Hyperscale Users, Upstart Sellers Drive Server Growth In Q3
The server market is splitting into segments that do not track along with one another anymore. Hyperscale companies that build massive public clouds, consumer-facing applications, or a little of both and that exclusively use X86-based machinery, are driving volumes. Enterprises are still buying a mix of machinery, even though their datacenters are dominated by X86 iron, and they are more cautious as they build out their infrastructure.
The net effect, according to the latest statistics from the market researchers at Gartner, is an overall server market that is growing at a tepid pace. Unix systems based on RISC or Itanium processors continue to see revenue declines due to product transitions and Moore's Law increases in the performance of successive generations of systems. The workloads on these machines are just not growing faster than the core counts on these systems, and that is a contributing factor to the revenue decline. Moreover, companies that might have otherwise bought a big SMP or NUMA system to run a large relational database are giving parallel clusters a try or even shifting to NoSQL or in-memory databases like SAP HANA that run on X86 clusters instead of big shared memory systems. While these big iron machines continue to be important, alternatives that run on clusters are being adopted by enterprises who are following in the wake of the hyperscale early adopters.
Gartner reckons that the world consumed 2.53 million servers in the third quarter ended in September, a meager 1 percent increase over volumes in the year-ago period. All told, these machines accounted for $12.56 billion in revenues, an increase of 1.7 percent over the term.
"The third quarter of 2014 produced modest growth on a global level, highlighting positive but constrained demand," explained Errol Rasit, research director at Gartner, in a statement accompanying the figures. "Only North America and Asia Pacific exhibited shipments growth, largely driven by demand from hyperscale organizations located there. These results support the continued bifurcation of enterprise and consumer services server demand."
The market share statistics will have a big change coming the next time around when the fourth quarter figures coming out, now that Lenovo Group has bought the System x business from IBM. But in the statistics for the third quarter, IBM still had this business. X86-based systems accounted for the bulk of the volume of machines shipped in the quarter – 99 percent of the units shipped, if you can believe it – and at $10.51 billion in revenues, X86 machines accounted for 83.7 percent of total server revenues. Five years ago, in the belly of the Great Recession, X86 iron had almost as high a share of shipments, but X86 machines only drove 59.3 percent of revenues.
In the current quarter, RISC and Itanium machines running Unix accounted for $1.2 billion in revenues, an 8 percent decline from a year ago. IBM's Unix server business, which drives its Power Systems line, had $663 million in revenues, down 8.7 percent and affected by product transitions as well as a general trend towards X86 systems. (And one that IBM is trying to counter with its OpenPower Foundation and the hybrid Power8 systems it is peddling against X86 machinery.) Oracle's Sparc/Solaris system sales were actually up 2 percent to $270.2 million in the quarter, and Hewlett-Packard, which has made no secret about its plan to focus on Xeon-based Integrity and Superdome machines running Linux and Windows in the future at the high-end of the market, had a 16.5 percent decline in the Unix market in the third quarter with $203.6 million in sales. Fujitsu was the fourth biggest peddler of RISC iron, with $27.5 million in revenues (down 16.9 percent) and Hitachi came in fifth at $13.5 million (up 28.7 percent).
We are a long ways off from the dot-com boom in the late 1990s when Unix systems accounted for nearly half of revenues and when startups got a Unix server and an Oracle database as their first platform move.
In terms of overall sales, Hewlett-Packard is the top revenue generator and the top shipper in the worldwide server market, and now by a sizeable margin over IBM, which a few years back when Power Systems and System z sales were stronger and its System x business did a little better was in contention with HP. Up until that point, IBM was the undisputed revenue leader in the systems market since anyone started tracking it religiously a few decades ago. HP had $3.37 billion in sales in the third quarter, down nine-tenths of a point, and stomached a 14.9 percent decline to 569,426 total shipments against a very tough compare this time last year when the company closed a monster deal with a hyperscale datacenter. (Everyone thinks it was Microsoft, but HP has not ever confirmed this.) Dell's shipments rose by 1.3 percent to 490,752 according to Gartner, and its revenues rose 9.6 percent to $2.22 billion. IBM was the number two server seller based on revenues with $2.32 billion in sales (down 17.7 percent because of declines in the System z mainframe and Power Systems markets and less steep declines in X86 server sales because of the then-pending Lenovo deal) and the number three vendor ranked by shipments with 171,419 machines out the door (down 15 percent). If Lenovo already had control of the System x business in this quarter, it would have $1.06 billion in revenues and 160,035 machines sold, which would make it the number four vendor by revenues and the number three vendor by shipments.
Cisco Systems made the top five by revenues, and with $783.8 million in sales, is now considerably larger than Oracle, which had $500.4 million in sales across its various product lines in the third quarter. Oracle's X86 server business declined a smidgen and its overall server business was flat, but Cisco's converged UCS platform continued to show significant growth, with sales up 30.8 percent in the quarter. Cisco is finding its natural level in the enterprise market and will probably settle in at around $3.5 billion to $4 billion in annual sales at some point in the near future. If the company's hyperscale servers, launched in early September, take off, then Cisco can add from there.
Chinese system makers Huawei Technologies and Inspur Electronics were outliers as well as their shipments rose dramatically in the quarter as companies in the Middle Kingdom bought indigenous iron. (It will be interesting to see what the IBM-Lenovo deal does down the road in China.) Huawei saw its shipments rise 34.4 percent in the quarter to 93,421 machines, while Inspur had an 81.9 percent spike to 91,244 machines.
The other interesting thing about the Gartner figures is, in fact, the Others category outside of the top five vendors in each dicing and slicing of the market. Other vendors accounted for 1.11 million shipments, up 8.1 percent, and $3.36 billion in revenues, up 11.9 percent, in the September quarter according to Gartner. There is a vibrant and growing set of other manufacturers – Supermicro and Quanta come immediately to mind – that are driving a very large part of the X86 business out there. And they are growing, in the aggregate at least, many times faster than the market at large.
This is in marked contrast to vendors selling various kinds of machines based on proprietary architectures outside of RISC and Itanium systems running Unix or X86 systems running whatever. If you do the math, this hodge-podge of machinery accounted for $850 million in sales, down 32.6 percent.