Worldwide Server Market Experiences Lackluster Quarter Across Multiple Segments, According to IDC

FRAMINGHAM, MA – MAY 24, 2006 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market declined 1.9% year over year to $11.9 billion in the first quarter of 2006. Following ten successive quarters of year-over-year revenue growth, this was the second consecutive quarter of year-over-year revenue decline as quarterly compares become more difficult. Worldwide server unit shipments growth slowed modestly to 9.5% in 1Q06 when compared with 1Q05.

Volume server revenue grew 6.3% year over year and, although this segment represents the primary growth engine for the overall server market, 1Q06 experienced the slowest growth in this segment in more than three years. Revenue for midrange enterprise servers declined 16.2% year over year for the second consecutive quarter and the high-end enterprise server market showed a 3.2% decline year over year, making this the sixth consecutive quarter of declining revenue for high-end enterprise servers.

"After three years of consistent growth, the server market began to show signs of deceleration in the first quarter. Although customers continued to invest in new infrastructure in the quarter, IT spending patterns are evolving and these shifts are clearly having an impact on the server market," said Matt Eastwood, program vice president of Worldwide Server Research at IDC. "IDC continues to see IT managers in the data center working to strategically align the IT organization with the business. Meanwhile, IT executives are focusing on condensing their IT infrastructure so they can deliver new IT services and enhance existing service levels while holding the line with respect to both IT budgets and staffing levels."

Top-Level Server Market Findings

— Microsoft Windows servers continued to show strong growth as revenues grew 5.9% and unit shipments grew 12.9% year over year. Significantly, quarterly factory revenue of $4.4 billion for Windows servers represented the largest single segment of the server market – gaining 2.7 points of revenue share over 1Q05 and comprising 37.1% of all server revenue in 1Q06 – as customers continue to deploy more fully configured Windows servers in support of scalable workloads and consolidation projects.

— Unix servers experienced a 7.1% decline in factory revenue year over year, while unit shipments declined 8.7% when compared with 1Q05. Worldwide Unix revenues of more than $3.9 billion for the quarter and represented 33.2% of overall quarterly factory revenue.

— Linux servers posted their fifteenth consecutive quarter of double-digit growth, with year-over-year revenue growth of 17.0% and unit shipments up 14.4%. Although Linux servers now represent 12.2% of all server revenue, revenue growth for the quarter was approximately half the growth rate observed in 1Q05 as the market grows and year-over-year compares become more difficult.

— EPIC or Itanium-based systems grew 41.8% year over year generating $640 million in revenue for the quarter and now representing 11.2% of all non-x86 server revenue. Regionally, EPIC experienced the greatest year-on-year growth in Asia/Pacific (excluding Japan) and Western Europe.

Overall Server Market Standings, by Vendor

— HP and IBM tied for the number one position with 28.1% and 27.9% share respectively, with IBM loosing .5 points of share and HP gaining .4 points of share.

— Dell maintained third place on its own in terms of revenues with 11.1% market share in 1Q06. Although Dell's year-over-year revenue growth slowed to 3.6% for the quarter, the company still gained market share in the quarter.

— Sun experienced 5.8% year-over-year revenue growth in 1Q06 and increased its overall market share to 10.8% from 10.0% in 1Q05.

— Fujitsu/Fujitsu-Siemens maintained a fifth place standing in terms of factory revenue, with 6.9% market share in the quarter.

— In terms of unit shipments, HP maintained the number 1 position worldwide with 29.9% server shipment share, growing shipments 7.8% year over year.

Dell maintained the number 2 spot in terms of worldwide server shipments with 24.0% share, down from 24.5% share in 1Q05.

"Sun's server revenue growth and market share gains are an indication that the company's most recent product strategies are beginning to resonate with customers," said Steve Josselyn, research director, Enterprise Server research at IDC. "While the majority of Sun's server revenue is driven by traditional UltraSPARC IV and UltraSPARC IV+ systems, the introduction of the Niagara-based chip multithreaded machines and Opteron-based x-64 Galaxy products have begun to generate significant customer interest."

x86 Industry Standard Server Market Dynamics

Although the x86 server market continued to grow in 1Q06 with revenue of $6.1 billion worldwide, year-over-ear growth slowed to 6.3% in 1Q06 from 12.7% in 1Q05. Unit shipment growth also continued with a moderate gain of 12.1% to 1.7 million servers as customers continued to consolidate their IT infrastructures. Dell, HP, Fujitsu/FSC and Sun all posted positive year-over-year revenue growth in the x86 server market. However, IBM and Sun were the only top 5 server vendors to outgrow the market in 1Q06 – growing factory revenue 11.2% and 84.3% respectively – and gaining x86 market share in the process. HP led the market with 32.3% revenue share and Dell maintained the second place with 21.6% revenue share.

"Although x86 server market growth slowed in the quarter, specific segments of the market actually accelerated. Revenue from four socket x86 servers grew more than 20% year over year as companies leveraged the performance of 4-way systems in consolidation initiatives," said Jed Scaramella, research analyst, Enterprise Server research at IDC. "AMD-based systems, which have a high attach rate in the 4-way segment, accounted for over $1 billion of server revenue in 1Q06. This is the first time AMD-based systems topped the $1 billion mark on a quarterly basis. HP stands out among the tier 1 vendors with nearly 20% of revenue associated with AMD-based systems. IDC believes the perceived thermal benefits of AMD systems resonate with IT managers in their initiatives to control the increasing power and cooling costs in the data center."

"While the quarter for x86 servers slowed overall, some smaller vendors experienced significant growth," said Kelly Quinn, senior analyst, Enterprise Servers. "For instance, Rackable Systems' shipments grew 13% quarter-on-quarter worldwide, which equates to over 165% growth year on year."

Bladed Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed continued growth in the quarter, with factory revenue gaining 43.4% year over year and shipments increasing by 29.5% year over year. Overall, bladed servers, including both x86 and RISC blades, accounted for $591 million in the first quarter, representing 5.0% of quarterly server market revenue. IBM maintained the number 1 spot in the server blade market, with 40.1% market share, while HP maintained the number 2 position with 35.6% share. Dell holds the number 3 position with 11.1% share of factory blade revenues and growing nearly twice the rate for blades overall.

"In 1Q06, we saw a continuation of the migration from 1 socket blades to 2 and 4 socket," said Kelly Quinn, senior analyst, Enterprise Servers. "Increasingly, customers are seeing the business value in blades and identifying how useful 2 and 4 socket blade servers can be in both the consolidation of their existing IT activities as well as in support of new IT workloads."

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, First Quarter of 2006

(Revenues are in Millions)

Vendor Q1 2006 Revenue Market Share Q1 2005 Revenue Market Share Revenue Growth 1Q06/1Q05

Hewlett-Packard $3,335 28.1% $3,345 27.7% -0.3%

IBM $3,304 27.9% $3,429 28.4% -3.6%

Dell $1,321 11.1% $1,274 10.5% 3.6%

Sun Microsystems $1,274 10.8% $1,205 10.0% 5.8%

Fujitsu/Fujitsu Siemens $823 6.9% $988 8.2% -16.8%

Others $1,796 15.2% $1,840 15.2% -2.4%

All Vendors $11,852 100.0% $12,082 100.0% -1.9%

IDC's Worldwide Quarterly Server Tracker, May 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

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