IDC: HP, IBM Remain Server Revenue Leaders in Third Quarter

While Hewlett-Packard and IBM were virtually tied for first place when it came to server revenue in the 2008 third quarter, both companies watched their overall revenue drop as the financial crisis continued. HP, IBM, Dell, Sun Microsystems and Fujitsu all lost server revenue in the third quarter despite demand for blade servers and IBM's System z mainframe, according to IDC.

While Hewlett-Packard and IBM tied for first place when it came to server revenue in the third quarter of 2008, both companies, along with most other OEMs, watched their overall system revenues decline thanks to the ongoing financial crisis, according to IDC.

In its Dec. 3 report on the worldwide server market, IDC found that revenue declined more than 5 percent year over year. In the third quarter of 2008, server revenue stood at $12.6 billion compared to $13.3 billion the industry saw in the third quarter of 2007. Server shipments increased a modest 2.8 percent during the quarter.

While HP and IBM were virtually tied for fist place on the server revenue list, both IT giants watched their revenue slip from a year ago. In the third quarter, HP recorded overall server revenue of $3.86 billion, a decline of 2 percent, while IBM tallied $3.81 billion in revenue, a 3 percent decline from the third quarter of 2007.

The IDC report came the same week that Gartner also found that worldwide server revenue decreased about 5 percent year over year. Both research firms found that the financial crisis and the troubles on Wall Street, which started to pick up steam in September, have played havoc with IT budgets, and businesses large and small are now looking to cut back on their IT hardware spending.

At the same time, a report issued this week by a non-profit economic research firm found that the United States is now officially in a recession.

"IT decision makers were pressured to cut costs where they could and that included putting the stops on some potentially expensive higher end server products," Daniel Harrington, an analyst with IDC, wrote in an e-mail to eWEEK.

"While revenue was down slightly, lower cost, x86 servers still experienced positive unit growth for the quarter," Harrington added. "With the exception of IBM's System z line, higher-end, non-x86 products had considerable unit decline. End-users are looking to these lower cost solutions to meet their needs."

While the third quarter showed server revenue declining, Harrington added that fourth quarter would give an even better indication of how much or how little businesses would spend on IT hardware in 2009.

While IDC found that demand for blade servers and large systems such as the IBM System z mainframe was still strong, demand for other types of servers slipped.

For example, revenue from x86 servers fell more than 6 percent, although shipments increased. At the same time, revenue from Unix systems fell 8.4 percent, according to IDC.

On the other hand, revenue from all types of blade servers increased nearly 30 percent for a total of $1.4 billion during the quarter. HP now controls 54.7 percent of the overall blade market compared to IBM's 23 percent market share.

For IBM, sales of its mainframe helped ease the impact from the financial crisis. IBM watched its revenue from mainframes running the company's z/OS operating system increase 25 percent. IDC attributed the good numbers to pent-up demand for new System z mainframes that IBM brought to market earlier this year.

After HP and IBM, Dell watched its server revenue slip 4.3 percent for a total of $1.5 billion for the quarter. Of the five largest OEMs, Sun experienced the largest loss during the quarter. The company's server revenues fell nearly 11 percent from $1.3 billion to $1.2 billion.

Fujitsu/Fujitsu-Siemens produced server revenue of $647 million during the quarter, a decrease of 8.4 percent. All other OEMs combined watched their revenues fall more than 12 percent, according to IDC.

Editor's Note: This article was updated to include comments from an IDC analyst.