Server Market Sees Largest Drop In Six Years

In the U.S., weak demand and intense price competition drove x86 server revenue down 12.2%, according to IDC's numbers.
The global server market in the third quarter suffered its largest revenue drop in nearly six years as technology spending slowed around the world, a market research firm said Wednesday.

Revenue fell 5.2% from the same period a year ago to $12.6 billion, according to IDC. The number of units shipped grew by 2.8% in the period, but it was the slowest increase since the fourth quarter of 2006. The revenue drop was the lowest since the last quarter of 2002.

"The uncertain future of the global economy appears to have affected IT budgets across the board," IDC analyst Daniel Harrington said in a statement.

A wide range of traditional server technologies were hurt by the slowdown. Revenue from low-priced volume systems, which are primarily x86 servers, fell 7.2% in the quarter, the first decline in this market segment in more than 14 quarters, IDC said. An exception was blade servers, which saw a revenue increase.

In the United States, weak demand and intense price competition drove x86 server revenue down 12.2%, the most since 2001, IDC said.

In the midrange of the market, revenue fell 9.5% worldwide, but the high-end server market saw a 4% increase, the third consecutive quarter of growth for the segment. Nevertheless, overall demand took a hit in the economic downturn.

"Enterprise budgets continue to face increased scrutiny as IT organizations of all types look to run their hardware harder and defer acquisitions wherever possible," IDC analyst Matt Eastwood said.

In terms of revenue, Hewlett-Packard and IBM ended the third quarter in a statistical tie with 30.7% and 30.2% overall market share, respectively, IDC said. HP experienced a 2% year-over-year revenue decline and IBM saw a 3.1% drop, despite a 24.8% revenue increase in its System z business. The mainframe servers represent 9.4% of all server revenue in the quarter.

"In the face of the worsening economic climate, IBM was still able to post significant growth in their mainframe business during the quarter," IDC analyst Steve Josselyn said.

Third-place Dell saw revenue fall 4.3% to a 12% share, while Sun Microsystems maintained its fourth-place position, despite a 10.9% drop. Sun ended the market with a 9.5% share. Rounding out the top five was Fujitsu/Fujitsu Siemens, which saw an 8.4% decline in revenue to end the quarter with a 5.3% share.

IDC released its numbers a day after rival Gartner, which reported that revenue for the global server market fell 5.4% in the third quarter to $12.7 billion. Server shipments rose 4.4% to 2.3 million units, according to Gartner.

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