Big iron sellers grow shipments, shrink revenues
The box counters at Gartner have released their statistics for the worldwide server market in the third quarter of 2008, and the numbers are not good. But if there is an upside as we deal with the economic meltdown, the numbers could have been worse. And maybe they will be in 2009.
But let's deal with 2008. In the third quarter spanning July to September, Gartner reckons that server makers around the globe pumped out some 2.32 million machines, an increase of 4.4 per cent in unit shipments compared to the third quarter of 2007. But because x64 server makers cut prices to maintain sales volumes and then increased them and because customers shopping for big iron like RISC/Unix servers put their plans on hold as they awaited some sort of clarity in the economy, aggregate server revenues worldwide shrunk 5.4 per cent to $12.72bn.
And not one of the top tier server makers - IBM, Hewlett-Packard, Dell, Sun Microsystems, and Fujitsu - was able to grow sales in the quarter, and the Others category didn't do so hot either. In fact, the revenue market shares didn't change all that much in Q3 this year compared to last year. Basically, HP and IBM gained what Sun lost - and we're talking fractions of a point of market share.
"Server shipments grew in the third quarter, but the specter of constrained economies and tightened credit was felt in the revenue area," explained Jeffrey Hewitt, the research vice president at Gartner in charge of the server market modeling, in a statement accompanying Gartner's stats.
"What we've seen is larger system purchases in the Unix area put in check. At the same time x86 servers were able to maintain some shipment momentum, but lower overall average x86 server selling prices resulted in a drop in revenue in the quarter for this server type as well. Evidence of a challenged RISC-Itanium Unix server area appeared in a fall of 16.1 per cent in shipments and 10.8 per cent in revenue."
It is hard to say what part of market share matters more, revenue or shipments, but in the server space, mastery of either one can lead to what really matters: profits. No vendor has mastered both, although many have tried.
In terms of revenues in Q3, IBM once again came out on top, with $3.86bn in sales, down 4.2 per cent, a decline a little less than the overall market thanks in large part by growth in the sales of Power Systems AIX-i-Linux boxes and System z mainframes. IBM added a whopping 3/10ths of a point of share for all that effort. Hewlett-Packard took up its traditional second pole position in the Gartner rankings, with $3.79bn in sales, down 3.9 per cent and giving HP an extra 4/10ths of a percent of share. Dell fell more or less with the market, with sales down 5.2 per cent to $1.5bn, and yielding the same 11.8 per cent of the global server pie that Dell had a year ago.
Sun came in fourth when ranked by sales, with $1.16bn in boxes sold, a decline of 13.7 per cent from the year-ago quarter. The Fujitsu-Siemens partnership (soon to be just Fujitsu since the Japanese company is buying out its German partner) accounted for $616.7m in sales, down 7.3 per cent and obviously falling faster than the market at large. Other vendors - and there are dozens of tier three, white box, and boutique server makers still out there - accounted for $1.79bn in sales in the quarter, according to Gartner, giving them 14.1 per cent of the server revenue pie, a piece that shrank slightly less fast than the market at large.
If shipments are any measure of effort, you can't blame the server makers for trying to cut price to boost demand. HP's server shipments, thanks almost entirely to its ProLiant rack and tower and BladeSystem blade server lines, accounted to 724,024 server shipments in the quarter, or 31.2 per cent of the boxes and representing an 11.4 per cent growth rate over shipments a year ago. HP pumped up the volume like it was a normal quarter, and seems to have cut prices as if it was not.
Dell came in as the second largest server shipper, getting 500,470 boxes out the door, for a 21.6 per cent share of the shipment pie and growing 3.3 per cent (or slower than the market at large) compared to Q3 2007. IBM was the number three shipper in Q3, as it has been for many years, with 308,524 boxes flying out of its global factories, down 3.5 per cent. When it reported  its Q3 financial results back in October, IBM said that its System x rack and tower sales were down 18 per cent and its BladeCenter blade server sales were off 8 percent, and this hurt IBM's shipments.
Sun was the number four shipper, and actually grew shipments, albeit at a slower rate than the market at large. Sun shipped 81,522 boxes in the quarter, according to Gartner, an increase of 2.9 per cent over Q3 2007, and giving the company a paltry 3.5 per cent of the shipment pie. (A little more than one-tenth the size of HP's shipments). Fujitsu-Siemens had 73.578 servers shipped in the quarter, down 3.8 per cent and giving it 3.2 per cent of shipments worldwide.
Combining Sun, Fujitsu, and Siemens together just to get larger revenue and shipment numbers seems like a good idea - one that neither Sun nor Fujitsu seem inclined to listen to.
Anyway, other vendors selling servers in the third quarter of 2008 accounted for 629,863 boxes, up 3.1 per cent and accounting for 27.2 per cent of the servers sold. (Maybe Sun or Fujitsu should change their names to Others?)
Drilling down a little bit into the numbers, Gartner said that in the ever-popular and usually profitable RSIC-Itanium/Unix server space, shipments were down 16.1 per cent to 86,646. This is 16,613 boxes that didn't get sold to stay at the baseline set in Q3 2007. All the Unix vendors saw shipment decline - except NEC, which has a tiny share but saw its shipments nearly triple to 285 boxes. HP and Fujitsu had the biggest Unix server shipment declines, according to Gartner, with boxes sold in Q3 down 24.2 per cent and 36.6 per cent, respectively. IBM had an 11.9 per cent shipment decline, and even Sun, which has been getting a little more traction lately, had an 8.3 per cent decline in its Unix server sales.
The Unix space accounted for $3.36bn in sales worldwide in the third quarter of 2008, about 26.4 per cent of total revenues. And because Big Blue has been selling a lot of big Power Systems machines, the company is the clear revenue leader in Unix - something that would have seemed impossible back in February 1990 when IBM launched the RS/6000 as a second-rate Unix vendor with big aspirations to take on HP and Sun. IBM had $1.2bn in Unix server sales in the quarter, reckons Gartner, compared to $963.8m for Sun and $923.9m for HP. The Fujitsu-Siemens partnership accounted for just under $146m in Unix sales in Q3, declining 35 per cent and dragging the market down bigtime.
If Sun and Fujitsu-Siemens had already merged - and assuming no revenue overlap between the two companies - the combined company would have $1.11bn in Unix server sales.
The x64 chip is what drives both server volumes and server revenues these days, and these kinds of boxes, which mostly run either Windows or Linux, accounted for $7.15bn in sales in the quarter, down 6.6 per cent by Gartner's numbers. x64 server shipments were up 5.5 per cent in the quarter to 2.22 million units. If you do the math, the average selling price (ASP) of an x64 box fell by 11.5 per cent in the quarter to $3,217. HP's ASPs in the x64 space fell more, by 13.2 per cent, but the company's average price was higher at $3,606 too, so it wasn't all bad.
Dell, which sells a lot of low-end boxes directly to small and medium businesses, saw its ASP for x64 boxes (the only kind it sells) fall by only 8.2 per cent, but the company's ASP dipped a few bucks below $3,000. IBM took the biggest ASP hit, falling by 16.9 per cent. But because IBM tends to sell fatter x64 boxes, that ASP was nonetheless higher at $4,025. Still, IBM took the biggest revenue hit on ASPs, and that is why its sales were down so much in the quarter. SMP boxes that can deliver 8 or 16 cores are getting cheaper, and that puts pressure on all x64 boxes and drags down Unix and proprietary revenues too.
Basically, the server business is about as friendly as the global car business. The big difference: Americans aren't a worldwide joke in the server biz. ®