EMEA Server Revenue Falls 34.3% Annually in 1Q09, the Fastest Decline Since IDC Records Began

LONDON – June 2, 2009 – In the first quarter of 2009, the EMEA server market experienced its fastest year-on-year decline since IDC records began in 1996. Revenue was down 34.3% to $2.9 billion, and shipments were also down, by 29.6%, to below the half-million mark. The pace of revenue decline was very similar in the x86 and non-x86 areas, differing from the worldwide server market trend, which showed slower declines in the enterprise, or non-x86, server segment, and particularly mainframes. Both the industry standard and the enterprise segments declined by around 34% year on year.

Midrange servers were the best-performing server class, with a decline of 27.8% in 1Q09 over 1Q08, well below the market average. High-end servers recorded the steepest decline, 40.4% annually, while volume servers were down 34.2% over the year-ago period. These figures reflected the decline in CISC revenue, and the stabilization of the RISC space. By sub-region, countries in the Central and Eastern European area suffered the worst annual revenue declines, with sales down 43.7% – an unusual development in a geography that has been growing at a faster pace than Western Europe, which is a mature market in comparison. It was the first time that CEE declined faster than WE since 2003.

"After negatively affecting server spending in the finance and automotive sectors, the economic downturn spread to all economic segments at the start of 2009, leading to recessionary environments in many countries in EMEA. While the technology drivers and customer needs remain unchanged, organizations and IT departments react to poor trading conditions and falling demand by streamlining their balance sheets and postponing and downsizing non-urgent IT investments," said Nathaniel Martinez, IDC program director for European Systems and Infrastructure solutions. "IDC believes that server spending cuts are a short-term response to degrading economic conditions, but in the long-term, organizations will re-initiate IT infrastructure investment to lower overall cost structure and operate at a higher level of efficiency through virtualization, automation, and power-saving technologies."

While IT refreshments are being put on hold in most industries, because companies are being extremely risk averse at present, IDC continues to see virtualization driving sales of more richly-configured server systems in certain segments, especially where consolidation projects can drive significant savings in the short to medium term. "These segments include large companies in the corporate space, for which profitability is not a pressing issue, and the public sector. Meanwhile, the SMB segment is displaying very subdued demand, as most smaller companies cannot afford to invest in their IT infrastructure at the moment. IDC expects some pent-up demand to be mirrored with spending in the first half of 2010, as the market slowly returns to its normal conditions and economic activity becomes more dynamic," said Beatriz Valle, IDC analyst for European Systems and Infrastructure Solutions.

Blades and x86

"Blades were once again one of the most resilient segments in the EMEA server market, decreasing in revenue value by a relatively low 9.9% year on year," said Giorgio Nebuloni, an IDC analyst responsible for x86 servers and blades research in the European Systems and Infrastructure Solutions group. "We expect this resilience to continue further in 2009 and beyond, pushed by the consolidation and rationalization needs of budget-constrained companies, and encouraged by all major vendors, that see blades as a good leverage to de-commoditize the upper end of their x86 business. In this respect, we are now seeing suppliers increase the value of their blades with packages that include additional software, networking gear, and storage, as customers demand a more integrated approach. This is forcing vendors to revamp their blade portfolios, and is also bringing new players to the market, which will lead to strong competition between the top suppliers."

Emerging Markets

The first quarter of the year saw the region of Central and Eastern Europe, Middle East, and Africa (CEMA) once again reporting a year-on-year revenue contraction, this time of 34.3%. In the short term, IDC does not foresee this market trend changing for the better. Both CEE and MEA posted double-digit declines, of 43.7% and 23.9%, respectively. "The contraction is a direct result of the sharp downturn in the global economy and the escalation of the financial crisis," said Stefania Lorenz, IDC CEMA Systems research director. "Economic growth in some of the countries across the region has come to a standstill, presenting a real challenge to all IT businesses." "The CEMA region reported a revenue decline of 23.8% for non-x86 servers and an even heavier year-on-year fall for x86 servers, of 41.0%. In revenue terms, this means the x86 market value dropped to $314 million, a level not seen since 1Q05, when the market reported $341 million revenue. Non-x86 server value shrank to levels last seen in 2Q06. Such levels indicate a sharp fall in the server market performance in the region. IDC predicts that it will take a while, probably until the fourth quarter of 2010, before we see a return to the $1 billion per quarter revenue levels of 2008."

