Virtualization software to crush server market
Or maybe not
Analysis Virtualization software will apparently cripple the low-end server market.
Analysts and executives came out this week and declared that x86 server shipments will likely decline as VMware, Microsoft and a host of start-ups push their virtualization wares at speed. This thesis du jour centers on the notion that customers will buy fewer low-end systems, since they'll be running more software per box thanks to virtualization technology.
While this may feel like an obvious transition, most server and chip vendors have been arguing against the slowdown idea over the past couple of years. Even when blessed with cost or space saving tools, computer users tend to keep right on buying more gear and just use technology advances to cram greater horsepower in the same space. Now you're being told that virtualization technology will buck this trend.
For example, Sun Microsystems CEO Jonathan Schwartz blamed virtualization technology for Sun's declining server revenue, during a call yesterday with financial analysts to discuss Sun's fourth quarter results. Schwartz told the analysts that virtualizaton in the near-term appears to have a "depressing" effect on units.
Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., has chipped in on the gloom and doom scenario as well in a new research report.
"As the use of server virtualization rises, a negative impact on x86 server demand appears all but inevitable," he wrote. "While we still forecast positive x86 server unit growth in 2007 and 2008, our forecast calls for shipments to contract in 2009 and for growth to be about zero between 2007 and 2012, compared with historical double-digit gains."
In a rare feat, Schwartz and Sacconaghi also happen to agree about another trend that virtualization will drive. They're claiming that customers will buy larger, more memory- and component-packed servers moving forward to handle the demanding virtualization code. Why consolidate a couple of workloads on a two-socket box when you can consolidate more software on a four- or eight-socket system and deal with less hardware management overhead?
According to Sacconaghi, the trend toward larger systems will hurt Dell, since it has specialized in two-socket gear. It will, however, also hurt Sun, since x86 virtualization will only speed the move away from Unix systems.
Schwartz disagreed here - you're shocked, we know - arguing that Sun's larger system expertise will help it benefit from the virtualization charge. Sun can sell you larger x86 boxes, and it can offer Solaris Containers - arguably a cheaper and more efficient form of virtualization than VMware - on either Unix or x86 kit. In addition, customers doing the virtualization thing tend to "buy more integrated racks rather than piecemeal components," according to Schwartz, which signals higher margin deals for Sun.
Our take on the overall server market tends to overlap liberally with the views held by Schwartz and Sacconaghi. But we're seeing things differently this time around.
The major driver behind our skepticism is the relentless desire for more compute power demonstrated by customers again and again. The only time the server market really crawls to a halt is when there's no money to spend on new gear because of a broad economic slowdown. Given the moderately healthy state of the worldwide economy, and surging demand from developing regions, it seems unreasonable to us to expect that customers will not find a need for the multi-core chips being thrown at them by Intel, AMD, Sun, IBM, Fujitsu and others.
Evidence for this horsepower pursuit can be found in the healthy hardware-based acceleration market. There's a resurgent desire for things such as FPGAs and GPGPUs (general purpose GPUs) that can speed specific workloads.
In addition, we're seeing a rise in the creation of so-called mega data centers by service providers. These customers may seem nichey, but they consume an awful lot of hardware and have yet to show a voracious appetite for virtualization software. They tend to buy cheap, lower-end systems and to run one application per box or to spread software across an entire data center.
Companies embracing the software as a service model seem destined to follow these service providers, opting for lighter weight boxes that can chew through threads and data.
And that brings us to the last point.
The x86 virtualization cheerleading seems to hinge on the ideas that the software from VMware, Microsoft and others will run well on increasingly cored chips and that customers will stomach paying for virtualization software and for the gobs of memory needed to power the code. VMware, for example, remains a bit clunky and isn't likely to enjoy any help from rising GHz, since GHz aren't rising. The company is working directly with chip makers on hardware hooks that improve performance but how will this work stack up against multi-threaded code running alone on a single box?
Customers will no doubt opt to place certain software loads on virtualized systems, while placing applications that need to fly on their own systems. So, in that sense, virtualization must have an impact an overall sales.
But the models being presented this week seem to discount altogether the rising SaaS model and the idea that coders will soon find novel, demanding uses for multi-core x86 processors.
The mainframe arena - the place where VMware pinched its genius - has survived virtualization for a long while, as has the Unix market. Each segment, including the x86 market, has its unique attributes, making apples v. apples comparisons tough. Still, customer demand for more horsepower serves as constant across all three markets, and we suspect it will keep overall demand for servers high, despite virtualization code. ®