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Worldwide Server Market Revenues Decline 2.4% in First Quarter as Market Growth Slows in Face of Market Transitions
Factory revenue in the worldwide server market decreased 2.4% year over year to $11.8 billion in the first quarter of 2012 (1Q12). This is the second consecutive quarter of year-over-year revenue decline, as the server market faced difficult year-over-year compares in several market segments. Server unit shipments increased 2.7% year over year in 1Q12 to 2.0 million units, which is the second highest quarterly total ever reported in the first calendar quarter of any year.
On a year-over-year basis, volume systems experienced 2.1% revenue growth. This was the ninth time in the previous ten quarters that volume system demand improved year over year. At the same time, demand for midrange and high-end systems experienced year-over-year revenue declines of 11.2% and 10.2% respectively in 1Q12. The midrange and high-end were impacted by difficult year-over-year compares combined with transitions in the technology refresh cycles typical for these segments.
The server market worked through a transitional period in the first quarter of 2012 as suppliers prepared to introduce numerous critically important x86 server offerings. At the same time, difficult year-over-year compares helped distort some results across other segments of the market. Regionally, Americas was flat year-over-year while EMEA experienced a sharp double-digit decline in server spending. However, the larger concern for server vendors was the sharply lower revenue growth in Asia/Pacific, including China. China is one of only three countries that regularly spend more than $1 billion quarterly on servers and any sustained reduction in revenue growth would be troubling for the market.
Overall Server Market Standings, by Vendor
HP held the number 1 position in the worldwide server market with 29.3% factory revenue share for 1Q12. HP's 9.8% revenue decline included stalled demand for x86-based ProLiant servers, which was consistent with the industry, and continued weakness in Itanium-based Integrity server revenue. IBM held the number 2 spot with 27.3% share for the quarter as factory revenue decreased 7.3% compared to 1Q11. Demand for IBM's Power Systems and x86-based System x servers was flat year-over-year while demand for System z declined significantly in the quarter due to the combined effects of a strong year-over-year compare and the end of a refresh cycle. Dell maintained the third position with 15.6% factory revenue market share in 1Q12 as factory revenue decreased 2.0% compared to 1Q11. Oracle maintained the number 4 position with 6.1% factory revenue share; Oracle's 1Q12 factory revenue decreased 7.3% compared to 1Q11. Fujitsu ended the quarter in a statistical tie for the number 4 position with 5.2% factory revenue share following a 7.3% year-over-year increase in server revenue.
Top Server Market Findings
- Linux server demand was positively impacted by high performance computing (HPC) and cloud infrastructure deployments, as hardware revenue improved 16.0% year over year in 1Q12 to $2.4 billion. Linux servers now represent 20.7% of all server revenue, up 3.3 points when compared with the first quarter of 2011.
- Microsoft Windows server demand was up 1.3% year over year in 1Q12 with quarterly server hardware revenue totaling $5.9 billion representing 50.2% of overall quarterly factory revenue, up 1.8 points over the prior year's quarter.
- Unix servers experienced a revenue decline of 17.2% year over year to $2.2 billion representing 18.3% of quarterly server revenue for the quarter. IBM's Unix server revenue declined 3.7% year-over-year and gained 6.3 points of Unix server market share when compared with the first quarter of 2011.
- The market for non-x86 servers, including servers based on RISC, EPIC (Itanium-based), and CISC processors, declined 16.1% year over year to $3.4 billion in 1Q12. This is the third consecutive quarter in which non-x86 servers have exhibited a revenue decline. Non-x86 based systems now comprise 28.5% of the server market.
- The Unix server refresh has largely ended as the Unix server market is in decline again, driven by workload consolidation and migration to competing platforms. Recent heightened awareness of the future of Itanium is also pressing down on customer demand for non-x86 servers and price competition is helping to drive down revenues in this segment. Analysts expect the Unix server market to stabilize over the next few years and remain a smaller, specialized segment of the overall server market.
Bladed Server Market Results
The blade market continued its growth in the quarter with factory revenue increasing 7.3% year over year, with shipment growth increasing by 4.8% compared to 1Q11. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $2.0 billion in revenues, representing 16.6% of quarterly server market revenue. More than 90% of all blade revenue is driven by x86-based blades, which now represent 21.3% of all x86 server revenue. HP maintained the number 1 spot in the server blade market in 1Q12 with 46.1% revenue share, while IBM finished with 18.9% revenue share. Cisco and Dell rounded out the top 4 with 12.8% and 8.7% factory revenue share, respectively. Cisco's blade server revenue increased 48.8% year over year and gained 3.6 points of blade server market share when compared with the first quarter of 2011.
Modular form factors drove the server market in the first quarter, with blades increasing 7.3% annually and density optimized servers increasing 38.8% annually. Blades now account for 16.6% of all server revenue, while density optimized accounts for 4.5%. In the first quarter of 2012, several vendors announced converged solutions for blade platforms; analysts expect these to ramp into the market starting in the second quarter delivering IT organizations an integrated system for server, storage, and network.
x86 Industry Standard Server Market Dynamics
Demand for x86 servers weakened in 1Q12 in advance of Intel's Xeon E5 dual-socket server processor launch in March. Overall revenues increased 4.5% in the quarter to $8.4 billion worldwide as unit shipments increased 3.2% to 1.9 million servers. HP led the market with 35.3% revenue share based on 2.8% revenue decline over 1Q11. Dell retained second place, securing 21.8% revenue share, while IBM now holds 15.2% revenue share. Overall, this was the ninth quarter out of the previous ten quarters with year-over-year increases in average selling prices for x86 servers as both the mix of systems and average system configurations continue to move up-market, driving generally higher product margin for x86 ecosystem players. Additionally, this was the tenth consecutive quarter of year-over-year shipment growth for x86 servers with particular strength in all regions except Canada and Middle East & Africa in 1Q12.
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