Demand for x86, Unix, and Blade Servers Help Otherwise Dull Market to Modest Third Quarter Growth, According to IDC

FRAMINGHAM, MA – November 29, 2007 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market grew 0.5% year over year to $13.1 billion in the third quarter of 2007 (3Q07). Although this is the sixth consecutive quarter of positive revenue growth and the highest Q3 server revenue since 2000, it was the slowest growth rate since the first quarter of 2006. Server unit shipment growth of 6.3% year over year in 3Q07 represented a slight decrease over the 7.8% year-over-year growth reported in 3Q06.

Volume systems revenue growth improved to 8.1% year over year in the third quarter, the second highest growth rate for this important segment over the past eight quarters. In the midrange, despite growth in Windows servers, Linux servers, and Unix servers, revenue for midrange enterprise servers declined 2.2% year over year, marking the second consecutive quarterly decrease in that segment. Revenue for high-end enterprise servers declined 14.5% year over year, the largest decline in year-over-year spending growth in more than 5 years.

"Although demand for x86, Blades, and Unix systems remained strong, other parts of the market cooled off in the third quarter," said Matt Eastwood, group vice president of Enterprise Platforms at IDC. "Concerns about the economy, particularly in the U.S., are causing customers to re-think their infrastructure needs at the same time that new levels of compute and power densities are expanding power and cooling challenges and driving different IT infrastructure acquisition patterns in the market. IDC believes that we are in the early stages of a market-wide transition, which will require significant IT investment in a more flexible IT fabric; however, concerns among buyers about an economic slowdown could slow investment in new systems somewhat."

Overall Server Market Standings, by Vendor

* Although IBM lost market share because of weakness in System z and System i, it maintained the number 1 spot in the worldwide server systems market, with 30.0% market share in factory revenue.

* HP grew server revenue 10.3% year over year and continued to hold the number 2 spot in terms of factory revenue with 28.6% share with both the ProLiant and Integrity brands performing well.

* Dell experienced 13.5% revenue growth in the quarter and maintained third place with 12.1% market share in 3Q07.

* Sun maintained its fourth place position by posting 0.9% year-over-year growth and holding 10.2% market share for the quarter.

Top-Level Server Market Findings

* Microsoft Windows server revenue was $5.3 billion in 3Q07, showing 9.7% year-over-year growth and gaining 4.8 points of revenue market share over 3Q06. Windows servers comprised 40.4% of all server revenue in 3Q07.

* Linux servers posted a fifth consecutive quarter of double-digit growth, with year-over-year revenue growth of 10.7% for a total of $1.8 billion in the quarter. Linux servers now represent 13.4% of all server revenue.

* Unix servers experienced healthy 4.1% revenue growth when compared with 3Q06. With growth in both the volume and midrange enterprise segment, Unix servers did particularly well in the high-end enterprise segment of the market, where revenue grew 9.3%. In 3Q07, worldwide Unix revenues were $4.1 billion for the quarter, representing 31.1% of quarterly server spending.

* After 5 consecutive quarters of positive growth, IBM's System z servers running z/OS experienced a 31.9% decline in year-over-year revenue in the quarter.

“Unix servers continue to be important platforms for mission-critical workloads, with advanced management capabilities and high RAS levels built into the server hardware,” said Jean S. Bozman, research vice president, Enterprise Platforms Group. “This level of investment in the third quarter—traditionally a slower quarter for Unix servers than the end-of-year fourth quarter—is a sign that businesses continue to place value on Unix servers, and are retaining them to run important custom and ISV applications.”

"IBM's overall revenue and market share decline is attributed mainly to a significant drop in System z sales during the quarter," said Steve Josselyn, research director for IDC's Enterprise Computing group. "We believe that many customers are delaying System z purchases based on the expectation of a new family of systems to be introduced soon. Customers are typically very cautious about investing heavily in a product family that will see decreasing residual values as a new enhanced product is announced and shipped."

x86 Industry Standard Server Market Dynamics

x86 server revenue grew at a healthy 9.1% year-over-year rate in the quarter to $7.2 billion, which represents the second highest quarterly total ever reported. Unit shipment growth also continued with a moderate gain of 7.8% to 1.9 million servers as demand for x86 servers remains strong for a wide variety of workloads. All major server OEMs grew x86 factory revenue in the quarter, with HP leading the market with 33.3% x86 revenue share and with Dell holding second place with 21.8% revenue share.

Blade Server Market Shows Strong Shipment and Revenue Growth

The server blade market accelerated for the fourth consecutive quarter, with factory revenue growing 41.4% year over year. Overall, bladed servers, including x86, EPIC, and RISC blades, surpassed $1.0 billion for the first time in a single quarter and represented 7.9% of all server market revenue in the quarter. HP maintained the number 1 spot in the blade market with 42.1% market share and quarterly factory revenues growing 79.6% year over year. IBM held the number 2 position in the blade server market with 32.9% share, growing factory revenue 6.5% year over year and losing 10.9 points of revenue market share over 3Q06.

"As IDC noted in its server predictions at the beginning of the year, 2007 is turning out to be a monumental year for server blades," said Jed Scaramella, senior research analyst in IDC's Enterprise Computing group. "Server blades remain the fastest growing segment and for the first time accounted for over 10% of all servers shipped. The competitive space will only prove to become more interesting as vendors continue to roll out new blade initiatives, including virtual I/O solutions and chassis targeted to small-medium business sites."

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, Third Quarter of 2007

(Revenues are in Millions)

Vendor 3Q07 Revenue Market Share 3Q06 Revenue Market Share 3Q07/3Q06 Revenue Growth

1. IBM $3,933 30.0% $4,299 33.0% -8.5%

2. HP $3,751 28.6% $3,401 26.1% 10.3%

3. Dell $1,582 12.1% $1,394 10.7% 13.5%

4. Sun $1,336 10.2% $1,324 10.2% 0.9%

5. Fujitsu/Fujitsu Siemens $706 5.4% $690 5.3% 2.3%

Others $1,790 13.4% $1,930 14.8% -7.3%

All Vendors $13,097 100% $13,038 100% 0.5%

IDC's Worldwide Quarterly Server Tracker, November 2007

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

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