According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market declined 5.2 percent year over year to $12.6 billion in the third quarter of 2008. This is the largest quarterly revenue decline since the fourth quarter of 2002 as technology spending slowed around the world. Server unit shipment growth of 2.8 percent year over year in the third quarter represented the slowest increase in server shipments since the four quarter of 2006, the company said.

Volume systems revenue declined 7.2 percent year over year in the third quarter, the first decline for this important market segment in more than 14 quarters. In the midrange, revenue for midrange enterprise servers declined 9.5 percent year over year while revenue for high-end enterprise servers grew 4.0 percent year over year, the third consecutive quarter of growth for the segment.

"The server market experienced significant deceleration in the third quarter with particular weakness in September. The slowdown impacted a wide range of traditional server technologies with improved demand for blades and IBM System z notable exceptions," said Matt Eastwood, group vice president of Enterprise Platforms at IDC. "Many OEMs experienced significant pricing challenges in the quarter and revenue declines were experienced in all regions except Latin America and the Middle East and Africa (MEA). Enterprise budgets continue to face increased scrutiny as IT organizations of all types look to run their hardware harder and defer acquisitions wherever possible."

Overall Server Market Standings, by Vendor

HP and IBM ended the third quarter in a statistical tie with 30.7 percent and 30.2 percent overall market share respectively. HP experienced a 2.0 percent year-over-year revenue decline in 3Q08 while its BladeSystem business showed continued strength. IBM's overall revenues declined 3.1 percent year over year despite strong System z sales. Dell experienced a 4.3 percent revenue decline in the quarter and maintained third place with 12.0 percent overall market share in 3Q08. Sun maintained its fourth place position by posting a 10.9 percent year-over-year revenue decline and holding 9.5 percent market share for the quarter.

Top-Level Server Market Findings

•      Microsoft Windows server revenue was $5.1 billion in 3Q08, showing a 5.1 percent year-over-year revenue decline and maintaining revenue market share at 40.8 percent of all server revenue in 3Q08.

•      Linux servers posted a 2.5 percent year-over-year revenue decline for a total of $1.8 billion in the quarter. Linux servers now represent 14.0 percent of all server revenue.

•      Unix servers experienced an 8.4 percent revenue decline when compared with 3Q07. All segments including volume, midrange enterprise, and high-end enterprise experienced declines. In 3Q08, worldwide Unix revenues were $3.7 billion for the quarter, representing 29.7 percent of quarterly server spending.

•      IBM's System z servers running z/OS experienced their third consecutive quarter of growth, increasing revenue 24.8 percent year over year and holding 9.4 percent of all server revenue.

"In the face of the worsening economic climate, IBM was still able to post significant growth in their mainframe business during the quarter," said Steve Josselyn, research director for IDC's Enterprise Computing group. "While we believe some of this is based on pent-up demand after a lengthy refresh cycle before the introduction of the new z10 machines late last year, there is still a large number of customers that continue to invest in the System z platform as an integral part of their compute infrastructure."

x86 Industry Standard Server Market Dynamics

x86 server revenue declined 6.6 percent year over year in 3Q08 to $6.9 billion, which represents the largest year-over-year revenue decline for the segment in more than 24 quarters. Shipment growth also slowed significantly, growing just 4.0 percent to 1.97 million units as demand for x86 servers moderated. The top 3 x86 server OEMs (HP, Dell and IBM) all experienced a decline in x86 factory revenue in the quarter, with HP leading the market with 36.9 percent x86 revenue share and with Dell holding second place with 21.8 percent revenue share.

"The uncertain future of the global economy appears to have affected IT budgets across the board," said Daniel Harrington, research analyst with the Enterprise Server Group. " Weakened demand for more fully configured servers, along with intense price competition, drove x86 server revenue in the U.S. to decline 12.2 percent in the third quarter, the most since 2001. Revenue declined across all regions except Latin America, which continued to show strong growth at 12.8 percent."

"OEMs are being forced to become increasingly price competitive in the x86 space, and are therefore looking for margins from other value adds, such as software and services. Vendors that are able to offer reliable and comprehensive infrastructure solutions, from hardware and software, to a more complete services portfolio, are likely to be seen as a more attractive option to risk averse end-users."

Blade Server Market Shows Strong Shipment and Revenue Growth

The server blade market decelerated for the third consecutive quarter, with factory revenue growing 29.5 percent year over year. Overall, bladed servers, including x86, EPIC, and RISC blades, captured $1.4 billion and represented 11.0 percent of all server market revenue in the quarter. HP maintained the number one spot in the blade market with 54.7 percent market share and quarterly factory revenues growing 55.5 percent year over year. IBM held the number 2 position in the blade server market with 22.9 percent share while Dell maintained the number 3 position with 9.3 percent revenue share.

"Blades were the only form-factor to experience positive growth in the quarter, with all major vendors exhibiting double-digit growth in blade volumes," said Jed Scaramella, senior research analyst in IDC's Enterprise Computing group. "IT customers continue to adopt blades due to energy efficiency, serviceability, and flexibility benefits derived from the consolidated platform."

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, Third Quarter of 2008

(Revenues are in Millions)

Source: IDC's Worldwide Quarterly Server Tracker, December 2008

IDC's Server Taxonomy

IDC's Server Taxonomy maps the eleven price bands within the server market into three price ranges: volume servers (servers priced less than $25,000), midrange enterprise servers ($25,000 to $499,999), and high-end enterprise servers ($500,000 or more). The revenue data presented in this release is stated as factory revenue for a server system. IDC presents data in factory revenue to determine market-share position. Factory revenue represents those dollars recognized by multi-user system and server vendors for ISS and upgrade units sold through direct and indirect channels and includes the following embedded server components: Frame or cabinet and all cables, processors, memory, communications boards, operating system software, other bundled software and initial internal and external disk shipments.

IDC's Worldwide Quarterly Server Tracker is a quantitative tool for analyzing the global server market on a quarterly basis. The Tracker includes quarterly shipments (both ISS and upgrades) and revenues (both customer and factory), segmented by vendor, family, model, region, operating system, price band, CPU type, and architecture. For more information, please contact Hoang Nguyen at 508-935-4718 or This email address is being protected from spambots. You need JavaScript enabled to view it..

About IDC

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