Server revenue continues to slide on weak demand, says IDC

IBM and HP held on to the top two positions, but market share declined in Q2

The server business continued to slide in the second quarter with worldwide revenue and unit sales down, IDC said Tuesday.

IDC data on market share by server vendor from Q2 of 2012
IDC data on market share by server vendor from Q2 of 2012

Revenue was down 6.2% to $11.9 billion in the second consecutive quarter of year-over-year decline, as demand for servers continued to soften in most geographic regions, the research firm said. Unit shipments were also down 1.2% to 2 million, after also falling in the previous two quarters.

The highest fall in revenue was in midrange systems, which dipped by about 22% year-over-year, while volume systems had a 2.4% revenue decline and revenue from high-end systems dipped 9.5% in the quarter ended June.

The slowing demand is a combination of factors including consolidation, virtualization, and migration initiatives by mainstream small and medium businesses and enterprise customers, and dampening demand for new IT projects in difficult economic conditions. Top server vendors tried to offset weak demand for higher-margin Unix and blade servers with lower-margin rack and density optimized servers, IDC said.

IBM held the number one position in the server market with a 27.9% share of revenue, but its share was down from over 29% last year. The company's server revenue fell in the quarter by 10% year-over-year because of low demand for System x and Power Systems. IBM's System z mainframe running z/OS, however, had a third consecutive quarter of growth, with revenue up by 9.9% year-over-year to $1.2 billion. The mainframe accounted for 9.8% of server revenue in the quarter.

Hewlett-Packard held the number two position with a smaller market share of close to 26%, after a year-on-year decline in revenue of 17.5% as a result of poor demand for x86-based ProLiant servers and continued decline in demand for HP Integrity servers.

Dell fared better, growing its server market share to 18.8%, its highest ever in any quarter, from 16% last year, to retain the third spot. Dell's server revenue grew 10.3% in the quarter. Rival Oracle held the fourth position with 6%market share followed by Cisco Systems at number five with 4.5% share after a close to 43% growth in revenue. Cisco had a statistical tie with Fujitsu in the last quarter.

Revenue from density optimized servers, used in large hyperscale datacenters, surged 26.6% year-on-year in the quarter to $735 million, while units shipped increased 13.8% to close to 200,000 servers. Dell continues to lead in this market with a whopping 60.5% share.

In contrast, revenue from blade servers was down 6.2% year-on-year to $2.0 billion. Blades accounted for close to 17% of total server revenue in the quarter. HP held the top position in this market with 44.8% share of revenue.

Demand for x86 servers was weak in the quarter, with revenue down by 1.3% year-over-year to $8.7 billion as shipments were relatively flat at 1.9 million servers, according to IDC.

Linux servers benefited from cloud infrastructure deployments and now account for about 23% of all server revenue, up by 1.8 percentage points from the same quarter a year ago. Windows server sales were, however, down 5.1%, with quarterly server hardware revenue at $5.8 billion, representing 49.3% of overall quarterly server revenue, IDC said. Unix server revenue declined 21% to its lowest quarterly revenue of $1.8 billion, accounting for about 15% of server revenue for the quarter.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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