Server demand is driven by hyperscale deployments that use a lot of low-cost systems, while enterprises focus on consolidation, the analysts said.
While server vendors like Hewlett-Packard and IBM shipped a record number of systems in the fourth quarter, revenues continued to slide as the slowing demand for higher-end machines could not be offset by the growing hyperscale data center infrastructure segment, according to analysts at IDC.
According to numbers released late Feb. 26, worldwide server shipments jumped 8.2 percent—to 2.5 million—in the fourth quarter, compared with the same period in 2012. However, revenue fell 4.4 percent, to $14.2 billion, marking the fourth consecutive quarter that sales declined.
The trends in IDC's report mirror those found in numbers released by Gartner analysts
earlier in the day. Gartner analysts said vendors shipped 3.2 percent more systems in the fourth quarter than they did a year earlier, but revenues fell 6.6 percent.
Both IDC and Gartner pointed to the same issues: While Web-scale IT deployments that use large numbers of smaller and less expensive systems continue to grow, enterprises continue to focus on virtualization, and it will take a while before the hyperscale initiatives can make up for the slowing high-end sales.
"While a record number of servers shipped in 4Q13, the market was constrained by weak demand for midrange and high-end systems," Matt Eastwood, group vice president and general manager of enterprise platforms at IDC, said in a statement. "The market continues to be impacted by enterprise focus on … workload consolidation, which at this point in time is only partially offset by … hyperscale server deployments around the globe."
The analysts also said that server demand in the quarter was weak as organizations waited for an expected grade cycle that will happen earlier this year. For example, Intel earlier this month launched the latest generation of its high-end Xeon E7 server processors. The new 22-nanometer Xeon E7 v2 family of chips
offers up to 15 cores, and a range of system OEMs—including Dell, HP, IBM and Cisco Systems—are releasing systems powered by the new chips.
A month earlier, Advanced Micro Devices released new Opteron server chips
that offer 12 to 16 cores and are based on the company's Piledriver architecture.
For all of 2013, global server revenue fell 4.4 percent from the previous year, to $49.7 billion, while shipments jumped 3.2 percent, to a record 9 million units, IDC found.
HP and IBM tied for the top spot in revenues in the fourth quarter, with HP grabbing 26.9 percent of the market and IBM—which is in the process of selling its x86 server business to Lenovo for $2.3 billion—had 26.8 percent. HP saw some gains in its x86-based ProLiant systems, while IBM sustained declines in all three server families—x86, Power and System z mainframes.
Dell came in third, with 14.5 percent of the market, followed by Cisco and Oracle, with 4.5 percent and 4.1 percent, respectively.
For the year, HP held 26.6 percent of the market based on revenues, followed closely by IBM at 25.6 percent and Dell at 16.6 percent. Oracle and Cisco were fourth and fifth. Among the top five, only Dell and Cisco saw revenue gains last year.
IDC analysts also broke out numbers for original design manufacturers (ODM), which are seeing strong growth, thanks partly to the growth in service provider deployments. ODMs collectively for the year saw revenues climb 57.3 percent, to $2.8 billion. That compares with HP's $13.2 billion and Dell's almost $8.3 billion.
Linux servers, fueled by deployments of cloud infrastructures, saw revenues jump 14.4 percent in the quarter, while Microsoft Windows server revenues increased 0.1 percent and Unix servers fell 20.2 percent.
"The Unix market continued its secular decline, and mainframes had large declines on a difficult [comparison] to a year ago, amid explosive growth in hyperscale and ODM Direct sales," Kuba Stolarski, research manager for servers at IDC, said in a statement. "As the Unix server market continues to undergo consolidation and price compression, and as mainframes find their niche, IDC believes that the server market is very close to a tipping point, when hyperscale growth will be large enough to overshadow declines in the high end. The additional growth in ODM Direct sales, spurred most recently by massive data center expansion by some of the largest service providers, will help the server market reach that tipping point faster."