Will virtualization cut the legs from the IT economy?

PC sales are still high, but that might change as more are virtualized

Analyst firms IDC and Gartner both cut their estimates of PC sales for 2010, which at this point is like switching your bet during the fourth quarter.

Gartner said some consumers and businesses were putting off some purchases for budget reasons and buying tablet computers rather than at least a few laptops.

IDC will update its quarterly PC market report in two weeks, but sees the same slightly flattening trend Gartner does, according to Reuters.

"Reduction" in this case doesn't mean anything like what it does in the rest of the economy. Gartner still predicts growth in 2010 will be 14.3 percent, increasing to 15.9 percent in 2011.

IDC estimated 2010's third quarter grew at closer to 11 percent, but predicted in June 20 percent growth for the full year.

Much more interesting is what's happening to servers.

According to Gartner, x86-based servers took another jump in sales -- to 14.0 percent for the third quarter.

That's a big number for PCs; for servers it's incredible.

A big part of that growth is in servers being used for virtualization projects -- which replace old servers with new, add virtual server software, and get four, five or ten servers worth of work out of one piece of hardware.

"Inside the data center virtualization is a catalyst for change, which means new servers, storage, networking to go with an investment in virtualization," according to Mark Bowker, analyst at Enterprise Strategy Group. "You do see some companies repurposing old hardware, but not many, so mostly it's new hardware."

More than 85 percent of U.S. companies are using or testing virtual servers, and will continue to drive sales of virtual server technology steadily during migrations that could last for years.

Even after virtual servers are well established, spending on cloud computing will fill in the gaps and continue growth, according to IDC.

Ultimately, however, just as happened with the amount of power a user needs and the power a PC can delivery, supply will exceed demand.

In desktop -- or "client computing" as many people are calling it now because they don't want to mention tablets, smartphones, netbooks and all the other form factors individually -- virtualization can let end users work on whatever device they like and still have full access to all their data and apps.

That could drastically reduce the need to buy, maintain and recycle all the tens of thousands of laptops and desktops in big companies, and take a big bite out of revenues for Dell, IBM, Acer and the rest of the big PC vendors.

The whole point of virtualization is to get more out of the same amount of hardware which will, eventually, cause the number of units of both server and client hardware to drop within end-user organizations.

It won't happen in the next two or three years, but the combination of virtual servers, cloud computing, and migration to mobile computing will, ultimately, cause sales of both PCs and servers, and probably storage as well, to drop at end user organizations.

And, because cloud and virtualization service providers are all gearing up at the same time, when the drop comes it will come fast. User organizations will increasingly shift to service providers and reduce their own capital expenses.

"Even under an ASP model, I was constrained by technology," according to Domino Sugar CIO Don Whittington. "When I needed to add capacity or storage, it would take a three-year commitment from us, and then it had to be provisioned and racked and stacked and managed. I didn't own that hardware, but I had to be aware of the capacity planning and restrained by it."

Using a version of SAP based in the cloud saves between 20 percent and 25 percent compared to an ASP, and freed Whittington from worrying about the cost, provisioning, care and feeding or location of a physical server, which is exactly the way a CIO should want it.

"The thing it leaves you to do is monitor the value you're receiving from the technology," Whittington says. "That's a lot different from the model where you have to go to the CFO and justify your capex and say 'If I spend X number of dollars, this is the return on that investment.' It works a lot cleaner."

It also could undermine PC and low-end server sales, which are the pillar on which the rest of the IT economy is built. Think about what happened when home sales prices dropped for the first time, and when there's even a small reduction in the number of new-home sales in a given month.

Kevin Fogarty writes about enterprise IT for ITworld. Follow him on Twitter @KevinFogarty.

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