HP, IBM, Others Hit by Continued Server Market Struggles

By Jeffrey Burt  |  Posted 2013-08-28

HP, IBM, Others Hit by Continued Server Market Struggles

The worldwide server market continues to be battered by various market forces such as virtualization, consolidation and aggressive pricing, forcing systems makers to scramble to stake claims in such burgeoning areas as hyperscale environments and converged solutions.

Some OEMs—particularly Cisco Systems and Dell—are benefitting from efforts to get out in front of certain trends, seeing their overall server revenues grow even as parts of their businesses are hobbled by the changing dynamics in the data center and the uncertain global economy.

Others are taking significant hits in their market shares despite aggressive pushes into growth areas of the server space.

“There are lots of moving parts impacting the server market,” Matt Eastwood, group vice president and general manager of enterprise platforms at market research firm IDC, said in an email to eWEEK.

Both IDC and Gartner analysts released their numbers for the global server market in the second quarter, and most of those numbers are trending downward. According to IDC, worldwide server revenues fell 6.2 percent from the same period last year, to $11.9 billion, while server shipments declined 1.2 percent, to 2 million units.

Gartner’s numbers were a bit rosier, with server shipments increasing 4 percent to more than 2.4 million units, and revenues falling 3.8 percent, to $12.3 billion.

For the top vendors, the stories from both IDC and Gartner were consistent: Dell and Cisco saw revenues and shipments grow, while the numbers for IBM, Hewlett-Packard and Oracle fell. On Gartner’s list of top server shipments, Chinese manufacturer Inspur Electronics came in a surprising fifth, due to a large high-performance computing deal won in China. Inspur displaced Fujitsu on the top-five list.

The issues plaguing the overall server market are familiar. Businesses are continuing to virtualize their systems and consolidating wherever possible, driving system utilization and putting off buying new servers. Vendors continue to price their systems aggressively, the global economy is convincing businesses to delay new IT investments and projects, and the Unix market continues to fall faster than many expected, hitting IBM, HP and Oracle in particular, IDC’s Eastwood said.

In addition, “the hyperscale buildout represents a shift from higher-margin mainstream computing to lower-margin cloud infrastructure builds,” he said. “This has the added impact of not dragging [software] and services along as well.”

According to IDC’s and Gartner’s numbers, the RISC/Itanium server space saw revenues fall between 21 and 27.4 percent, while revenues for IBM’s System z mainframes running z/OS grew 6.9 to 9.9 percent. In the x86 system segment, the results were mixed. Gartner analysts said revenues grew 2.1 percent and shipments jumped 4.5 percent, though IDC said revenues fell 1.3 percent and shipments were relatively flat, at 0.1 percent.

Despite the numbers, Dell and Cisco made gains during the quarter, with both seeing revenues and shipments grow, according to IDC and Gartner. Eastwood said both were helped by being ahead of trends in the data center.

“Cisco is putting a lot of pressure on HP and IBM from above with UCS,” he said, referring to Cisco’s converged infrastructure offering, the Unified Computing System. “They developed positioning in the converged space first and effectively leverage relationships with EMC, VCE and NetApp to capture private cloud infrastructure in enterprises and traditional service providers. Cisco's share gains largely come at the expense of IBM and HP.”

VCE is a company created jointly by VMware, Cisco and EMC to sell converged systems called Vblocks.


HP, IBM, Others Hit by Continued Server Market Struggles

On the other hand, Dell is capitalizing on the hyperscale trend, selling microservers to organizations with huge data centers that are looking for dense, energy-efficient servers, he said. Competition in this space not only comes from other OEMs like IBM and HP, but also white-box makers.

“This hyperscale business is being used by Dell to offset weakening demand in traditional mainstream customers,” Eastwood said. “Dell is also winning by putting pricing pressure on HP, which HP has been unwilling to march. That will likely change going forward.”

Pricing pressure is destined to continue in the x86 space, as other players, such as Lenovo, look to grow their server businesses.

That’s not to say that other system makers are standing pat. For example, IBM, HP and others are all aggressively pursuing the converged infrastructure space, and HP officials see their new Project Moonshot servers as a significant growth business.

HP officials in April introduced the first low-power Moonshot microservers, which are powered by Intel Atom chips. The microserver space promises to be a highly competitive segment of the market going forward. Dell has a similar program under way with its Copper servers, and chip makers Intel, Advanced Micro Devices and others using ARM’s low-power designs are creating products designed specifically for the space.

Intel already has its Centerton system-on-a-chip (SoC) on the market, and is expected to soon announced “Avoton,” the next generation. AMD in May introduced its Kyoto Opteron chips, and next year will also start manufacturing ARM-based server SoCs. Chips from other manufacturers based on ARM’s upcoming 64-bit ARMv8 architecture are expected to start coming out in 2014.

“Density-optimized servers achieved the highest growth of any segment in the server market,” Jed Scaramella, research manager for enterprise servers at IDC, said in a statement. “The data center build-outs by service providers are driving growth in the industry and represent a strategic opportunity for OEMs, while at the same time IDC is seeing new participants enter the market targeting the hyperscale data center segment.”


Rocket Fuel