Converged systems market is so hot it just went backwards

FY 2016 was okay, but Q4 was ugly, which may explain the SimpliVity fire sale and Nutanix's revenue warning

Converged systems are supposed to be the hot spot of the otherwise-troubled server and storage markets. Yet sales just dipped for 2016's final quarter, according to kit-counting firm IDC, and overall growth for the year was tepid.

The analysts' Worldwide Quarterly Converged Systems Tracker for 2016's final quarter found that revenues decreased 1.4 per cent year over year to $3.09 billion during the fourth quarter of 2016. That dip came despite such systems accounting for 1.6 exabytes of new storage capacity during the quarter, up what IDC calls “a moderate 4.0 per cent compared to the same period a year ago.”

IDC counts four different types of rig in its definition of “converged systems.” The firm distinguishes between “integrated infrastructure” and “certified reference systems” but gives both the definition of “pre-integrated, vendor-certified systems containing server hardware, disk storage systems, networking equipment, and basic element/systems management software.”

“Integrated platforms are defined as offering hardware plus “pre-integrated packaged software and customized system engineering optimized to enable such functions as application development software, databases, testing, and integration tools.” Hyperconverged systems are the likes of Nutanix, VxRail, Cisco's HyperFlex and so on.

Interestingly, IDC finds Oracle is just about alone in pursuing the integrated platforms market it pioneered with its Exadata appliances. Big Red's now moving to ensure its range can also do well in hybrid cloud configurations. Here's IDC's assessment of the integrated platforms niche.

Top 3 Vendors, Worldwide Integrated Infrastructure and Certified Reference Systems, Fourth Quarter of 2016 (Revenues in Millions)

Vendor 4Q16 Revenue 4Q16 Market Share 4Q15 Revenue 4Q15 Market Share 4Q16 /4Q15 Revenue Growth
1. Oracle $406.90 49.40% $362.50 40.20% 12.20%
T2* IBM $70.40 8.50% $116.70 12.90% -39.70%
T2* HPE $70.10 8.50% $74.80 8.30% -6.30%
All Others $276.10 33.50% $347.30 38.50% -20.50%
Total $823.50 100.00% 901.3 100.00% -8.60%

And here's the firm's look at the rest of the converged systems market.

Top 3 Vendors, Worldwide Integrated Infrastructure and Certified Reference Systems, Fourth Quarter of 2016 (Revenue in Millions

Vendor 4Q16 Revenue 4Q16 Market Share 4Q15 Revenue 4Q15 Market Share 4Q16 /4Q15 Revenue Growth
1. Dell Technologies $705.10 44.90% $1,043.40 56.00% -32.40%
2. Cisco/NetApp $486.70 31.00% $336.70 18.10% 44.50%
3. HPE $228.90 14.60% $324.10 17.40% -29.40%
All Others $149.70 9.50% $158.60 8.50% -5.60%
Total $1,570.30 100.00% 1862.8 100.00% -15.70%

Looking at that table we can see why HPE wanted to acquire SimpliVity: its own converged revenue looks to be tanking. We can also see why SimpliVity accepted an exit widely regarded to be at the low end of its expectations. Nutanix's badly-received revenue warning may look a little less worrying, as it's not alone in finding the market tough.

It's harder to divine why the overall converged systems market has dipped, because they're collectively supposed to be so much more useful than standalone servers that require custom integration.

Eric Sheppard, IDC's research director enterprise storage and converged systems, puts it down to a market in flux.

“The converged systems market is going through a period of change," he said. “We are seeing strong growth from products with new architectures, increased levels of automation, and heavy use of software-defined technologies. This growth has been offset by reduced spending on traditional converged systems and a conscious decision by some vendors to terminate some parts of their product portfolio."

Things aren't entirely bad: IDC says that for the full 2016 calendar year worldwide converged systems market revenues hit $11.3 billion, a 5.8 per rise compared to 2015. That's rather better than the standalone server market's -4.6 per cent year on year sales. ®


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