X86 System Sales Grow, Everything Else Shrinks
Sales of servers have always been tied very tightly to the regional and global economies and the ups and downs of various industries. But with the relentless pace of Moore's Law and the dominance of the X86 platform in the datacenters of the world, perhaps X86 servers are the bellwether of economic activity and the rest of the styles of machines that are still sold are following their own curves.
In the most recent quarter ended in December, the box counters at Gartner believe that all server vendors, including those who make machines for themselves or have third party ODMs do it for them, pushed 2.55 million machines and generated $10.44 billion in revenues in the quarter. That is 3.8 percent revenue growth for the X86 platform against 4.3 percent revenue growth. While it is not as much growth as we saw during the dot-com boom or the recovery from the Great Recession, considering that global GDP is only a few points, this is not so bad.
For the full 2013 year, X86 system shipments rose 2.6 percent to 9.76 million machines, which generated $30.72 billion in revenues across all vendors.
This X86 system growth comes at a time when large enterprises are building private clouds, which employ server virtualization to drive up the utilization on hardware, and public clouds are also building out massive virtualized infrastructure. X86 chip maker Intel said late last year that it expected for server spending among enterprises to be on the upswing in the second half of 2013 and on into 2014 as the virtualization wave ran its course. But even Intel was a bit surprised when spending for chips heading to enterprise customers – rather than for HPC clusters, hyperscale datacenters, storage arrays, or network devices – did not grow as robustly as expected in the final quarter of last year.
"2013 presented some pronounced differences in various server market segments," explained Jeffrey Hewitt, research vice president at Gartner, in a statement accompanying the latest server statistics. "We've seen ongoing growth in Web-scale IT deployments, while the enterprise remained relatively constrained. In terms of hardware platform types, mainframe and RISC/Itanium Unix platform market performance kept overall revenue growth in check."
Legacy mainframes, other proprietary platforms, and Unix systems are quite sticky in the datacenter and nonetheless persist, but sales of new machines are on the wane, as they have been for years, even as IBM. Oracle, Fujitsu, and others make a credible argument many times for using their shared memory systems instead of clusters. While enterprises are generally risk adverse, particularly when it comes to the production databases behind their core ERP systems, customers have been gradually bleeding off these platforms for the past decade and a half and onto Windows and Linux systems running on X86 iron. These non-X86 systems still command a hefty premium because of the difficulty of porting their applications to other chip architectures and, in many cases, because they offer compute, memory, or I/O scalability not available on X86 platforms.
In the fourth quarter, these non-X86 machines accounted for a respectable $3.22 billion in revenues, or about 23.6 percent of total system sales. But the combined 31,537 in non-X86 system shipments only comprised a paltry 1.2 percent of overall shipments. The numbers for the full year look about the same: 120,567 non-X86 machines drove $11.45 billion in revenues.
This is not, by any stretch of the imagination, the full cost of these systems. All of these big iron machines have pricey operating systems, middleware, databases, other systems software on them and services associated with them that drive more – and very profitable – revenue for IBM, Hewlett-Packard, Oracle, Fujitsu, Unisys, and others who peddle them.
The interesting bit about this is that if Intel and its server partners prevail, they will not magically move all of this money into their pockets. They have to make it up in volume because their products are inherently less profitable. This is why volume-reducing technologies like server virtualization have been so tough on the X86 market in recent years, and it is probably not a coincidence that server virtualization on X86 platforms really got some momentum behind it as the Great Recession got rolling. As far as businesses are concerned, server virtualization technology – particularly VMware's ESXi hypervisor and the extensions to support it better in Xeon and Opteron chips – was maturing at exactly the right time, and that was serendipity for sure.
This is ever the way in the IT segment. Mainframes were surrounded by proprietary minicomputers, which either got work that would have ended up on mainframes or, equally likely, would have never ended up there because of the high cost. But, some mainframe applications persist because they are very good at precisely what they do. Unix systems displaced proprietary minicomputers, but that was more about giving customers some hope of application portability than anything else. Linux and Windows machines based on X86 iron offer the same promise of portability across multiple suppliers, allowing customers to grind them against one another.
Unix systems based on RISC and Itanium processors continued to slide last year, with shipments and revenues falling and the growth in X86 sales was not big enough to fill in the revenue gap. For all of 2013, according to Gartner's figures, Unix systems generated just under $5.8 billion in revenues, down 23 percent, and 110,926 shipments, down 26.5 percent.
This decline, along with a drop in sales for proprietary machines of various shapes and sizes, pulled down overall revenues in the market at large. Overall server sales fell 4.5 percent to $50.17 billion, even as shipments rose 2.1 percent to 9.88 million boxes for the year.
The X86 server market is by no means an easy one, even if it does represent the lion's share of systems and sales at this point. HP, Dell, and IBM all saw shipment declines in 2013, with IBM taking the biggest hit at an 18.4 percent decline year on year to 807,325 units. (HP saw X86 system shipments fall by 3.7 percent to 2.54 million machines, and Dell was off 4 percent to 2.06 million boxes.) Among the top five peddlers of X86 iron, Chinese IT giant Huawei Technologies more than tripled its server shipments last year, to 278,291 machines, and Cisco Systems grew by 26.6 percent to 264,441 machines. Huawei did not make the top five cut on revenues, and HP was the reigning champ at $11.92 billion in sales (down 2,2 percent), followed by Dell with $8.41 billion (up 4.9 percent), and IBM at $4.85 billion (off 13.6 percent). IBM's rumored sale of its System x business to Lenovo – a deal that turned out to be true but which has not yet closed – no doubt hurt its sales, which probably in turn hurt its chances of getting more money for the business. Cisco's sales were up 38.7 percent to $2.23 billion and it is now nearly twice as large as Fujitsu in the X86 space.
Speaking generally about the overall server market, Gartner says to expect modest growth in 2014, but that "increases will continue to be buffered in the enterprise by the use of X86 server virtualization to consolidate physical machines as they are replaced."
Of course, enterprise IT shops are also adopting programming styles and applications from the HPC and hyperscale worlds, where virtualization is not the norm and very likely will never be due to the overhead it imposes on systems. This bucks the virtualization downdraft a bit. But at the same time, enterprises are just getting a taste for the kind of vanity-free, minimalist server designs that hyperscale companies have been using for many years. Enterprise customers might get a hankering for Hewlett-Packard's Moonshot and SL series machines, Dell's Data Center Solutions custom machines and their PowerEdge-C spinoffs, or Quanta Computer's Stratos servers and Rackgo X racks, or as the supply chain develops, they might go for Open Compute-compliant machines from Penguin Computing, Quanta, WiWynn, AMAX, Hyve Solutions, Avnet, and Rackline. This will no doubt drive per-unit profit out of the systems business, and once again, system makers will have to make it up in volume in a market with tepid shipment growth.
And next year, ARM-based servers will be out in volume, and heaven only knows what that might do to the volumes and margins in the system market. No one can really know what might happen until 64-bit ARM servers are in the field and operating systems and applications for them are enterprise-grade.
Another recession would surely accelerate whatever shift might come anyway, and hopefully we will not have to find out that hard way.