Worldwide Server Systems Market Halts Nine-Quarter Decline in Revenues, Driven by x86 Server Sales, According to IDC

FRAMINGHAM, MA – AUGUST 29, 2003 – The worldwide server systems market halted a nine-quarter decline in year-on-year growth in the second quarter of 2003 (2Q03) according to IDC's Worldwide Quarterly Server Tracker. However, quarterly server factory revenues of $10.6 billion were just 0.2 percent higher than they were in the year-ago quarter, making it too soon to declare that the worldwide server market has begun to rebound. Second quarter growth was slightly ahead of IDC's forecast for a 1.7% decline. For comparison, in the first quarter of 2003, factory revenue declined 3.3% year-on-year.


Server unit shipments during 2Q03 rose a dramatic 17.5% to more than 1.2 million units, clearly demonstrating that average sales prices in the worldwide server market have continued to slide.

"The fact that this nine-quarter decline in worldwide server revenues has finally come to a halt could signal that IT managers are once again investing in IT infrastructure build-out on a worldwide basis," said Jean S. Bozman, research vice president of Global Enterprise Server Solutions at IDC. "Although it's too soon to declare a rebound in the server market, it looks like new IT buying patterns are overtaking old ones."

IBM reclaimed the number 1 spot in the worldwide server systems market, with 30.4% market share in factory revenue and 10% year-on-year revenue growth. HP, which had gained the number 1 spot in 1Q03 on the strength of its year-old merger with Compaq, held the number 2 spot in 2Q03, with 27.7% share and flat year-on-year revenue growth. However, HP retained its lead in factory revenue in the Linux server and Windows server market segments. Sun Microsystems and Dell remain the number 3 and number 4 server vendors worldwide, respectively, followed by Fujitsu Siemens in the number 5 spot.

The x86 server market (comprising systems based on Intel and AMD microprocessors) grew more than 21% year-over-year in terms of unit shipments and grew 9% with respect to factory revenue. IDC believes that strength in sales of these volume servers (servers priced less than $25,000) reflects continued momentum in worldwide small and medium business segments, demand in departmental and workgroup environments in larger enterprises, and slow, but steady replacement of servers purchased in the 1999 and 2000 timeframe, when the worldwide server market had record revenues.

Growth in the volume server segment was strong across many form factors and server types. Sales of server blades

reached a new high watermark at more than $100 million worldwide and Linux server platforms posted nearly a 40% increase in revenues to $650 million from the year-ago quarter. Unit shipments for Linux servers grew 42% during 2Q03 – faster than in any other server-market segment. "Rack-optimized servers and server blades used in clusters and server farms are increasingly being deployed in the datacenter as effective alternatives to larger, RISC-based solutions", said Mark Melenovsky, research director of Global Enterprise Server Solutions at IDC. "This trend is especially true for Internet infrastructure workloads, for highly parallelized technical applications and for custom applications in the high performance technical computing market, as well as in some select vertical markets, such as financial services."

The Windows server market – the largest single segment by unit shipments worldwide – grew nearly 11.5% in 2Q03 in terms of factory revenue, compared to 2Q02. Unit shipments grew strongly, with 21.7% growth, compared to the year-ago quarter. Windows servers accounted for $3.1 billion of the total sever systems market revenue during 2Q03.

The worldwide Unix server market generated $4.3 billion in 2Q03, showing a decline of 5.2% in 2Q03 – considerably less than the 12.7% decline it showed for 1Q03. In the highly consolidated Unix server market, where the top three vendors hold more than 88% of the market share, the competition continued to be strong during 2Q03. Sun, which has a traditionally strong sales in the second quarter – its fiscal fourth quarter – pulled ahead to regain the number 1 position in this market, with 33% market share, after having tied with HP for the top position in 1Q03. HP was second

with 31.4% share, while IBM was third with 24.6% share. Even so, IDC notes that IBM grew its Unix server revenues 20.4% year-over-year, reflecting a strong effort on IBM's part to gain share in this strongly contested market segment over time. "The Unix server segment is the single largest 'slice' of the entire worldwide server market, with more than 40% of the revenue share in 2Q03," said Lloyd Cohen, research director of Global Enterprise Server Solutions at IDC. "Unix systems, along with the associated software and services tied to these solutions, continue to drive much of the overall enterprise IT spending."

Top 5 Vendors, Worldwide Server Systems

Factory Revenue, Second Quarter of 2003

(Revenues are in Millions)

Q2 2002 Market Q2 2003 Market Revenue Growth

Vendor Revenue Share Revenue Share 2003/2002

IBM $2,931 27.7% $3,228 30.4% 10.12%

Hewlett-Packard $2,935 27.7% $2,946 27.7% 0.36%

Sun Microsystems $1,763 16.6% $1,434 13.5% -18.69%

Dell $891 8.4% $980 9.2% 9.94%

Fujitsu Siemens $259 2.4% $286 2.7% 10.64%

Others $1,818 17.2% $1,742 16.4% -4.15%

All Vendors $10,597 100.0% $10,616 100.0% 0.17%

Source: IDC, August 2003

Revised Server Taxonomy

IDC instituted a new Server Taxonomy during 2Q03, which maps the eleven price bands within the server market into new prices ranges. Specifically:

The category "Volume Servers," formerly called "Entry Servers," is based on IDC's price bands under $25,000.

The category of Midrange servers has been changed to "Midrange Enterprise Servers," and it will be based on IDC's price bands between $25,000 to $500K.

The category of High-end servers has been changed to "High-End Enterprise Servers," and it will be based on IDC's price bands greater than $500K.

Previously, IDC had defined entry servers as servers that were priced less than $100,000; midrange servers as those that were priced from $100,000 to $999,999; and high-end servers as those that were priced at $1 million, or more.

The changes were made to reflect declining average sales prices for the traditional categories of servers, and to reflect the new pricing models for these server types.

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

IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications

industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. Additional information can be found at www.idc.com.

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