Server revenue could slow in 2008, after strong 2007

by Agam Shah

February 27, 2008 —

The global server market could be headed for a slowdown this year, market researcher
IDC said Wednesday, after one of the strongest years ever in 2007.

Server revenue in 2008 could be impacted as the market looks for an economic
slowdown in 2008, IDC said.

"The impact of the economy on the IT infrastructure market will depend
on the duration and severity of the downturn," said Matt Eastwood, group
vice president at IDC. The housing and mortgage crisis in the U.S. could have
a ripple effect around the globe and slow down consumer spending, Eastwood said.

"Some projects may well be deferred and this could have some impact on
the market and flatten out growth during 2008," Eastwood said. However,
he doesn't expect a massive reduction in server spending to occur in 2008.

That said, slower spending could give legs to initiatives such as consolidation
of IT resources and virtualization which have fairly short paybacks and high
return on investments. "These types of projects will be largely recession
proof particularly in the enterprise space," Eastwood said.

Concerns for a server market slowdown in 2008 come on the heels of strong revenue
growth in 2007, which was driven by increased IT spending and a growing adoption
of x86 and blade servers.

Server revenue hit US$15.65 billion in the fourth quarter, boosting 2007 to
its highest level since 2000, said Jean Bozman, research vice president at IDC.

Full year server revenue reached $54.42 billion, the highest since it topped
$61.6 billion in 2000, following which the dot-com bust contributed to an economic
downturn and dropped server revenue, Bozman said. Worldwide server unit shipments
for 2007 were 8 million, an increase of 6.7 percent from the previous year.

IBM topped the 2007 full year server revenue rankings at $17.3 billion, for
a 31.9 percent market share and 1.1 percent yearly growth. Hewlett-Packard was
second at $15.4 billion in revenue, followed by Dell, which had $6.15 billion
and recorded the strongest yearly growth, 12.4 percent.

The fourth quarter of 2007 was the seventh straight quarter in which server
revenue posted gains, Bozman said. It was driven by a rapid rise in blade server
revenue, which countered a quarterly year-over-year fall in revenues from high-end
and mid-range servers.

During the quarter, blade server revenue grew 54.2 percent and shipments increased
35.6 percent, IDC said. The server infrastructure is moving towards modularization,
adopting technologies like blade servers that drive up scalability without huge
investments, IDC said.

IBM retained the top spot in fourth-quarter revenue, hauling in $5.75 billion,
up 0.5 percent over the previous year and good for a 36.7 percent share of the
market. Hewlett-Packard, in second place, had server revenue of $4.34 billion,
up 6.3 percent. Dell took third place, recording revenue of $1.58 billion, a
6.8 percent increase. Sun's server revenue dropped 2.4 percent year-over-year
to $1.46 billion, and it fell to fourth from third place in the ranking. Fujitsu/Fujitsu
Siemens saw quarterly revenue shoot up 7.1 percent to $666 million to come in
fifth.

Though Windows OS servers generated the largest quarterly revenue, Linux-based
servers grew the most in terms of revenue, according to IDC. Linux-based servers
generated $2 billion in revenue, growing 11.6 percent year-over-year and representing
12.7 percent of market share. Windows server revenue was $5.7 billion for the
quarter, a 36.6 percent market share and 6.9 percent growth. The revenues were
all-time highs for both platforms, IDC said.

Unix server revenue grew only 1.5 percent to $5.2 billion. The growth was mainly
driven by IBM's strong System p business, IDC said.

Revenue for x86 servers was $7.8 billion during the fourth quarter, a 7.6 percent
year-over-year increase. HP led in x86 server revenues, with 35 percent, followed
by IBM and Dell, with 20 percent apiece.

The study calculated revenue from high-end servers, mid-range servers, blade
servers and servers that ship in volume, like x86 servers.

IDG News Service