Apple Sees Triple-Digit Boost in Server Sales

By Daniel Drew Turner  |  Posted 2004-11-18

Apple Sees Triple-Digit Boost in Server Sales

Apple Computer Inc. more than doubled its quarterly sales of its Xserve G5 servers over the last year, according to a report by Gartner Inc.

In a recent report on worldwide server sales, the Gartner data tracked a 119 percent increase in Xserve G5 sales between the second quarter of 2003 and the second quarter of 2004.

However, the Stamford, Conn.-based information technology research companys numbers showed Apple far behind other computer companies in total number of server sales. Where top company Hewlett-Packard Co., which in the last few years acquired Digital Equipment Corp. and Compaq Computer Corp., delivered almost 466,000 server units in the third calendar quarter of 2004, Apple sold approximately 11,150 units of its Xserve G5. (According to Apple, just over 13,000 Xserve servers shipped that quarter; the Cupertino, Calif., company does not usually release Xserve sales numbers.)

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The Xserve G5 is Apples sole server, targeted at small businesses and creative offices. It runs Apples own Mac OS X Server operating system and features either a single or dual 2GHz G5 processors made by IBM; these same chips also power IBMs own line of blade servers. The Xserve G5 models fit in a 1U rack and range in price from $2,999 to $7,148. Apple also sells the Xserve RAID rack-mountable storage unit.

Also topping Apple in the list of servers sold were Dell Inc., IBM, Sun Microsystems Inc. and Fujistu/Siemens. According to the Gartner report, all companies saw 1 percent to 25 percent sales growth, with the overall server market growing 17.1 percent in the quarter, after six previous quarters of expansion.

According to Mike McLaughlin, a principal analyst at Gartner, who contributed to Gartners "Preliminary Shipment Estimate: Worldwide Server Market, 3Q04" report, Apples Xserve "has a good niche" primarily in the graphic design and digital video sectors.

"We dont expect anything significant to come out of Apples server move," he said, noting that Gartner doesnt foresee the Xserve reaching sales in the hundreds of thousands. "We see the Xserve as selling to traditional Apple customers," McLaughlin said, though he added that the company does have opportunities in the SMB (small to midsize business) market.

In addition, McLaughlin said that the single-source nature of the Xserve is a bar to its adoption in larger companies. "Not a lot of customers in the enterprise will buy from a single vendor," he said.

The Gartner report judged all servers on a range of criteria; Apples Xserve did not score in the top half of models examined. In the "go to market" category, which looks at criteria such as industry awareness and independent vendor interest, the Xserve ranked 14th. The report mentions that mainstream hardware, such as items based on commodity x86 processors such as those from Intel Corp. and Advanced Micro Devices Inc., has an advantage here compared with the Xserve, which relies on service and parts from Apple. In the operations management category, which rates servers on how easily they can be managed in a variety of environments, Gartner placed the Xserve 17th.

Next Page: Apple: "Fantastic year" for Xserve sales.

Fantastic Year

Alex Grossman, Apples director of server hardware, said "this has been a fantastic year" for Xserve sales, adding that he has seen "growth in all traditional areas" such as creative and SMB sales. He noted that Gartners estimates were low, though he also pointed to how supplies of the Xserve G5 were constrained well into Apples third quarter of 2004. Apples third financial quarter coincides with the second calendar quarter of the year; Gartners report marks quarters by the calendar year.

Apples revenue and profits soared in its most recent quarter. Click here to read more.

When asked how Apple is trying to move into the enterprise market, Grossman said, "All those customers [digital media, graphic design, SMB] are enterprise customers to some degree.

"We start with the marketing or other department in a corporation and move up from there," Grossman said. He noted that most large companies, even if they run their infrastructure on Unix and business desktops on Windows, use some Macintoshes for file serving or mail serving. He said that the "edge server" market, which he defined as all servers costing under $25,000, is booming, and said that the Xserve has a high profile in that category.

When asked how Apple plans to work with ISVs and resellers, Grossman said, "Were happy with the acceptance weve seen for Xserves in the ISV community, especially compared to where we started in 2002" when the first Xserve model, the Xserve G4, was introduced.

As for how Apple plans to further acceptance of the Xserve, Grossman said Apple is expanding its advertising "across the board," using an internal sales force targeted with resellers and pressing against Windows servers on the point of total cost of ownership and against Linux- and Unix-based servers on the point of ease of configuration and management.

The Xserve RAID, Apples rack-mountable RAID unit, is often a "good gateway" for getting Apple products in the door, Grossman said. Many companies that have no Mac OS-based computers have been buying the Xserve RAID, which works with all platforms, and then deciding to supplement the storage units with Xserves, he said.

Although Grossman admits that the Xserve will never compete against the "big iron," Gartners McLaughlin said that "Apple is re-establishing itself as a server vendor."

"What they choose to do with it is still up for research," he added.

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