The enterprise server business seems frozen in time. Our 2014 InformationWeekState of Server Technology Survey shows investment plans flat, interest in new technologies lukewarm, and the server fleet essentially unchanged over the past few years: Only 19% are increasing both the number and capability of servers, budgets are level or down for 60% and just 12% are using innovative microserver technology that could pay big dividends.
The chilling effect that mobile devices are having on PC sales is being repeated, but with a twist. For server vendors, the frost descends from the cloud, as enterprises increasingly use hosted infrastructure and software services in lieu of locally owned and operated systems. And while market data shows server sales dipping (down 6% in the second quarter from a year ago, according to IDC) perhaps just as worrisome is that our survey also shows a lack of enthusiasm for emerging tech on the part of enterprise IT. Even questions dealing with new features, chip technologies and system architectures that should generate interest were flat, which suggests either satisfaction with current conditions -- unlikely given the constant stream of demanding new applications, data and mobile endpoints -- or general lack of interest in making new server infrastructure commitments to internal data centers.
Lack of innovation isn't to blame; server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary instigators of innovation are now cloud service providers, not enterprises. That could cause problems for organizations that cling to their existing architectures rather than moving workloads to public clouds or embracing new technology in their own data centers.
It should also make incumbent server vendors question the long-term stability of their footing. Unlike the PC market, which is down 11.2% so far this year, according to Gartner, the server business isn't in free fall. Still, sales show a worrisome downward trend. According to IDC's worldwide server tracker report,the 6.2% second-quarter revenue drop is the second consecutive quarter of slumping sales. Unit shipments decreased 1.2%, the third straight quarter that measure has declined. Companies are buying less-expensive and fewer servers.
The forces driving the market are data center consolidation, virtualization and migration to more efficient infrastructures with higher density and higher application consolidation ratios, says Matt Eastwood, IDC's group VP and general manager of enterprise platforms. Those drivers stress server makers trying to "offset weak demand for generally higher-margin Unix and blade servers with lower-margin rack- and density-optimized servers," says Eastwood.
Andrew Feldman, who co-founded server maker SeaMicro and is now a VP and general manager at AMD, which acquired SeaMicro last year, sees this shift firsthand from his vantage point developing high-density systems. "Enterprise buying of servers is shrinking," Feldman says. "The big buyers are service providers like Google and Facebook." These companies focus on putting many users on many very-low-cost servers. And the explosion in mobility is feeding this trend. "The workloads that are growing fastest aren't in the enterprise, like ERP or CRM," he says.
Server Market SplitsvilleJust 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.