Dell Winning, Oracle Losing as Server Spending Slows, TheInfoPro Finds

According to a survey by TheInfoPro, spending on servers will continue to be slow in 2010 as businesses contend with tight IT infrastructure budgets and as virtualization adoption grows. Dell is getting much attention from cash-strapped businesses, while Oracle is most vulnerable with this trend, TheInfoPro says.

Server vendors will continue to see a harsh business climate as enterprises adapt to the new fiscal realities, and while Dell and Cisco Systems may ride out the storm well, Oracle could see its hardware plans battered, according to a report by market research company TheInfoPro.

In its latest server study, released Aug. 2, TheInfoPro found that businesses continue to scale back their IT budgets, forcing their tech staffs to find ways to reduce expenses. Couple that with the continued rise in adoption of virtualization technologies, and the result is a server industry that is facing weak sales.

"This is going to be a tough year," Bob Gill, managing director of server research, said in an interview with eWEEK. "A large percentage of people surveyed said they'll spend less in 2010 than they did in 2007. ... The bottom line is, if they don't have money, they don't have money."

The finding runs contrary to what some in the industry are saying. For example, during a conference call July 13 to announce second-quarter earnings, Intel CEO Paul Otellini said the record financial results were due in large part to an increase in corporate IT spending-including on servers-and he expected that trend to continue as the year rolls on.

"In Q2, we saw the return of corporate purchases," Otellini said during the call. "The [older] machines were just costing more to keep on the books than they were worth."

Otellini, other tech company officials and analysts have said they expect a rise in corporate spending on servers and PCs driven by the need to refresh hardware that had been held onto longer than normal as businesses waited out the global recession. At the same time, new technologies, such as more power- and energy-efficient processors from Intel and Advanced Micro Devices, and Microsoft's Windows 7, are expected to further give corporations incentive to spend.

However, Gill said the results from TheInfoPro's survey of 252 decision makers at Fortune 1000 companies painted a different picture. For many of them, the goal is to reduce the number of servers they have, not buy new ones. Thirty-nine percent of those surveyed said they planned to spend less on servers in 2010 than they did last year. Comparatively, 25 percent said they will spend more.

In addition, 55 percent said the key goal of their virtualization projects is to reduce the number of physical servers.

"Many of them are rethinking what their [server] needs are," Gill said.

TheInfoPro analysts said virtualization has permanently slowed demand for new physical servers.

The slowing of spending on servers will have an impact on systems makers. Most vulnerable is Oracle, which is seeing a rapid drop in spending on Sun Microsystems hardware, and that will only continue, Gill said. About 21 percent of Oracle/Sun customers are planning to leave Oracle for a competitor, while another 26 percent are considering it.

Sun Microsystems customers expressed concern about Oracle's hardware plans before the vendor bought Sun for $7.4 billion earlier in 2010, despite CEO Larry Ellison's continued insistence that Oracle is investing in the Sun hardware and is aiming to take on IBM. Oracle executives have said they plan to focus the company's hardware efforts at the high end, and are going to offer customers packages combining Oracle enterprise software with Sun hardware.

Still, Gill said the survey showed growing interest from Oracle/Sun customers in moving away from the company, though for a lot of them that have invested millions of dollars and more than a decade of time in their Sun infrastructures, the move may have to wait.

For those businesses, "it's not like they can drop what they've got ... after 20 years," he said. For them, such a move might take 18 months or more. But they're thinking about it, Gill said.

That said, not every Sun customer was unhappy with the Oracle acquisition, he said. For some, Oracle brought long-desired stability to Sun.

However, Dell, with its focus on competitive pricing, is gaining interest from businesses who are still dealing with stagnant budgets, according to the survey, which said the vendor gained in customer ratings in every category over the previous year.

Businesses also seem to be responding to the idea of bundled data center offerings, such as Cisco Systems' UCS (Unified Computing System), which offers compute, storage, networking, systems management software and virtualization in a single, integrated package. Gill said IT departments are responding to the idea of a simplified, energy-efficient bundle that comes with most of the integration work already done.

A low percentage of respondents said they planned to spend money on Cisco's UCS this year, but the bundled data center offering was the most mentioned product in the survey, and Cisco was named in the survey as the third-most exciting vendor.

In past surveys before Cisco made the push in 2010 to expand its presence in the data center by offering UCS, Cisco's name rarely was mentioned by respondents, Gill said.

On the server software side, spending is up in all areas, with Red Hat, IBM and Microsoft doing particularly well, according to TheInfoPro. However, the analyst company expects that to slow in 2011 as the consolidation of hardware continues.