Server market grew by 5% in 4Q 2006

Swelling demand for high-end systems in the fourth quarter pushed the global server industry to its highest annual revenue since the market peaked in 2000, as IBM Corp. and Hewlett-Packard Co. held onto their top rankings.

The industry overcame yet another quarter of slumping unit shipments to notch a 5.2% rise in quarterly revenue compared to the same period last year, pushing annual industry revenue up 2% to US$52.3 billion in 2006, according to an industry report released Monday by IDC.

The revenue came from an unexpected sector. For the first time in 10 years, quarterly demand for midrange and high-end systems outstripped demand for volume servers. Compared to the same period last year, fourth quarter revenue for high-end systems rose 11.5%, compared to rises of 5.4% for midrange servers and 2.1% for entry-level.

Despite the changing market, the players remained the same. IBM claimed the largest chunk of revenue with 32.8% market share, followed by HP at 27.2%. With 10.8% share, Sun Microsystems Inc. has a slight lead over Dell Inc. (10.3%) for third place, but is growing much faster, IDC said. Fujitsu/Fujitsu Siemens was the only vendor whose server revenue dropped in 2006 as it held onto its position in a distant fifth place.

Those numbers were nearly identical to a server industry report released Thursday by Gartner Inc.

IBM said much of its success came from its 32% share of the large Unix server segment and from strong growth in its System z mainframe sector, which posted its highest quarterly revenue in eight years with $1.7 billion, according to a statement by Bill Zeitler, senior vice president and group executive for IBM's Systems & Technology Group.

Despite that success, IBM's Z/OS recorded just 11.2% market share by revenue in the quarter, far behind Microsoft Corp.'s Windows OS at 34.9% and the Unix OS at 33.5%, according to IDC. Linux-powered servers showed fast growth to reach 11.9% share.

In comparison, Sun boasted that its results were strong in every sector, led by total server revenue growth of 24.4%, more than four times the growth of its closest competitor, HP.

Sun said its key driver was its Solaris Unix OS, which allows to company to scale from x86 to RISC-based systems and claim market growth in diverse market niches, said John Fowler, executive vice president of Sun's systems group in a statement.

Although the vendors may be pleased with their 2006 revenue, IDC warned they should be worried about slumping demand. The industry stumbled to its tenth consecutive quarter of slowing growth in units shipped, grinding to a halt with no growth in the fourth quarter of 2006.

The main culprit is virtualization, as corporate IT managers learn to save money by sharing a shrinking pool of hardware resources. That trend has hit the x86 segment the hardest, putting a dent in revenue for chipmakers such as Intel Corp. and Advanced Micro Devices Inc.

Copyright © 2007 IDG Communications, Inc.

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