Second Quarter Server Market Continues to Accelerate, Future Growth Remains Uncertain,...

Second Quarter Server Market Continues to Accelerate, Future Growth Remains Uncertain, According to IDC

FRAMINGHAM, Mass.--(Business Wire)--
According to IDC's Worldwide Quarterly Server Tracker, factory
revenue in the worldwide server market grew 6.4% year over year to
$13.9 billion in the second quarter of 2008 (2Q08). This is the ninth
consecutive quarter of positive revenue growth and the highest Q2
server revenue since 2000. Unit server shipments grew 11.1% year over
year in 2Q08 driven by a sustained refresh cycle and an expansion of
infrastructures across enterprise, SMB, and cloud computing
environments.

Although volume systems revenue grew 2.1% in 2Q08, they
underperformed the market for the first time since 4Q06 as server
OEM's experienced strong pricing pressure in the marketplace. Revenue
for midrange enterprise servers increased 1.5% year over year and the
high-end enterprise server market showed a 22.1% increase year over
year. This is the second consecutive quarter that the high-end
enterprise segment has outperformed the volume and midrange enterprise
market segment.

"The server market has experienced acceleration in revenue growth
over the past 4 quarters. Customers around the globe continue to
deploy a wide range of technologies to meet their computing needs and
as a result IDC saw strong growth in blades, Unix systems, and IBM
System z demand across the marketplace. Diversity in market demand
demonstrates customers do not believe a single standardized
infrastructure is capable of meeting all their computing needs," said
Matt Eastwood, group vice president of Enterprise Platforms at IDC.
"At the same time, the pricing challenges many OEMs experienced,
particularly in the x86 server market, is a concern as it may
foreshadow a slowdown in market demand as enterprise budgets face
further scrutiny in the second half of 2008."

"The refresh cycle we're currently seeing in the midrange and
high-end segments is part of the IT transformation cycle that is
continuing as older, scalable systems (with 4 sockets, 8 sockets, or
more) are being replaced, either by new scale-up servers or by groups
of scale-out servers," said Jean S. Bozman, research vice president in
the Enterprise Platforms Group. "The growth in midrange and high-end
servers this quarter shows that customers still see value in
leveraging these scalable servers, with built-in high availability and
RAS features, for some of their most mission-critical workloads and
for workload consolidation."

Overall Server Market Standings, by Vendor

IBM held onto its number 1 spot in the worldwide server systems
market with 33.2% market share in factory revenue for 2Q08 growing
factory revenue by 13.8% year over year. This growth was driven by
solid performance from its System z and System p servers. HP
maintained the number 2 spot with 27.4% share for the quarter, growing
revenue 3.1% compared to 2Q07. HP's growth stemmed from strong
Integrity server and BladeSystem performance. Dell captured the third
position with factory revenue growth of 14.1%, increased their market
share by 0.9 points year over year. Sun held the number 4 position
with a factory revenue decline of 7.2% year over year.

Top-Level Server Market Findings

-- Linux servers posted year-over-year revenue growth of 10.0%,
for a total of $1.9 billion in the quarter. Linux servers now
represent 13.4% of all server revenue, up from 9.4% a year
ago.

-- Unix servers experienced year-over-year revenue growth of
7.7%. The high-end enterprise segment of the Unix market was
strongest of all three segments (volume, midrange enterprise
and high-end enterprise), as worldwide Unix revenues totaled
$4.6 billion in 2Q08, representing 32.7% of quarterly server
spending. Unix servers account for the second-largest segment
of spending, by operating system in the worldwide server
market.

-- Microsoft Windows server revenue was $5.1 billion in 2Q08,
showing 1.7% year-over-year growth and comprising 36.5% of all
server revenue in the quarter. Windows servers account for the
single largest segment of spending, by operating system, in
the worldwide server market.

-- IBM's System z servers running z/OS experienced the second
consecutive quarter of positive revenue growth, with 31.7%
year-over-year growth in 2Q08 to $1.6 billion. IBM mainframes
running the z/OS operating system accounted for 11.8% of all
server revenue in 2Q08.

