Worldwide Server Market Revenues Increase 13.2% in Third Quarter as Market Accelerates Further, According to IDC

FRAMINGHAM, MA – December 01, 2010 – According to the International Data Corporation (IDC) Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market increased 13.2% year over year to $11.8 billion in the third quarter of 2010 (3Q10). This is the third consecutive quarter of year-over-year revenue growth and the fastest quarterly revenue growth since 2000, as market demand continued to improve around the world. Server unit shipments increased 13.1% year over year in 3Q10; however, server shipment growth moderated slightly over the strong 23.1% year-over-year shipment growth reported in the second quarter of 2010.

Volume systems experienced the sharpest improvement with year-over-year revenue increasing 22.8%, the fourth consecutive quarter of positive growth for the segment. Midrange server demand improved significantly with year-over-year growth of 19.8%, the segment's second consecutive quarter of positive growth following nine quarters of decline and a sign that server market conditions are improving more broadly beyond volume systems. Demand for high-end enterprise systems continued to be soft, as revenue declined 10.4% when compared to 3Q09. This is the eighth consecutive quarter of contraction in the high-end enterprise server segment of the server market.

"The server market experienced its strongest growth in 10 years in the third quarter of 2010," said Matt Eastwood, group vice president, Enterprise Platforms at IDC. "All geographic regions exhibited positive growth for the second consecutive quarter as the infrastructure build-out and refresh extends across SMB, enterprise, public sector, and cloud/hoster organizations. While much of the third quarter refresh occurred in x86 and CISC-based mainframes, IDC expects the recovery to extend to Unix platforms in the fourth quarter of 2010."

Overall Server Market Standings, by Vendor

Overall, HP assumed the number 1 position in the worldwide server market with 33.4% factory revenue share for 3Q10; HP increased revenue 22.2% year over year and gained 2.5 points of share from a year ago. HP's growth was led by strong demand for its x86 ProLiant servers during the quarter. IBM held the number 2 spot with 30.6% share for the quarter as factory revenue increased 9.0% compared to 3Q09. Although IBM continued to experience weakness in its Power Systems business, System z demand improved nicely following the recent zEnterprise product refresh cycle coupled with a continued strength in demand for the x86-based System x servers during the quarter. Dell maintained third place with 14.1% factory revenue market share in 3Q10. Dell gained 0.7 points of share year-to-year on 18.7% revenue growth driven by demand from enterprise and SMB customers. Oracle maintained the number 4 position in the worldwide server market, with 0.9% a year-over-year revenue growth in 3Q10 to 6.7% market share. Fujitsu, which rounded out the top 5 vendors, experienced a 2.5% increase in factory revenue, holding 5.1% revenue share in 3Q10.

Top Server Market Findings

— Microsoft Windows server demand was positively impacted by the

accelerating x86 server market, as hardware revenue increased 26.0% and

unit shipments increased 14.7% year over year. Quarterly revenue of $5.6

billion for Windows servers represented 47.7% of overall quarterly

factory revenue.

— Linux server demand also improved in 3Q10, with revenue growing 32.6% to

$2.1 billion when compared with the third quarter of 2009. Linux servers

now represent 17.5% of all server revenue, up 2.6 points over 3Q09.

— IBM's System z servers running z/OS showed positive growth following the

recent zEnterprise product launch. Overall, z/OS server revenue improved

14.8% year over year to $1.0 billion representing 8.6% of all server

revenue in 3Q10.

— Unix servers experienced 9.7% year over year revenue decline to $2.5

billion representing 21.5% of quarterly server for the quarter. Unix

server share of worldwide server spending was down 5.5 points over 3Q09

as many customers continue to defer Unix system upgrades.

"The Unix server market continued to see worldwide revenue decline, driven by reduced unit shipments in the high end and volume segments, and by intense competition between the top vendors that is eroding average sales prices for many models," said Jean S. Bozman, research vice president, Enterprise Servers at IDC. "However, the third quarter data shows that unit shipments in the midrange Unix server segment ($25 000 to $250,000) actually increased year over year, as did revenue for those servers. This growth in midrange Unix servers is likely the result of workload consolidation from aging Unix servers — and of IT build-outs for telco, banking, and government infrastructure in fast-growing economies worldwide."

x86 Industry Standard Server Market Dynamics

x86 server revenues continued to improve sharply in 3Q10, growing 28.1% in the quarter to $7.8 billion worldwide as unit shipments increased 13.8% to 1.9 million servers. IDC notes that for the second consecutive quarter, each of the top 5 server vendors experienced positive x86 server revenue growth. HP experienced strong revenue growth and led the market with 40.1% revenue share. Dell retained second place, securing 21.3% revenue share while IBM now holds 18.8% revenue share. Overall, x86 servers now represent 66.1% of all worldwide server revenue, up sharply from 58.4% in Q3 2009.

"Within the x86 server market, customer demands have increased for x86 servers with advanced performance capabilities," said Reuben Miller, senior analyst, Enterprise Servers at IDC. "Though the x86 market is experiencing annual positive growth for both unit sales and revenue, this shift in demand for more robust systems is providing vendors with higher growth rates in revenues over units sales, and in turn, higher profitability."

Bladed Server Market Results

The blade market experienced solid growth in Q310 with factory revenue increasing 23.1% year over year, while shipment growth increased by 5.5% compared to 3Q09. Relative to other form factors, the blade segment faced tougher year over year compares as the segment was not as negatively impacted by the recession. Overall, bladed servers, including x86, EPIC (Itanium-based), and RISC blades, accounted for $1.7 billion in revenues, representing 14.1% of quarterly server market revenue. More than 88% of all blade revenue is driven by x86 systems, a segment in which blades now represent 18.9% of all x86 server revenue. HP maintained the number 1 spot in the server blade market in 3Q10, with 54.1% revenue share, and IBM finished with 26.8% revenue share.

"Blade systems represent a strategic element of server portfolios, as vendor utilize the platform as the foundation for converged solutions," said Jed Scaramella, research manager, Enterprise Servers at IDC. "Additionally vendors continue to expand their blade offerings to support more workloads, including extreme virtualized environments, scale-out deployments, and higher-end workloads."

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, Third Quarter of 2010

(Revenues are in Millions)

3Q10 3Q09 3Q10/3Q09

3Q10 Market 3Q09 Market Revenue

Vendor Revenue Share Revenue Share Growth

1. HP $ 3,941 33.4% $ 3,226 30.9% 22.2%

2. IBM $ 3,614 30.6% $ 3,316 31.8% 9.0%

3. Dell $ 1,665 14.1% $ 1,402 13.4% 18.7%

4. Oracle $ 786 6.7% $ 779 7.5% 0.9%

5. Fujitsu $ 608 5.1% $ 593 5.7% 2.5%

Others $ 1,198 10.1% $ 1,115 10.7% 7.4%