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5/30/2014
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Does Cloud Really Hamper Server Sales?

Common sense suggests that mainstream cloud adoption will gut server sales, but that's not really happening, analysts say. Here's why.

8 Data Centers For Cloud's Toughest Jobs
8 Data Centers For Cloud's Toughest Jobs
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It's often said that tablets are eviscerating traditional PC sales. That's an overstatement, but the same logic could be applied to traditional servers: As companies move the workloads once assigned to on-premises infrastructure to the cloud, they'll buy fewer servers. Right?

Again, there's some partial truth there. There are businesses, especially new startups and other small companies, that do just about everything online. There are plenty of others that have opted to move at least part of their infrastructure to the cloud, rather than maintaining their own data centers. And there's a bevy of stats to support the notion that cloud adoption will push down corporate capital expenditures on new servers.

Most research firms reported modest gains in server shipments in 2013, but revenue actually declined. Gartner reported a 2.1% bump in shipments with a 4.5% drop in revenue for the year; IDC reported a revenue decline of 4.4% for the year. Yet it wasn't all bad news; shipments grew 3.2% by IDC's figures, good for a record 9 million units. The firm also said it expected evidence of a refresh cycle to appear in 2014.

So where's the server market really headed next? Don't expect a bunch of "cloud killed the server" sound bites, said Techaisle analyst Anurag Agrawal.

[SAP business apps are coming to Azure. Read Microsoft Brings SAP Apps To Azure Cloud.]

The "fall in revenue is primarily due to tepid demand for behemoth expensive Unix/RISC-based servers, as those were usually underutilized," Agrawal said in an email interview. "With the rapid emergence of cloud and virtualization, those workloads have started to move towards cloud. On the other hand, demand for smaller, right-sized servers continues to rise."

There's a reason that Lenovo bought IBM's server business for $2.3 billion, he said, just as there's a reason Dell keeps rolling out new server models and Intel's datacenter business grew in the first quarter of this year. Servers aren't going away; they're just going to change. He also said original design manufacturers in Taiwan are shaking up the server establishment by offering custom-built servers to spec.

So what's in store for servers? Agrawal sees five themes emerging:

1. Hybrid cloud: the dominant model
Agrawal expects hybrid cloud -- a mix of public cloud, private cloud, and traditional on-premises infrastructure -- to be the favored IT strategy in the long term. Nearly one-third of midsized businesses (100-1,000 employees) already use a hybrid approach, according to Techaisle data. Cloud spending will take up a greater slice of the pie in those businesses, but that doesn't mean on-premises servers will evaporate. Recent Techaisle research shows 83% of midsized businesses that use or plan to use cloud platforms also plan to buy servers, for example.

"While storage and data backup workloads may migrate to cloud, server workloads may still remain on-premises as most mid-market businesses and enterprises register a high rate of concern regarding the difficulty of integrating operational systems across hybrid traditional/cloud-based systems, security of applications and corporate data, and about control over data, users and applications," Agrawal said.

2. First server purchases: plenty left
The first-server market isn't saturated -- 1.5 million small and midsized companies in the US alone have yet to purchase their first

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Kevin Casey is a writer based in North Carolina who writes about technology for small and mid-size businesses. View Full Bio

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jagibbons
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jagibbons,
User Rank: Ninja
6/4/2014 | 2:41:30 PM
Re: Hybrid factor
Cloud is rent/lease which means something in the backend has to be a server. Perhaps better optimized in a multi-tenant configuration, but a high-end box with software on it.

Sure, there is hardware, but it takes a lot less hardware for five to ten organizations to share tenancy on a single set of servers versus five to ten organizations buying all of the servers themselves.
Todder
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Todder,
User Rank: Moderator
6/4/2014 | 1:01:07 PM
Re: Hybrid factor
Whether you buy, lease or rent a car, in the end you still need the physical unit. Cloud is rent/lease which means something in the backend has to be a server. Perhaps better optimized in a multi-tenant configuration, but a high-end box with software on it.
jagibbons
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jagibbons,
User Rank: Ninja
6/2/2014 | 6:42:02 AM
Re: How to judge in an economy with a lingering recessionary influence?
Good points, Charlie. It's hard to know what the new "normal" will be until the economy recovers.
batye
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batye,
User Rank: Ninja
6/2/2014 | 2:02:38 AM
Re: Hybrid factor
it like keep upgrading just to survive from day to day... and no any other way... 
batye
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batye,
User Rank: Ninja
6/2/2014 | 2:01:35 AM
Re: this word always makes me giggle
good point... but like in everything else in life... end game is to see profit - one way or other...
Charlie Babcock
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Charlie Babcock,
User Rank: Author
5/30/2014 | 8:17:33 PM
How to judge in an economy with a lingering recessionary influence?
The cloud service providers have picked up some of the slack that would otherwise exist in server sales. They built data centers with thousands of server units, and the server vendors know how to cater to them. You can't really make a long term judgment yet on what server sales look like in the age of cloud computing because we haven't gotten back a normal, non-recessionary economy. Fuller utilization of servers through skilled operations -- in both the public cloud and private enterprise -- will tend to flatten sales in the long run, in my opinion.
techgurudude
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techgurudude,
User Rank: Strategist
5/30/2014 | 12:19:27 PM
this word always makes me giggle
Whenever I hear the word cloud used in the tech world it makes me laugh. We shouldnt polish it as a new thing, it only confuses consumers. The cloud is what it was from the beginning of the internet just webhosting with an addon.

 

And when you see major software companies getting into a space that has always been around barely squeezing profits you wonder if thats it and have reached the peak.
jagibbons
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jagibbons,
User Rank: Ninja
5/30/2014 | 10:09:46 AM
Hybrid factor
This data about server market growth isn't really suprising at all. The hybrid trend is a huge factor here. Many enterprises will want to run some applications or store some data locally for either performance or regulatory reasons. This requires continued investments, although at different levels, in processing and storage. These aren't all-or-nothing kinds of solutions.
Server Market Splitsville
Server Market Splitsville
Just because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.
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