Cloud servers are bright spot in otherwise dark server market

The server market isn't completely dark Credit: Image credit: flickr/S Khan

Second quarter server numbers are out this week, from both IDC and Gartner, and as expected they aren’t pretty.

But a close look shows just where the opportunity is.

There’s no doubt that economic conditions worldwide plus a heavy emphasis on efficiency are putting pressure on server sales. But there’s also a shift underway.

One of the few bright spots is in what IDC calls “density optimized servers,” which are most often used by huge data centers, like those built by the cloud service providers and huge web properties. Revenue in this segment grew 27 percent in the second quarter compared to the previous year as unit shipments grew 14 percent. That means these servers make up 6 percent of server revenue and 10 percent of shipments.

With an overall server unit shipment decrease of 1.2 percent and factory revenue decrease of 6.2 percent, according to IDC, that looks pretty good.

This shift is paying off for Dell, the number three vendor overall but the number one in the density optimized segments. Dell also happens to be one of the few to post gains for the quarter. IDC found that Dell had 10 percent revenue growth, while IBM and HP had double digit declines. Oracle also had revenue declines, of 6 percent.

The cloud service providers, as well as huge web properties like Facebook and Google, are blazing a trail with these new kinds of servers. In some cases, this hardware will make sense for enterprises in their own data centers.

The pressure is on for the traditional vendors to make this shift. If they don’t, they’ll continue to see growing competition from the vendors like Quanta, which at one point made hardware for the traditional giants but are now selling directly to the big guys, like Facebook and Rackspace.

Quanta is probably lumped into the “other” category by the vendors. Gartner showed the category with a nearly 8 percent market share growth. IDC reported that while revenue growth declined for the “other” category, its market share grew just slightly.

The big traditional vendors are definitely starting to seeing the light – HP and Dell are part of the Open Compute Project, which caters to the design needs of huge data center operators – and are likely to pursue this segment more aggressively.

Rackspace engineer Aaron Sullivan, who works on bringing open source hardware designs like Open Compute to Rackspace, put it succinctly in a blog post interview this week: “You’re going to start seeing many of the big name technology leaders get more deeply involved with open compute as they realize that they can capitalize on it.”

The analyst reports this week should make them realize that they can indeed capitalize on this trend.

Read more of Nancy Gohring's "To the Cloud" blog and follow the latest IT news at ITworld. Follow Nancy on Twitter at @ngohring and on Google+. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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