Demand for Blades and High-End Enterprise Systems Drives Strongest Growth in Worldwide Server Market in 12 Months, Says IDC

FRAMINGHAM, MA – NOVEMBER 22 , 2006 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market grew 3.5% year over year to $12.9 billion in the third quarter of 2006, the fastest growth rate in four quarters and the largest third quarter spending on servers since the third quarter of 2000. Worldwide demand for server blades was largely responsible for this market growth with year-over-year growth of 29.9%. Sales were strong in most regions with Asia/Pacific (excluding Japan) and EMEA showing particularly strong demand with year-over-year growth of 13.7% and 4.8% respectively.

High-end enterprise server revenue grew 9.1% year over year, which represented the primary growth engine for the server market overall and the first positive growth for the segment since the third quarter on 2004. Virtualization continues to drive slower growth in the volume server market in the third quarter with spending growing a modest 3.8% year over year, the fourth consecutive quarter of single-digit growth and the slowest growth since the third quarter on 2002. Revenue for midrange enterprise servers declined 2.3% year over year, marking the fourth consecutive quarterly decrease in that segment.

"Enterprise and SMB customers alike continue to evolve their IT buying patterns based on the robust product innovation that continues to occur across the marketplace," said Matt Eastwood, program vice president of Enterprise Platforms at IDC. "For end-users, new levels of compute density mean increased power densities and expanding power and cooling challenges, which are driving different IT infrastructure acquisition patterns. For technology suppliers, this inflection point represents an opportunity for the vendors best equipped to innovate their systems, software, and services offerings and meet these challenges."

Top-Level Server Market Findings

— Year-over-year unit shipment growth of 7.4%, the ninth consecutive quarter of slowing overall shipment growth. This trend reflects moderating unit growth in the volume server segment as server virtualization and consolidation continue to gain a foothold with mainstream IT users worldwide.

— Microsoft Windows servers continued to show nice growth as revenues grew 4.6% year over year. Significantly, quarterly factory revenue of $4.8 billion for Windows servers represented the largest single segment of the server market – gaining nearly 3.0 points of revenue share sequentially.

— Linux server revenue was $1.5 billion for the quarter as growth continues to moderate, with year-over-year revenue growth of 5.4%. Although Linux servers now represent 11.8% of all server revenue, revenue growth for the quarter was approximately one sixth the growth rate observed in 3Q05 as volume market growth moderates and year-over-year compares become more difficult.

— Unix servers experienced a 1.7% decline in factory revenue year over year. Worldwide Unix revenues of more than $3.9 billion for the quarter represented 30.1% of overall quarterly factory revenue.

— In the x86 market segment, AMD based server revenue grew 79.7% year over year accounting for 19.8% of all worldwide x86 server revenue in the quarter. Intel gained x86 market share sequentially for the first time in 4 years and Intel-branded processors maintained 80.2% of all x86 server spending in the quarter.

— EPIC/Itanium-based systems grew 23.8% year over year generating more than $700 million in revenue for the second consecutive quarter and now represent 11.2% of all non-x86 server revenue.

Overall Server Market Standings, by Vendor

— IBM maintains the number 1 spot in the worldwide server systems market with 33.1% market share in factory revenue, growing its revenue by 6.6% when compared to the same quarter one year ago.

— HP continued to hold the number 2 spot in terms of factory revenue with 27.7% share, a 2.1% year-over-year revenue decline driven by difficult fiscal to calendar quarter conversions.

— Dell and Sun ended the third quarter in a statistical tie for the number 3 position. Dell experienced 3.8% year-over-year revenue growth in 3Q06 and captured 10.5% market share for the quarter. Sun captured 10.0% market share in 3Q06 on the basis of strong year-over-year revenue growth of 15.8%.

— Fujitsu/Fujitsu-Siemens maintained a fifth place standing in terms of factory revenue, with 5.3% market share. The Fujitsu Group of companies experienced a 9.0% factory revenue decline year over year.

— In terms of unit shipments, HP maintained the number 1 position worldwide with 28.8% server shipment share, growing shipments 7.6% year over year. Dell maintained the number 2 spot in terms of worldwide server shipments with 24.6% share, up from 23.9% share in 3Q05.

"High-end enterprise revenue grew over 9% on the strength of IBM's System z product family. The introduction of the z9 BC (business class) machines coupled with the previously announced z9 EC (enterprise class) systems, invigorated the mainframe market during the quarter," said Steve Josselyn, research director Enterprise Platforms at IDC. "IBM's System z revenue growth of 25% contributed a significant amount to overall market performance, and further highlights the continued customer demand for mainframe-class systems."

x86 Industry Standard Server Market Dynamics

Growth in the x86 server market remained positive in 3Q06, accelerating slightly from the year-over-year growth reported in 2Q06. The x86 server market grew 4.8% in the quarter to $6.6 billion in worldwide revenues. Unit shipment growth also continued with a moderate gain of 8.8% to 1.75 million servers as customers continued to consolidate their IT infrastructures. IBM, HP, Dell, and Sun all posted positive year-over-year revenue growth in the x86 server market. HP, IBM and Sun were the only top 5 server vendors to outgrow the x86 market in 3Q06 – growing factory revenue 6.6%, 7.7% and 46.5% respectively – and gaining x86 market share in the process. HP led the market with 33.1% revenue share and Dell maintained the second position with 20.6% revenue share.

"In the third quarter, Intel was able to recapture market share in the x86 space primarily driven by the introduction of the new Woodcrest processor," said Jed Scaramella, research analyst, Enterprise Server Research at IDC. "With the new Xeon chip, Intel aimed for a rapid transition and customers have responded favorably to new features, including an improvement in power consumption and built-in hardware support for virtualization software."

Bladed Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed continued growth in the quarter, with factory revenue gaining 29.9% year over year and shipments increasing by 24.5% year over year. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $738 million in the third quarter, representing 5.7% of quarterly server market revenue and x86 blades exceeded 10% of all x86 server revenue for the second consecutive quarter. IBM maintained the number 1 spot in terms of server blade revenues, with 42.3% market share, while HP maintained the number 2 position with 35.0% share.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue,

Third Quarter of 2006

(Revenues are in Millions)

Vendor Q3 2006 Revenue Market Share Q3 2005 Revenue Market Share Revenue Growth 3Q06/3Q05

1. IBM $4,279 33.1% $4,013 32.1% 6.6%

2. Hewlett-Packard $3,398 26.3% $3,472 27.7% -2.1%

3. Dell $1,357 10.5% $1,308 10.5% 3.8%

3. Sun Microsystems $1,295 10.0% $1,118 8.9% 15.8%

5. Fujitsu/Fujitsu Siemens $690 5.3% $758 6.1% -9.0%

Others $1,925 14.9% $1,843 14.7% 4.4%

All Vendors $12,945 100.0% $12,513 100.0% 3.5%

IDC's Worldwide Quarterly Server Tracker, November 2006

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 hnguyen@idc.com.

About IDC

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