Server revenue could slow in 2008, after strong 2007

The global server market witnessed revenue gains in the fourth quarter of 2007, driven by increased IT spending and a growing adoption of x86 and blade servers.

The global server market could be headed for a slowdown this year, market researcher IDC said Wednesday, after one of the strongest years ever in 2007.

Server revenue in 2008 could be impacted as the market looks for an economic slowdown in 2008, IDC said.

"The impact of the economy on the IT infrastructure market will depend on the duration and severity of the downturn," group vice-president at IDC, Matt Eastwood, said. The housing and mortgage crisis in the US could have a ripple effect around the globe and slow down consumer spending, Eastwood said.

"Some projects may well be deferred and this could have some impact on the market and flatten out growth during 2008," Eastwood said. However, he doesn't expect a massive reduction in server spending to occur in 2008.

That said, slower spending could give legs to initiatives such as consolidation of IT resources and virtualization which have fairly short paybacks and high return on investments. "These types of projects will be largely recession proof particularly in the enterprise space," Eastwood said.

Concerns for a server market slowdown in 2008 come on the heels of strong revenue growth in 2007, which was driven by increased IT spending and a growing adoption of x86 and blade servers.

Server revenue hit $US15.65 billion in the fourth quarter, boosting 2007 to its highest level since 2000, research vice-president at IDC, Jean Bozman, said.

Full year server revenue reached US$54.42 billion, the highest since it topped US$61.6 billion in 2000, following which the dot-com bust contributed to an economic downturn and dropped server revenue, Bozman said. Worldwide server unit shipments for 2007 were 8 million, an increase of 6.7 per cent from the previous year.

IBM topped the 2007 full year server revenue rankings at US$17.3 billion, for a 31.9 per cent market share and 1.1 per cent yearly growth. Hewlett-Packard was second at US$15.4 billion in revenue, followed by Dell, which had US$6.15 billion and recorded the strongest yearly growth, 12.4 per cent.

The fourth quarter of 2007 was the seventh straight quarter in which server revenue posted gains, Bozman said. It was driven by a rapid rise in blade server revenue, which countered a quarterly year-over-year fall in revenues from high-end and mid-range servers.

During the quarter, blade server revenue grew 54.2 per cent and shipments increased 35.6 per cent, IDC said. The server infrastructure is moving towards modularization, adopting technologies like blade servers that drive up scalability without huge investments, IDC said.

IBM retained the top spot in fourth-quarter revenue, hauling in US$5.75 billion, up 0.5 per cent over the previous year and good for a 36.7 per cent share of the market. Hewlett-Packard, in second place, had server revenue of US$4.34 billion, up 6.3 per cent. Dell took third place, recording revenue of US$1.58 billion, a 6.8 per cent increase. Sun's server revenue dropped 2.4 per cent year-over-year to $1.46 billion, and it fell to fourth from third place in the ranking. Fujitsu/Fujitsu Siemens saw quarterly revenue shoot up 7.1 per cent to US$666 million to come in fifth.

Though Windows OS servers generated the largest quarterly revenue, Linux-based servers grew the most in terms of revenue, according to IDC. Linux-based servers generated US$2 billion in revenue, growing 11.6 per cent year-over-year and representing 12.7 per cent of market share. Windows server revenue was US$5.7 billion for the quarter, a 36.6 per cent market share and 6.9 per cent growth. The revenues were all-time highs for both platforms, IDC said.

Unix server revenue grew only 1.5 per cent to US$5.2 billion. The growth was mainly driven by IBM's strong System p business, IDC said.

Revenue for x86 servers was US$7.8 billion during the fourth quarter, a 7.6 per cent year-over-year increase. HP led in x86 server revenues, with 35 per cent, followed by IBM and Dell, with 20 per cent apiece.

The study calculated revenue from high-end servers, mid-range servers, blade servers and servers that ship in volume, like x86 servers.

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