Worldwide Server Market Slows in Fourth Quarter But Grows to $51.3 Billion in 2005, Highest Revenues in 5 Years, According to IDC

FRAMINGHAM, MA – February 22, 2006 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market declined 0.2% year over year to $14.5 billion in the fourth quarter of 2005. This was the first year-over-year quarterly decline in revenue since the first quarter of 2003, as year-over-year quarterly compares become more difficult. Worldwide server unit shipments growth slowed modestly to 10.6% in 4Q05 when compared with the year-ago period.

Volume systems grew 7.3% year over year and the segment continue to be the catalyst for growth for the server market overall, gaining favor with SMB and enterprise customers alike. After four consecutive quarterly increases, revenue for midrange enterprise servers declined 11.5% year over year and the high-end enterprise server market showed a 1.7% decline year over year, the fifth consecutive quarter of declining revenue for high-end enterprise servers.

"The volume server market continues to evolve as richer server configurations driven by both scale-out cluster implementations and scale-up server virtualization initiatives continue to drive increased customer spending," said Matthew Eastwood, program vice president of IDC's Worldwide Server Group. "However, even in the volume segment, the quarterly unit shipment growth of 11.5% was two-thirds the year-over-year unit growth rate observed in 4Q04, illustrating a transition towards more richly configured systems in the market. This evolution is driven by IT managers increased desire to consolidate and virtualize their server infrastructures as they seek to maintain balanced and manageable IT growth in the future."

Top-Level Server Market Findings

— The Windows server market continued to show solid growth, with factory revenues increasing by 4.7% year over year. Overall, Windows servers accounted for $4.9 billion in 4Q05, representing 33.6% of quarterly server market revenue. For all of 2005, Windows server revenues were $17.7 billion, which means that for the first time the Windows server segment modestly exceeded spending for Unix servers as customers deployed more fully configured Windows servers in support of scalable enterprise workloads and server virtualization projects.

— Linux servers generated $1.6 billion in quarterly revenue, the fourteenth consecutive quarter of double-digit growth, with year-over-year revenue growth of 20.8%. For the full year, Linux server revenues were $5.7 billion, placing it in third place for the first time from an operating system perspective as customers continued to expand the role of Linux servers into an increasingly wider array of commercial and technical workloads.

— Unix servers experienced a 5.9% decline in factory revenue year over year to $5.0 billion for the quarter with worldwide Unix revenues for the quarter representing 34.3% of overall quarterly factory revenue. For all of 2005, Unix server revenues were $17.5 billion, moving the platform from sole possession of first place from an operating system perspective for the first time in more than a decade.

"IDC continues to see end users utilizing a mix of operating systems in their infrastructures," said Jean S. Bozman, vice president of Worldwide Server research at IDC. "Each platform offers its own advantages in terms of workloads and customer preferences, and there is substantial overlap in terms of ISV applications that run on many of these server platforms. Although the trend is towards volume systems, we do not believe that any one platform will be in a position to force another platform out of the marketplace for many years to come."

Overall Server Market Standings, by Vendor

— IBM retained the number 1 spot in the worldwide server systems market with 38.4% market share in factory revenue, growing its revenue by 0.8% when compared to the same quarter one year ago. HP continued to hold the number 2 spot in terms of factory revenue with 26.8% share, growing revenue 3.8% compared to 4Q04 and gaining 1 point of market share overall.

— Dell maintained third place with 9.6% factory revenue market share in 4Q05. Dell experienced 7.3% revenue growth compared with 4Q04, while fourth place Sun experienced a year-over-year revenue decline of 10.9% in 4Q05 to 8.2% market share.

— Fujitsu/Fujitsu-Siemens earned a fifth place standing in terms of factory revenue with 4.3% market share. The Fujitsu Group of companies saw a 10.9% factory revenue decline year over year.

— In terms of unit shipments, HP maintained the number 1 position worldwide with 30.2% server shipment share, growing shipments 8.8% year over year. Dell maintained the number 2 spot in terms of worldwide server shipments with 23.3% share, up from 21.3%.

x86 Industry Standard Server Market Dynamics

The x86 server market continued to experience strong growth, with revenue of $6.8 billion worldwide for the fourth quarter of 2005. Factory revenue for x86 servers grew 6.7%, while unit shipments grew 13.7% to 1.8 million servers. HP led the market with 33.4% revenue share due to strong revenue growth of 10.1% year over year. The fierce competition between Dell and IBM for the second position in the x86 market ended in a statistical tie, with IBM and Dell each holding approximately 20% revenue share for the fourth quarter. Rackable Systems solidified its fourth place position in the U.S. with year-over-year growth of 268%. The rapid transformation of the x86 marketplace into a segment that is 64-bit enabled continued with x86-64 based systems accounting for 78.8% of all x86 server spending, with factory revenue for x86-64 systems more than doubling year over year.

"The number of AMD and Intel-powered dual core systems each grew by more than double on a quarter-over-quarter basis," said Jed Scaramella, research analyst, Worldwide Server research. "Given customers' intense focus on performance as well as power, heat, and cooling issues in their datacenters, the move to incorporating dual core processors is a natural move as users look to lower costs and increase computing capacity."

Bladed Server Market Shows Strong Shipment and Revenue Growth

The server blade market showed continued growth in the quarter, with shipments increasing by 49.3% year over year and factory revenue gaining 56.9% year over year. Overall, blade servers, including x86, EPIC and RISC blades, accounted for $667 million in the fourth quarter, representing 4.6% of quarterly server market revenue. IBM maintained the number 1 spot in terms of server blade revenues, with 42.7% market share, while HP maintained the number 2 position with 35.1% share. Dell holds the number 3 position with 11.2% share of factory blade revenues.

"Market momentum in the blade market continued in the quarter with blade volumes up 50% year over year," said Kelly Quinn, senior research analyst, Worldwide Server research. "Blade shipments increased more than 60% year over year in 2005 as IT managers began to adopt blades as a standard building block in their virtual IT infrastructures."

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, Fourth Quarter of 2005

(Revenues are in Millions)

Vendor Q4 2005

Revenue Market

Share Q4 2004

Revenue Market

Share Growth

4Q05/4Q04

IBM $5,555 38.4% $5,510 38.0% 0.8%

Hewlett-Packard $3,885 26.8% $3,745 25.8% 3.8%

Dell $1,390 9.6% $1,295 8.9% 7.3%

Sun Microsystems $1,185 8.2% $1,330 9.2% -10.9%

Fujitsu/Fujitsu Siemens $606 4.2% $680 4.7% -10.9%

Others $1,857 12.8% $1,952 13.5% -4.9%

All Vendors $14,478 100.0% $14,512 100.0% -0.2%

IDC Worldwide Quarterly Server Tracker, February 2006

For the full year 2005, worldwide server revenue grew 4.4% to $51.3 billion, while worldwide unit shipments grew 11.6% to 7.0 million units. IBM led the overall server market in 2005 with 32.9% revenue share, followed by HP with 27.7% share.

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, Full Year 2005

(Revenues are in Millions)

Vendor 2005

Revenue Market

Share 2004

Revenue Market

Share Growth

2005/2004