Worldwide server revenue falls 24.5% to 12-year-low of $9.9 billion in first quarter

MANILA, Philippines – Factory revenue in the worldwide server market dropped 24.5 percent to $9.9 billion in the first quarter of 2009, the third consecutive quarter of revenue decline and the lowest quartertly server revenue in the last 12 years (research firm International Data Corp. (IDC) said in a report.

Server unit shipments declined 26.5 percent in the first quarter of this year, accelerating from the 12 percent decline experienced in the fourth quarter of last year and representing the lowest quarterly server shipment total in five years and the largest quarterly server unit decline, IDC said.

Volume systems experienced the sharpest decline, with revenue slipping 30.5 percent. Midrange enterprise demand weakened, with a decline of 13.6 percent, and the slowdown extended to the high-end enterprise segment, as revenue declined 19.5 percent when compared to first quarter of last year.

IDC said this is the second consecutive quarter and only the second time since 2002 that all three server segments experienced revenue decline in the same quarter.

“Market conditions worsened in all geographic regions during the first quarter as customers of all types pulled back on both new strategic IT projects and ongoing infrastructure refresh initiatives,” according to Matt Eastwood, group vice president of enterprise platforms at IDC.

He added most enterprise organizations are deferring new IT procurements and instead focusing on extending server lifecycles and improving existing asset utilization.

“IDC believes that while these strategies are effective in the near term, server demand will begin to improve in the second half of the year as customers begin to rebuild their IT capabilities in advance of a meaningful economic recovery in 2010,” he said.

HP and IBM jointly held the number one position in the worldwide server market in the first quarter, each with 29.3-percent share. For IBM, this growth was driven by a solid performance in its System z and System p server businesses.

Sun and Dell finished the quarter in a statistical tie for the number three market position with Dell’s server revenue declining 31.2 percent and capturing 11 percent share in the first quarter. Sun’s server revenue declined 25.5 percent ending with a 10.3-percent revenue share.

Fujitsu/Fujitsu-Siemens maintained its fifth place standing in terms of factory revenue, with 6.7 percent market share in the quarter.

The market for non-x86 servers, including servers based on RISC, EPIC, and CISC processors, declined 19.4 percent to $4.8 billion. This is the fifth consecutive quarter that non-x86 servers have outperformed x86 servers in the market. IBM maintained its leadership position, posting 42.8 percent share in this segment, followed by Hewlett Packard (21.8 percent) and Sun Microsystems (18.2 percent), respectively, based on factory revenue.

The x86 server market decelerated sharply in the period, declining 28.8 percent in the quarter to $5.1 billion worldwide as unit shipments declined 26.3 percent to 1.4 million servers.

IDC said this is the lowest x86 server revenue since the third quarter of 2003, with the top five server vendors all experiencing x86 server revenue declines of 20 percent or more in the quarter. HP led the market with 36.5 percent revenue share and Dell retained second place, securing 21.4 percent revenue share.

“x86-based volume servers, historically an area of growth for the industry, posted another quarter of significant weakness during the first quarter of 2009,” according to Dan Harrington, research analyst in IDC’s enterprise server group. “However, while it may be easier for IT departments to suspend purchases of commodity boxes as opposed to more mission critical RISC- or CISC-based servers, IDC expects x86 systems to rebound faster than the overall market in the coming quarters.”

The blade server market segment decelerated sharply in the first quarter, experiencing negative quarterly growth for the first time, with factory revenue declining 14.4 percent on a 18.1-percent shipment decline. Overall, bladed servers, including x86, EPIC (Itanium-based) and RISC blades, accounted for $1.1 billion in the first quarter, representing 11 percent of quarterly server revenue. HP maintained the number one spot in the blade market with 52.2 percent market share.

“Even though the blade market experienced negative growth, the segment still increased its share of revenue of the overall server market,” according to Jed Scaramella, senior research analyst in IDC’s data center and enterprise server group. “Customers are seeking IT solutions that reduce expenses and improve efficiencies. The integrated nature of the blade platforms is adept to deliver a dynamic IT infrastructure.”