Server revenue declined sharply in Q1, IDC says

A precipitous fall in worldwide server shipments triggered a sharp decline in revenue for server makers during the first quarter of 2009, IDC said in a survey released on Thursday.

Worldwide server unit shipments declined 26.5 percent year-over-year in the first quarter to around 1.49 million units, the largest unit shipment decline in five years, IDC said. Worldwide factory server revenue was down 24.5 percent to US$9.9 billion in the first quarter.

Server shipments and revenue fell as customers tightened IT budgets and held back on refreshing server hardware, IDC said in its survey. Shipments of x86 servers were around 1.42 million, while shipments of other types of servers -- including those with processors from the IBM Power and Sun Sparc families -- were around 64,450.

Factory revenue refers to revenue resulting from servers shipped directly out of the factory to distributors.

One reason for the drop in server revenue was virtualization, said Daniel Harrington, a research analyst with IDC. As an alternative to buying new servers, larger enterprises are turning to virtualization, consolidating more workloads per physical server. Most server purchases in the first quarter were made out of necessity, especially by small and medium-sized businesses that needed more server capacity, Harrington said.

The revenue decline has trickled into the second quarter of this year as well, Harrington said. The recession has created an uncertain environment that makes it hard to predict a turnaround in server revenue, he said. However, revenue could grow slightly year-over-year during the fourth quarter of 2009, driven partly by IT budgets opening up, according to Harrington.

Revenue fell more steeply for x86 servers than for Unix servers, IDC said. Systems with Unix OSes typically run mission-critical workloads, which makes it hard to reduce spending, Harrington said. Unix-based servers typically require very high levels of availability and are used by financial institutions such as stock markets and banks.

On the other hand, x86 servers typically run applications that are not as critical -- such as e-mail and print servers -- and are also easier to spread across virtual machines.

"It's easier to freeze purchases on x86 [servers], which are a commodity at this point," Harrington said.

Revenue for x86 servers declined by 28.8 percent in the first quarter to reach $5.1 billion. Revenue for non-x86 servers -- including Unix systems -- fell by 19.4 percent to reach $4.8 billion.

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