Server racket to slow in 2009?

Upgrade Cycle v Meltdown

Choosing a cloud hosting partner with confidence

With some 2 million-plus physical boxes still being shipped every quarter on a global basis, the server racket is still a pretty good one. In the first three quarters of 2008, vendors peddled some $40bn in gear, and if you use IDC data as a gauge, they've collectively managed to boost revenues by 3.5 per cent for the year so far. For all intents and purposes, the fourth quarter of 2008 is done in terms of server sales, but we won't know how well or how poorly vendors performed in Q4 for a few months yet. It takes time to dice and slice the numbers.

A lot will depend on what gear was already in the budget for an upgrade and what gear can be put on hold for one, two, or maybe three quarters until the global economy improves. Just to break even for the year and bring in $54.4bn in server revenues for 2008, the fourth quarter can decline by more than 8 per cent to $14.4bn. That would more or less match server sales levels in the fourth quarter of 2005, when just under 2 million units went out the door.

In last year's fourth quarter, vendors boosted shipments by 9 per cent, pushing sales up 2.4 per cent to $15.7bn. Windows and Linux were the big drivers for growth in 2007, helping to push sales up by 3.6 per cent to that $54.4bn - the highest levels the server market has seen for a year since 2001 - with shipments up 6.7 per cent to 8 million units. However, it is helpful to remember that this is still well off the peak for the server biz, which was 2000, when the world shelled out $61.6bn thanks to the dot-com, Y2K, and ERP booms.

Given the state of the economy, which is putting pressure on IT budgets, chief information officers no doubt want to use virtualization to make the machines they have today and the ones they plan to buy tomorrow more efficient. The increased competition among vendors to close deals and the fact that customers undoubtedly know that vendors are hungry for deals makes it hard to imagine that the fourth quarter of 2008 will see substantial revenue growth for servers.

And the ongoing pressures on component prices engendered by Moore's Law is going to make it difficult in the years ahead to keep ASPs up. You can't get a customer to buy a four-socket box with a $100,000 price tag when a two-socket machine has as many cores and as much memory as a four-socket box from last year or the year before for a fraction of the price. While there are always some customers who need bigger iron, the vast majority get by with two-socket machines, and if they need to scale their applications, they scale out their infrastructure rather than scaling it up with bigger SMP machines.

To be sure, virtualization is helping in the short term. Even though server virtualization reduces footprints (maybe by a factor or three or four for relatively recent iron, even more for most workloads running on older iron), it does boost ASPs somewhat because virtualized machines need more memory and CPU to run properly. Sometimes customers want new iron to run new virtualization hypervisors, especially since newer x64, RISC, and Itanium processors have features that help hypervisors run more efficiently.

Some hypervisors actually require hardware features to operate and will not run on older iron. But virtual private server virtualization tools (like Sun Microsystems' Solaris containers and Parallels' Virtuozzo, just to name two) can work on older iron. So can VMware's freebie hypervisor and its more elaborate ESX Server.

Throughout 2008, when the economy was dicey but not dire, customers with midrange and high-end servers were in the midst of an upgrade cycle that helped prop up the whole market. Updated Unix iron from IBM and the Sun-Fujitsu partnership as well as updated mainframes from IBM and Unisys helped push sales. In the second quarter, x64 server revenues started to cool, but the desire to virtualize and update aging x64 boxes kept this segment of the market from decline.

The upgrade cycle for x64 processors that have many cores and that have hardware-assisted virtualization is a strong one, and it can buck some economic trends because of the efficiencies virtualization brings to IT shops. So x64 server sales will probably hold in the fourth quarter, despite the economy, because inertia is a real force in the data center and many companies already made their upgrade plans.

But momentum can change in the data center too, and it is hard to say what all of 2009 holds in store. The relatively thin survey data I have seen from a number of sources suggests that customers are going to curb server buying ahead of other IT areas. But this is exactly what you would expect them to say. It is always helpful to remember that what people say they are going to do at the beginning of a year and what they end up doing by the end of that year do not always match up.

No matter what, in 2009 the pressure will be on vendors to decrease their prices to win deals, and some will be tempted to try to make it up in volume. But you can only do that for so long before you start losing your shirt. If the business climate is as poor as many expect, then revenue and shipment declines in the server racket seems inevitable - which means it will be a buyer's market. At best, sales may hold steady and shipments may stabilize between 5 to 10 per cent growth over 2008 for the whole year. Either way, 2009 is shaping up to be a real pressure cooker, and it will be interesting to see who ends up being stew. ®

Secure remote control for conventional and virtual desktops

More from The Register

next story
Fat fingered geo-block kept Aussies in the dark
NASA launches new climate model at SC14
75 days of supercomputing later ...
Yahoo! blames! MONSTER! email! OUTAGE! on! CUT! CABLE! bungle!
Weekend woe for BT as telco struggles to restore service
Cloud unicorns are extinct so DiData cloud mess was YOUR fault
Applications need to be built to handle TITSUP incidents
NSA SOURCE CODE LEAK: Information slurp tools to appear online
Now you can run your own intelligence agency
BOFH: WHERE did this 'fax-enabled' printer UPGRADE come from?
Don't worry about that cable, it's part of the config
Stop the IoT revolution! We need to figure out packet sizes first
Researchers test 802.15.4 and find we know nuh-think! about large scale sensor network ops
Trio of XSS turns attackers into admins
SanDisk vows: We'll have a 16TB SSD WHOPPER by 2016
Flash WORM has a serious use for archived photos and videos
prev story


Why cloud backup?
Combining the latest advancements in disk-based backup with secure, integrated, cloud technologies offer organizations fast and assured recovery of their critical enterprise data.
Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Designing and building an open ITOA architecture
Learn about a new IT data taxonomy defined by the four data sources of IT visibility: wire, machine, agent, and synthetic data sets.
How to determine if cloud backup is right for your servers
Two key factors, technical feasibility and TCO economics, that backup and IT operations managers should consider when assessing cloud backup.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.