Worldwide Server Market Shows Strongest Growth in the Volume and Midrange Server Segments, According to IDC

1 January 1970

According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market grew at 8.1% year over year to $12.5 billion in the third quarter of 2005, marking the tenth consecutive quarter of positive overall revenue growth. This demonstrates continuing end-user investment in a robust server infrastructure as a fundamental component of other IT investments in software, storage and services.

Volume server revenue grew 14.8% year over year and continues to represent the primary growth engine for the server market overall. Revenue for midrange enterprise servers grew 3.8% year over year, marking the fourth consecutive quarterly increase in that segment. However, the high-end enterprise server market showed a 1.2% decline year over year, making it the fourth consecutive quarter of declining revenue for high-end enterprise servers.

"Although there was continued IT investment across all three server classes, the volume and midrange enterprise server segments are showing the strongest growth, speaking to IT purchasers' continuing focus on cost containment, which is often achieved through strategic server consolidation and server virtualization initiatives," said Matt Eastwood, program vice president of Worldwide Server Research at IDC. "Both scale-out and scale-up models for adding computer capacity are in place at most customer sites, giving IT managers flexibility in the way they install, deploy and maintain server-hardware resources."

Top-Level Server Market Findings

-- Year-over-year unit shipment growth of 11.3% - two-thirds the year-over-year unit growth rate observed in 3Q04 - reflects a transition in the volume-server market segment as a growing number of users implement virtual servers requiring increasingly robust server resources, which effectively drives higher average selling values and lower unit growth.

-- Linux servers posted their thirteenth consecutive quarter of double-digit growth, with year-over-year revenue growth of 34.3% and unit shipments up 20.5%. Although, both factory revenue growth and unit growth have cooled from 2Q05 levels, it is clear that customers continue to expand the role of Linux servers into a broader range of workloads in both the commercial and technical segments of the market.

-- Microsoft Windows servers continued to show strong growth, as revenues grew 17.7% and unit shipments grew 15.3% year over year. Significantly, quarterly factory revenue of $4.6 billion for Windows servers represented the largest single segment of the server market for the first time - increasing revenue share by 3.0% over 3Q04 - as customers deploy more fully configured Windows servers in support of scalable workloads and consolidation projects.

-- Unix servers experienced a 0.4% decline in factory revenue year over year, while unit shipments declined 13.7% when compared with 3Q04. Worldwide Unix revenues of more than $3.9 billion for the quarter represented 31.7% of overall quarterly factory revenue. This contrasts with 2Q05 - historically a strong quarter for Unix spending - which saw a strong seasonal surge of IT investment in midrange enterprise Unix servers and high-end enterprise Unix servers.

Overall Server Market Standings, by Vendor

-- IBM maintains the number 1 spot in the worldwide server systems market with 32.3% market share in factory revenue, growing its revenue by 10.3% when compared to the same quarter one year ago. HP continued to hold the number 2 spot in terms of factory revenue with 27.8% share, growing revenue 12.4% compared to 3Q04.

-- In terms of unit shipments, HP maintained the number 1 position worldwide with 28.8% server shipment share, growing shipments 6.4% year over year. Dell maintained the number 2 spot in terms of worldwide server shipments with 23.9% share, up from 22.2% share in 3Q04.

-- After several quarters of a statistical tie for third place in factory revenue, Dell assumed third place on its own with 10.5% market share in 3Q05. Dell experienced 11.8% revenue growth compared with 3Q04, while Sun experienced an 7.6% year-over-year revenue decline in 3Q05 to 8.7% market share.

-- Fujitsu/Fujitsu-Siemens maintained a fifth place standing in terms of factory revenue, with 6.1% market share. The Fujitsu Group of companies saw 5.9% factory revenue growth year over year.

x86 Industry Standard Server Market Dynamics

End-user demand for x86 servers, including both x86-32 and x86-64 processors, continued to be strong, with 16.0% year-over-year revenue growth reaching nearly $6.3 billion in factory revenues worldwide. However, growth for the x86-64 segment alone was more than sevenfold, while x86-32 server revenue declined 60.7% as the ecosystem shifted toward 64-bit enablement. In fact, x86-64 servers represented 69% of all x86 server spending and now comprise the single largest segment of the server market by CPU type for the first time as this rapid transformation of the x86 marketplace into a segment that is 64-bit enabled continues.

"The throughput of x86 servers continues to increase as the transition to 64-bit capability accelerates and these capabilities will only increase further with a wholesale move toward dual-core processors in the x86 server market over the next few quarters," said John Humphreys, research manager, Enterprise Servers. "Dual-core servers represent nearly 25% of all server spending today and in the x86 market, blade form factors are leading the move to dual core. In 3Q05, dual core represented nearly 10% of blade factory revenue, illustrating the growing importance that customers are placing on heat and power concerns. We expect the transition to dual core in the x86 market will accelerate over the next 4 or 5 quarters as customers look to take advantage of the additional capability the technology provides."

Bladed Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed continued growth in the quarter, with shipments increasing by 72.1% year over year and factory revenue gaining 96.8% year over year. Overall, bladed servers, including both x86, EPIC and RISC blades, accounted for $569 million in the third quarter, representing 4.6% of quarterly server market revenue. IBM maintained the number 1 spot in terms of server blade revenues, with 42.0% market share, while HP maintained the number 2 position with 31.6% share. Dell holds the number 3 position with 9.0% share of factory blade revenues.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue,
Third Quarter of 2005
(Revenues are in Millions)

Revenue
Q3 2005 Market Q3 2004 Market Growth
Vendor Revenue Share Revenue Share 3Q05/3Q04

IBM $4,032 32.3% $3,656 31.6% 10.3%
Hewlett-Packard $3,473 27.8% $3,089 26.7% 12.4%
Dell $1,308 10.5% $1,169 10.1% 11.8%
Sun Microsystems $1,087 8.7% $1,176 10.2% -7.6%
Fujitsu/Fujitsu
Siemens $756 6.1% $714 6.2% 5.9%
Others $1,834 14.7% $1,751 15.2% 4.7%

All Vendors $12,490 100.0% $11,555 100.0% 8.1%

IDC's Worldwide Quarterly Server Tracker, November 2005

IDC's Server Taxonomy

IDC's Server Taxonomy maps the eleven price bands within the server market into three price ranges: volume servers (servers priced less than $25,000), midrange enterprise servers ($25,000 to $499,999), and high-end enterprise servers ($500,000 or more). The revenue data presented in this release is stated as factory revenue for a server system. IDC presents data in factory revenue to determine market-share position. Factory revenue represents those dollars recognized by multi-user system and server vendors for ISS and upgrade units sold through direct and indirect channels and includes the following embedded server components: Frame or cabinet and all cables, processors, memory, communications boards, operating system software, other bundled software and initial internal and external disk shipments.

IDC's Worldwide Quarterly Server Tracker is a quantitative tool for analyzing the global server market on a quarterly basis. The Tracker includes quarterly shipments (both ISS and upgrades) and revenues (both customer and factory), segmented by vendor, family, model, region, operating system, price band, CPU type, and architecture. For more information, please contact Hoang Nguyen at 508-935-4718 or hnguyen@idc.com.

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