Server biz bouncing back to boom times

Oracle, Cisco, others party like it's 2008

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Server makers got good news from IDC earlier this week, and now the box counters at Gartner are providing tidings of good first-quarter cheer.

In the quarter ended in March, Gartner reckons that revenues from servers sold both directly by vendors and through their channel partners accounted for $12.7bn – that's an increase of a healthy 17.3 per cent compared to the year-ago period. Unit shipment were – obviously – up as well, rising by 8.5 per cent to over 2.3 million boxes.

These numbers are a bit higher than what IDC calculated, since IDC bases its figures on vendor factory revenues, and not the server price after the reseller mark-up. The numbers sometimes get out of phase, as was the case in Q1, depending on how vendors are stuffing their channels – or not – and what kind of demand there is from end-user companies.

The most interesting bit of contrast in the two sets of numbers is that Gartner's model shows Oracle growing a lot faster than IDC's model. IDC said that Oracle's system sales rose by 13.6 per cent, slightly ahead of the overall market, to $773m. Gartner thinks that Oracle's revenues in Q1 grew by a much more impressive 33.6 per cent, to $798.6m – and that was against a shipment decline of 13.5 per cent to 36,795 boxes.

It appears that Oracle has gotten some traction with its Exadata and Exalogic appliances, and probably with upgraded Sparc machines in the T and M series, as well.

While Oracle's growth is impressive, it bears pointing out that Oracle is growing from some easy compares from the year-ago period. Also, three years ago – before the Great Recession kicked in – then-independent Sun Microsystems, from whence Oracle's server biz came, had a sales decline of seven-tenths of a per cent in Gartner's server model to $1.32bn.

Sun's server business doesn't have anywhere near the heft that it used to, if that matters. To its credit, Oracle has pared down Sun's unprofitable server efforts and made Sun something it should have been all along: profitable and growing. Sun's decline is no less dramatic than the proprietary mainframe and minicomputer implosion that nearly killed IBM in the early 1990s, or the hammering that HP took in the Unix and proprietary server space the wake of the Compaq merger in the early 2000s.

I would point out that all three major contractions mentioned above coincided with global recessions. Crunches happened to IBM and HP because they didn't react to changing market conditions quickly enough, but Oracle took Sun by the seat of the pants and made the changes the company was unwilling to do to right itself.

By Gartner's reckoning, Fujitsu is quite a bit smaller in Q1 2011 than it was three years ago as well, and that's because its Sparc-related server business is under pressure. Three years ago, Fujitsu (combined with then-separate partner Siemens) accounted for $732m in server revenues. But in Q1 of this year, Fujitsu (which eventually ate the Siemens server business) only brought in $592m in server sales, down 8.3 per cent.

Maybe Oracle and Fujitsu are chasing the same Sparc SMP system and x64 database cluster accounts and Oracle is winning more of the deals. Maybe Fujitsu is focusing more on Xeon-based systems, which cost less than Sparc systems.

With IBM's Power Systems lineup refreshed late last summer, and its System z mainframes as well, IBM ran out of excuses – and thanks to rebounding sales of these machines, it was able to increase revenues in the first quarter by 23.3 per cent to $3.76bn.

How long growth will hold up for Big Blue is unclear. It's reasonable to guess that the server rebound at IBM will start losing steam, probably in the third quarter and certainly by the fourth quarter, because of tough compares. You can sell only so many mainframes and big AIX boxes in North America and Europe, and Asia can't carry the world. If the Western economies suddenly start doing better, that's a different story entirely.

While IBM grew more than HP, according to Gartner's reckoning, HP still managed to increase revenues by 12.9 per cent to $3.83bn, giving it the top spot. HP's shipment growth in the first quarter was not great, rising only 2.3 percent to 687,500 boxes. Dell was the number-two shipper, with 508,650 boxes going into customer accounts, down four-tenths of a per cent, but it increased its revenues to $1.89bn, up 13.1 per cent.

IBM shipped 272,238 machines in Q1, up a mere 1.6 per cent, and Fujitsu pushed 76,648 machines, down 1.2 per cent.

So what's going on here? Cisco Systems and a slew of whitebox vendors seem to be eating into the business of the big boys. Gartner reckons that Cisco's server revenues nearly quintupled to $194.4m in Q1. Cisco sells only x64-based machines, and managed to get a 2.3 per cent slice of the x64 server pie and a number-five ranking – beating out Oracle and NEC.

It's noteworthy that services providerslike Rackspace Hosting are moving away from the top five and towards whitebox vendors to get more server bang for their bucks. In any event, the Others group in the Gartner report card saw shipments rise by 30.5 per cent to 725,654 units, and revenues rose by 24.9 per cent to $1.8bn. Something is up.

Gartner doesn't release public information on server shipments and revenues based on operating systems, but the company does carve out separate data for x64 servers and RISC and Itanium servers running Unix.

The x64 server refresh cycle and cloud build-out continued apace in the first quarter. Gartner believes that companies consumed 2.25 million x64-based machines in the first quarter, up 8.6 per cent from a year ago. These machines generated $8.47bn in revenues, up 17.5 percent. HP pushed just over $3bn in x64 tin in the quarter, giving it the top money ranking. All Dell and Cisco sell are x64-based machines. IBM sold $1.32bn in x64 machines, and Fujitsu did $333.9m, Gartner reckons.

The paucity of boxes in the RISC/Itanium Unix sector of the server space continues to shock, but there is clearly money to be made there.

Gartner says the Unix collective enjoyed a 20.7 per cent revenue pop, up to $2.6bn, in the first quarter against shipments of a mere 48,504 machines, up 5.2 per cent from a year ago. IBM is the clear leader in Unix server revenues, and its Q1 revenues rose by 25.6 per cent to $1.19bn. HP ranked number two, with Unix server sales up 6.7 per cent to $639.3m.

However, if HP doesn't get the stick out soon, Oracle will be putting out press releases saying that it is now the number-two Unix vendor and is gunning for number one. Oracle's Unix server sales rose by 34.4 per cent to $610.8m, says Gartner. Interestingly, Oracle shipped 19,097 Unix machines, compared to IBM's 18,548. HP only pushed out 8,527 Unix boxes. Fujitsu peddled 2,105 machines and raked in $126.2m. ®

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