Server Market Momentum Continues as Consolidation and Virtualization Drive IT Infrastructure Investment, According to IDC

FRAMINGHAM, MA – MAY 23, 2007 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market grew 4.9% year over year to $12.4 billion in the first quarter of 2007. This is the fourth consecutive quarter of positive revenue growth and the highest Q1 server revenue since 2001. Server unit shipment growth of 4.6% year over year in 1Q07 represented an improvement over the flat year-over-year growth reported in 4Q06, but unit growth was still down significantly from 1Q06 year-over-year growth.

Volume systems revenue growth improved to 4.7% year over year in the first quarter, the highest growth rate for this important segment since 3Q06. However, the segment was outperformed for the second consecutive quarter by 8.5% year-over-year growth in the high-end enterprise segment. This is only the second time in the 10-year history of IDC's Quarterly Server Tracker that high-end enterprise system revenue grew faster than volume system revenue. The midrange enterprise segment of the market showed a 2.2% increase year over year, the second consecutive quarter of increasing revenue for the segment.

"The server market continues to experience solid growth as businesses of all types look to enhanced IT capabilities in order to help drive additional business efficiency, improved customer satisfaction, and accelerated revenue growth," said Matt Eastwood, program vice president of Enterprise Platforms at IDC. "It is becoming increasingly clear that the typical enterprise computing infrastructure will require additional investment in order to deliver on these objectives. This next generation infrastructure will be denser, more energy efficient, easier to manage, better integrated, more virtual, and much more resilient. For most organizations this represents a long-term journey requiring IT investment in the new computing capabilities necessary to meet the IT and business flexibility needs of tomorrow's dynamic enterprise. We are still in the early stages of this journey today."

Overall Server Market Standings, by Vendor

For the third consecutive year, HP and IBM jointly held the number 1 position in the worldwide server market in Q1 with 29.2% and 28.9% share respectively and HP gaining 0.9 points of share and IBM gaining 0.8 points of share year over year. For IBM, this growth was driven by solid performance in its System x, System z, and System p server business. HP's growth was driven by strength in its ProLiant, Integrity and BladeSystem businesses. Although there was a statistical tie between Sun and Dell for the number 3 position, Sun continues to maintain momentum in the market, growing 6.3% year over year and holding a 10.9% share for 1Q07 with solid growth from its x86 Galaxy line of servers. Dell grew revenue by 1.7% compared to 1Q06, ending with 10.9% revenue share. Fujitsu/Fujitsu-Siemens maintained a fifth-place standing in terms of factory revenue, with 6.3% market share in the quarter.

Top-Level Server Market Findings

— IBM's System z servers running z/OS experienced its fourth consecutive quarter of positive revenue growth, with 11.7% year-over-year growth in 1Q07 to $993 million. Z/OS accounted for 8.0% of all server revenue in 1Q07, the highest first quarter revenue for IBM's System z in 3 years.

— Linux servers posted their second consecutive quarter of double-digit growth, with year-over-year revenue growth of 10.0% for a total of $1.6 billion in the quarter. Linux servers now represent 12.7% of all server revenue.

— Microsoft Windows server revenue was $4.8 billion in 1Q07 showing 10.4% year-over-year growth and gaining 1.9 points of revenue market share over 1Q06. This was the first quarter since IDC began tracking Linux server spending in 1998 that Windows server revenue has grown faster than Linux server revenue. Windows comprised 38.8% of all server revenue in 1Q07.

— Unix servers experienced modest 0.5% revenue growth when compared with 1Q06. With particular strength in the high-end enterprise segment of the Unix market, worldwide Unix revenues were $4.0 billion for the quarter, representing 31.9% of quarterly server spending.

— The market for non-x86 servers, including servers based on RISC, EPIC, and CISC processors, grew about 1% year over year in 1Q07, from $5.7 billion in 1Q06 to $5.8 billion in 1Q07. IBM maintained its leadership position, posting 42.0% share, in this segment over Hewlett Packard (22.2%), Sun Microsystems (20.6%), and Fujitsu/ Fujitsu Siemens (8.0%) respectively based on factory revenue. IBM grew revenue 8.2% during the quarter on the strength of sales for System z mainframes (12% growth) and RISC-based System p machines (14% growth). HP dropped about 1.5 points of share in this segment as revenues declined 5.7%, while Sun gained nearly half of a share point with a 2.9% increase in revenue for the quarter.

"IBM's ability to gain share in what is typically a challenging quarter due to seasonality is notable," said Steve Josselyn, research director for Enterprise Platforms at IDC. "While much of the industry focus has turned to x86-based systems, IBM's performance within its traditional product families signifies there is continued demand for the inherent capabilities of these types of systems."

x86 Industry Standard Server Market Dynamics

Growth in the x86 server market accelerated slightly in 1Q07, growing 8.7% year over year to $6.6 billion worldwide, its fastest growth rate in six quarters. Unit shipment growth also continued with a moderate gain of 6.5% to 1.8 million servers as IT consolidation activities continue across the market. HP and Sun were the only top 5 server vendors to outgrow the market in 1Q07 – growing factory revenue 18.1% and 39.5% respectively – and gaining x86 market share in the process. HP led the market with 35.3% x86 revenue share with Dell holding second place with 20.4% revenue share.

"For the third consecutive quarter x86 revenue growth rates increased while average selling prices have held steady," said Jed Scaramella, research analyst in IDC's Enterprise Computing group. "As customers continue to virtualize their IT environments, they require more richly configured server systems. While unit shipment growth rates continue to slow, the increased amounts of memory and I/O necessary for virtualization have driven revenue growth rates."

Blade Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed signs of acceleration in the quarter, with factory revenue growing 29.7% year over year. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $768 million in the first quarter, representing 6.2% of quarterly server market revenue. Although HP maintained the number 1 spot in the blade market with 40.9% market share and IBM held the number 2 position with 35.2% share, HP grew 49.2% year over year gaining 3.3 points of revenue market share over 1Q06.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue,

First Quarter of 2007

(Revenues are in Millions)

Vendor 1Q07 Revenue Market Share 1Q06 Revenue Market Share 1Q07/1Q06 Revenue Growth

1. Hewlett-Packard $3,615 29.2% $3,336 28.2% 8.4%

1. IBM $3,579 28.9% $3,310 28.0% 8.1%

3. Sun Microsystems $1,356 10.9% $1,275 10.8% 6.3%

3. Dell $1,346 10.9% $1,323 11.2% 1.7%

5. Fujitsu/ Fujitsu Siemens $779 6.3% $825 7.0% -5.6%

Others $1,719 13.9% $1,743 14.8% -1.3%

All Vendors $12,394 100% $11,812 100% 4.9%

IDC's Worldwide Quarterly Server Tracker, May 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 hnguyen@idc.com.

About IDC

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