Density Optimised servers now represent 4.8% of all server revenue and 9.2% of all server shipments. Dell maintained the number 1 spot in the Density Optimised segment in Q412 with 50.8% revenue share. IBM and HP finished second and third in revenue share with 12.8% and 9.1%, respectively.

"Both types of modular form factors outperformed the overall server market, indicating customers are increasingly favouring specialisation in their server designs," says Jed Scaramella, research manager, Enterprise Servers. "Density Optimised servers were positively impacted by the growth of service providers in the market. In addition to HPC, Cloud and IT service providers favour the highly efficient and scalable design of Density Optimised servers."

"Blade servers are being leveraged in enterprises' virtualised and private cloud environments. IDC is observing an increased interest from the market for converged systems, which use blades as the building block. Enterprise IT organisations are viewing converged systems as a method to simplify management and increase their time to value," Scaramella concludes.