"IBM regained the top spot in Unix market share on the strength of
its Power-based System p and merged Power Systems families, growing
revenue nearly 25.7% in the quarter and gaining 5.1% points in
year-over-year comparisons," said Steve Josselyn, research director
for Enterprise Platforms at IDC. "Sun took second position with 31.1%
share, posting a drop of 5.6% points from a year ago, and HP rounds
out the top three with 25.8% share and a gain of 1% point. Overall,
the Unix market remains a significant source of revenue and
competition among the top three suppliers."

x86 Server Market Dynamics

x86-based systems experienced their slowest growth rate in 23
quarters (since 3Q02), as x86 server market growth decelerated in
2Q08, growing 3.0% year over year to $7.0 billion worldwide. 2Q08 was
also the first quarter that spending for non-x86 systems outpaced
revenue growth for x86-based systems since 4Q00. Unit shipment growth
continued with a healthy gain of 12.4% to 2.0 million servers.
Although x86 systems continue to be deployed for an increasing array
of workloads across the industry, the pricing climate was clearly
difficult as average selling values declined 8.4% year over year. Dell
exhibited the strongest x86 revenue growth of the top 5 OEMs,
increasing factory revenue 14.1% year-over-year and gaining 2.4 points
of share. HP led the market with 33.9% x86 revenue share, followed by
Dell in second place with 24.7% revenue share and IBM in the third
position with 16.3% revenue share.

"While all the major vendors exhibited strong unit growth, there
was significant price competition throughout the quarter," said Jed
Scaramella, senior research analyst for Datacenter Trends at IDC.
"Low-end volume servers, such as 1- and 2-socket systems, are somewhat
viewed as commodities and experienced the most pricing pressure.
Additionally, the quarter was made noteworthy by the fact that several
of the tier-one vendors began shipping their new systems targeting
large-scale datacenters. Typically, these are stripped down servers
that are designed to operate at maximum power efficiency. All
components and features that are not essential, including server
redundancy, are eliminated to reduce the capital expenditure of these
datacenter customers."

Blade Server Market Shows Strong Shipment and Revenue Growth

Although blade revenue decelerated slightly in 2Q08,
year-over-year revenue growth of 40.8% in 2Q08 was the third fastest
over the past 2 years. Overall, bladed servers, including x86, EPIC,
and RISC blades, accounted for $1.2 billion in the second quarter,
representing 8.8% of quarterly server market revenue. HP held the
number 1 spot in the blade market with 53.3% market share and IBM held
the number 2 position with 24.8% share. Dell and Sun also exhibited
solid blade revenue growth in 2Q08 and increased their respective
market share position in the process.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue,
Second Quarter of 2008

(Revenues are in Millions)

-0-
*T
2Q08/2Q07
2Q08 Market 2Q07 Market Revenue
Vendor Revenue Share Revenue Share Growth
1. IBM $4,633 33.2% $4,071 31.1% 13.8%
2. Hewlett-Packard $3,823 27.4% $3,709 28.3% 3.1%
3. Dell $1,740 12.5% $1,526 11.6% 14.1%
4. Sun Microsystems $1,562 11.2% $1,683 12.8% -7.2%
5. Fujitsu/Fujitsu Siemens $531 3.8% $542 4.1% -2.0%
Others $1,648 11.8% $1,573 12.0% 4.8%
All Vendors $13,937 100.0% $13,103 100.0% 6.4%
*T

Source: IDC's Worldwide Quarterly Server Tracker, August 2008

IDC's Server Taxonomy

IDC's Server Taxonomy maps the eleven price bands within the
server market into three price ranges: volume servers (servers priced
less than $25,000), midrange enterprise servers ($25,000 to $499,999),
and high-end enterprise servers ($500,000 or more). The revenue data
presented in this release is stated as factory revenue for a server
system. IDC presents data in factory revenue to determine market-share
position. Factory revenue represents those dollars recognized by
multi-user system and server vendors for ISS and upgrade units sold
through direct and indirect channels and includes the following
embedded server components: Frame or cabinet and all cables,
processors, memory, communications boards, operating system software,
other bundled software and initial internal and external disk
shipments.

IDC's Worldwide Quarterly Server Tracker is a quantitative tool
for analyzing the global server market on a quarterly basis. The
Tracker includes quarterly shipments (both ISS and upgrades) and
revenues (both customer and factory), segmented by vendor, family,
model, region, operating system, price band, CPU type, and
architecture. For more information, please contact Hoang Nguyen at
508-935-4718 or hnguyen@idc.com.

About IDC

IDC is the premier global provider of market intelligence,
advisory services, and events for the information technology,
telecommunications, and consumer technology markets. IDC helps IT
professionals, business executives, and the investment community make
fact-based decisions on technology purchases and business strategy.
More than 1,000 IDC analysts provide global, regional, and local
expertise on technology and industry opportunities and trends in over
110 countries. For more than 44 years, IDC has provided strategic
insights to help our clients achieve their key business objectives.
IDC is a subsidiary of IDG, the world's leading technology media,
research, and events company. You can learn more about IDC by visiting
www.idc.com.

All product and company names may be trademarks or registered
trademarks of their respective holders.

IDC
Matt Eastwood, 508-935-4503
meastwood@idc.com
or
Jed Scaramella, 508-935-4596
jscaramella@idc.com
or
Michael Shirer, 508-935-4200
press@idc.com

Copyright Business Wire 2008