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Server sales declining globally, but still look encouraging

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Dec. 15, 2009

Overall, worldwide third-quarter sales of servers showed a steeper than 17 percent decline from the corresponding quarter last year, sagging to less than $10.42 billion, according to IDC's Global Quarterly Server Tracker.

But surprisingly, and unexpectedly, server shipments actually improved, falling less than 18 percent for the quarter, compared with a more than 30 percent gain in the second quarter, noted the IDC report.

Even more promising, shipments grew at a healthy 12.4 percent over the second quarter, the market's largest sequential quarterly gain in the past four years.

All three server market segments tracked by IDC -- volume, midrange enterprise, and high-end enterprise -- saw lower third-quarter sales compared with the same quarter in 2008.

Overall revenue for midrange enterprise servers also fell 23.4 percent, while sales of high-end enterprise servers dropped 19.3 percent.

However, global revenue for volume servers, the lower end of the market, improved over the second quarter and experienced their lowest drop since the third quarter of last year.

"The global server market exceeded our expectations in the third quarter with improving x86 server demand leading the way, which was driven in part by the infrastructure refresh momentum that is building in many geographies," said Matt Eastwood, IDC's group vice president of Enterprise Platforms, in a statement.

"In fact, x86 server revenues experienced their largest sequential quarterly revenue increase in nearly five years," added Eastwood.

On a global basis, the mid-range server marker undergoes radical phase changes every now and then, and it has a dramatic impact on sales for specific platforms, which are reflected in the sales figures.

For example, the IBM AS/400 platform was hit hard by data center consolidations that began early in 2000 and especially 2001, driven by cheaper telecom services and the introduction of VoIP (voice over IP) simply because the sub-system architecture of the OS/400 operating system allowed many different applications to run side-by-side on a single system.

Add on the steady progress of Moore's Law on all of the electronic components of the system, and revenues get cut even further.

Then add in the additional effect of the installed base bleeding off customers and AS/400 integrators that currently only support that specific system and it's certainly no surprise that the AS/400 business that used to generate IBM over $5 billion in hardware sales in the early 1990s now is lucky to do over $1 billion a year.

For 2010, IDC predicts that server sales will continue to be down, especially in the high-end server segment, while volume (low-end servers) should continue to do fairly well.

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Source: IBM.

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