Volume Servers Lead Worldwide Server Market to Modest Growth in Second Quarter, According to IDC

FRAMINGHAM, MA – AUGUST 23, 2006 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market grew at 0.6% year over year to $12.3 billion in the second quarter of 2006, marking a return to positive overall revenue growth for the first time since the third quarter of last year. Demand in the U.S. and Asia/Pacific (excluding Japan) led to positive results in these markets, with year-over-year growth of 3.6% and 2.6% respectively, while weaker results in EMEA and Japan brought down the overall growth rate.

Volume server revenue grew 6.2% year over year and continues to represent the only growth segment for the server market overall. This was the third consecutive quarter of single-digit growth for the volume server market. The midrange enterprise server segment experienced year-over-year revenue growth of -3.5% – the third consecutive quarterly decrease for the segment. Meanwhile, the high-end enterprise server market declined 6.9% year over year, the seventh consecutive quarter of reduced spending for this segment.

"Technology innovation continues to influence server deployment decisions and drive changes in acquisition patterns across the industry," said Matt Eastwood, program vice president of Worldwide Server Research at IDC. "Enterprises continue to deploy both scale-up and scale-out server configurations as part of their core IT strategy. As evidence of this trend, 1-socket and 32-socket+ configurations grew sharply in the second quarter while all other configurations experienced a year-over-year revenue decline as multi-core processors enable 1-socket systems to cannibalize workload from traditional 2-socket systems."

Top Server Market Findings

— Unit shipment growth grew 8.3% year over year in 2Q06, the eighth consecutive quarter of slowing overall shipment growth. This trend reflects moderating unit growth in the volume server segment as compares with year-ago quarters become more difficult, and as server virtualization gains a foothold with mainstream IT users.

— After fifteen consecutive quarters of double-digit, year-over-year revenue growth, spending on Linux server moderated significantly, growing 6.1% to $1.5 billion when compared with 2Q05. Linux servers now represent 12.0% of all server revenue, up slightly from 2Q05. Linux server shipments grew 9.7% with the volume server segment representing the majority of both revenue and units.

— Unix servers experienced 1.6% revenue decline year over year as unit shipments declined 1.8% when compared with 2Q05. Worldwide Unix revenues were $4.3 billion for the quarter, representing 35.0% of quarterly server spending and reflecting continued IT investment in this server market segment, with particular strength in the volume segment of the Unix market.

— Microsoft Windows servers showed positive growth as revenues grew 3.1% and unit shipments grew 11.0% year over year. Significantly, quarterly revenue of $4.2 billion for Windows servers represented 34.2% of overall quarterly factory revenue, as customers deploy more fully configured Windows servers as part of server consolidation and virtualization initiatives.

— EPIC or Itanium-based systems grew 36.4% year over year generating more than $740 million in revenue for the quarter and now representing 11.7% of all non-x86 server revenue. In the x86 market segment, AMD's Opteron processor accounted for 20.2% of all worldwide x86 server revenue for the first time in 2Q06.

"Linux servers and Windows servers continued to grow unit shipments at double-digit rates, but revenue growth for both types of servers moderated to single-digit growth," said Jean S. Bozman, research vice president, Worldwide Server Research. "This shows that average sales values (ASVs) are under intense price pressure as workloads are consolidated on small form-factors and as server vendors compete intensely on volume server platforms that are the key building-blocks for scale-out deployments."

Overall Server Market Standings, by Vendor

— IBM maintained the number 1 spot in the worldwide server systems market with 31.0% market share in factory revenue while experiencing a 2.2% year-over-year revenue decline in the second quarter. HP continued to hold the number 2 spot in terms of factory revenue with 27.8% share, although its revenue declined 1.7% compared to 2Q05.

— Sun gained significant market share for the second consecutive quarter with 15.5% year-over-year revenue growth in 2Q06. Sun increased its overall market share to 12.9% from 11.2% in 2Q05 and regained the number 3 ranking in the worldwide server market.

— Dell fell back into the number 4 position with 10.3% revenue-based market share in 2Q06. This represented a 1.3% decline in revenue and a loss of 0.2 points of market share overall.

— Fujitsu/Fujitsu-Siemens maintained its number 5 standing in terms of factory revenue, with 4.5% market share in the quarter.

— In terms of unit shipments, HP maintained the number 1 vendor ranking worldwide with 30.5% server shipment share growing 12.0% year over year. Dell maintained the number 2 spot in terms of worldwide server shipments with 23.8% share, growing shipments 2.2% compared to 2Q05.

"Sun continued its strong server revenue performance in consecutive quarters and regained the number 3 overall market share position," said Steve Josselyn, research director, Enterprise Server research at IDC. "The clear majority of Sun's server revenue is generated from UltraSPARC-based systems, but the growth in the company's Opteron-based products are having a positive impact."

x86 Industry Standard Server Market Dynamics

Growth in the x86 server market remained positive in 2Q06, but continued to moderate. The x86 server market grew 3.3% in the quarter to $5.9 billion worldwide, its slowest growth rate in eleven quarters. Unit shipment growth also continued with a moderate gain of 9.8% to 1.68 million servers as customers continued to consolidate their IT infrastructures. IBM, HP, and Sun all posted positive year-over-year revenue growth in the x86 server market. However HP and Sun were the only top 5 server vendors to outgrow the market in 2Q06 – growing factory revenue 3.6% and 48.0% respectively – and gaining x86 market share in the process. HP led the market with 34.5% revenue share and Dell maintained the second place with 21.4% revenue share.

"The x86 server segment continues to be the growth engine for the overall server market as customers increasingly migrate workloads to industry-standard infrastructures," said Jed Scaramella, research analyst, Enterprise Server Research at IDC. "However, this growth has been tempered by the introduction of technologies such as virtualization and dual-core into the x86 server space. Enterprises are employing these technologies to increase the efficiency of their installed server systems, rather than deploying new systems."

Bladed Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed continued growth in the quarter, with factory revenue gaining 37.1% year over year and shipments increasing by 29.7% compared to 2Q05. Overall, bladed servers, including x86, EPIC and RISC blades, accounted for $639 million in the second quarter, representing 5.2% of quarterly server market revenue. IBM and HP finished the quarter in a statistical tie for the number 1 spot in the server blade market with 39.5% and 38.9% revenue-based market share respectively.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue,

Second Quarter of 2006

(Revenues are in Millions)

Vendor 2Q06 Revenue Market Share 2Q05 Revenue Market Share 2Q06/2Q05 Revenue Growth

IBM $3,808 31.0% $3,893 31.9% -2.2%

Hewlett-Packard $3,420 27.8% $3,480 28.5% -1.7%

Sun Microsystems $1,585 12.9% $1,372 11.2% 15.5%

Dell $1,269 10.3% $1,286 10.5% -1.3%

Fujitsu/Fujitsu Siemens $554 4.5% $551 4.5% 0.5%

Others $1,651 13.4% $1,638 13.4% 0.8%

All Vendors $12,287 100.00% $12,219 100.00% 0.6%

IDC's Worldwide Quarterly Server Tracker, August 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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