Sun leads way as server sales take a record plunge in second quarter

Computerworld - Oracle Corp.'s pending acquisition has put Sun Microsystems Inc. into a limbo that appears to be devouring its server business.

The overall worldwide server revenue in the second quarter fell by a housing market-like decline of 30% from the same period a year ago, or from just over $14 billion to $9.8 billion, according to a report released today by market research firm IDC. This second quarter decline -- the largest ever year-over-year quarter decline -- follow a 26.5% decline in the first quarter.

Gartner Inc. today also released its server numbers, which showed a similar decline in sales. Gartner estimated that worldwide second quarter server revenue declined by 29.4%

According to the IDC report, Sun's second quarter server revenue declined 37% to $981 million, the largest percentage drop of any major vendor during the period. It was helped by a number of things. Sun gets most of its hardware revenue from its Unix-based Sparc platforms, and Unix-based systems didn't fare as well as x86-based systems in the period, said IDC. Worldwide, x86-based server revenue fell about 28%, while Unix-based system revenue declined by about 32%.

Sun was probably also hurt by time it is taking to consummate its $7.4 billion deal to be acquired by Oracle Corp. Oracle is restrained from detailing the future of Sun and its hardware until the acquisition is completed, creating customer unease about support and product roadmaps.

Meanwhile, major rivals, namely IBM and Hewlett-Packard, have been unrestrained in going after Sun customers with migration incentives and other deals.

"I think [Sun is] seeing negative effects from HP and IBM attack programs," said Daniel Harrington, an analyst at IDC. IBM and HP are offering migration help to users and are going "aggressively after that customer base," he said.

Analysts say that Oracle could take its new Sun hardware and move in number of directions, including the sale of Sun's hardware to another computer maker -- possibly Fujitsu, which makes Sparc-based servers and has a close relationship with Sun. Oracle could further split off Sun's x86 systems to a different vendor, such as HP. It's also possible that Oracle will retain the hardware business and build new products, possibly appliances that include the Oracle database.

But nothing can happen until the deal is approved by European regulatory authorities. U.S. regulators have already given the deal a green light, but the European Commission, which faces a deadline for making a decision tomorrow, may seek an extension due to concerns about the fate of Sun's open source MySQL database, according to a report from the Reuters news agency.

Overall, there was little good news in the IDC report for any of the server vendors. IBM, the largest server vendor saw a 26% revenue decline this quarter to $3.38 billion but a market share increase from 32.7% to 34.5% year-to-year. The second largest, HP, at $2.8 billion kept its market share steady at 28.5% while seeing a revenue decline of about 30%.

IDC believes that users are now beginning to replace their aging equipment.

Read more about Servers in Computerworld's Servers Topic Center.