Top Server Market Findings

— All CPU types suffered annual revenue losses in the mid-thirties percentage range, with the exception of EPIC servers, for which the decline was slower, at 30.2%. Servers running on Intel's Itanium chips were the only CPU type to increase market share annually, from 8.7% in 1Q08 to 9.3% in 1Q09, although their share decreased quarter on quarter, down from 11% in 4Q08. Both RISC and x86 servers kept roughly the same market share year on year, albeit from a much smaller base. x86 servers generated $1.5 billion in 1Q09, against $2.3 billion in 1Q08, while RISC servers were below the $800 million mark, having generated $1.2 billion in the year-ago period. CISC revenue declined rapidly, down 35.3% annually.

— Z/OS recorded the steepest decline of all the mainstream operating systems, down 37.9% annually, while Windows, Unix, and Linux recorded very similar annual declines of 33.9%, 33.0%, and 32.7%, respectively. Despite the sharp declines across the board, all the main operating systems, except for IBM's Z/OS, increased market share slightly, at the expense of legacy OS, and with Unix growing nearly a full percentage point.

— While volume servers maintained the same market share in 1Q09 as in 1Q08, the midrange space gained a couple of percentage points, at the expense of high-end servers, whose share of the revenue in EMEA fell from 24.5% in 1Q08 to 22.2% in 1Q09. IBM enjoyed the biggest market share in the midrange server space, with 39.7% of all the midrange revenue, and HP obtained a share of nearly half of all sales in the volume segment, at 48.8%. Within the midrange type of servers, 65.4% were RISC-based servers, while 91.7% of all volume server revenue came from x86 servers. Volume servers reached 53.4% of the total EMEA revenue in 1Q09, at $1.5 billion, followed by midrange systems with 24.5%.

— Looking at form factor performances, blade revenue market share increased nearly four percentage points in 1Q09 over 1Q08, to 13.9%, or $406.7 million. Rack and pedestal servers were on a statistical tie of 43% of the market, or $1.2 billion, although pedestal servers declined at a much faster pace than racks, at 40% instead of 33.6% year on year. HP achieved the top revenue in blades, with 64.2% of all blade revenue in EMEA in 1Q09.

Top Server Vendor Findings

— HP was the top vendor, with 36.9% of EMEA revenue. Of the total HP revenue, 68% came from Proliant servers. Integrity systems continued to drive significant demand, and their revenue decline was much smaller than that of all the other server families in HP. However, Integrity Non-Stop systems experienced the steepest decline of all product families for this vendor, including 9000 and Alpha.

— IBM took second place, with 28.9% of total revenue in EMEA, driven by outstanding growth in its RISC-based Power Systems family, as the transition from the System p and System i families of servers takes place at full speed.

— Sun Microsystems demonstrated a higher degree of resilience, with a rate of annual decline significantly lower than other vendors, at 30.7%. Sales were mostly driven by its RISC-based SPARC Enterprise servers, which took 67.5% of the revenue.

— Dell's family of PowerEdge servers took 18.8% of all x86 server shipments and 17.1% of all x86 server revenue in EMEA in the first quarter of 2009. Despite a steep decline (-37% in units) driven by CEE and MEA, the company retained the second spot in the x86 area, thanks mainly to a more resilient blade business.

— Fujitsu Siemens' CISC-based BS2000/OSD servers continued to be an important source of revenue for the vendor, with 31.3% of its total sales, while its industry standard family, Primergy, was its main revenue generating product, with 57.8%, but it declined faster than its mainframes year on year.

Top 5 Corporate Family, EMEA Server Systems Factory Revenue, First Quarter of 2009

(Revenues are in millions)

Vendor 1Q09 1Q09 1Q08 1Q08 1Q09 / 1Q08 Revenue Market Share Revenue Market Share Revenue Growth

Hewlett-Packard $1,080.52 36.9% $1,615.91 36.2% -33.1%

IBM $847.28 28.9% $1,258.19 28.2% -32.7%

Sun Microsystems $351.13 12.0% $506.61 11.4% -30.7%

Dell $260.32 8.9% $433.23 9.7% -39.9%

Fujitsu Siemens $198.06 6.8% $374.27 8.4% -47.1%

Other $191.1936 6.5% $269.5991 6.0% -29.1%

Total Market $2,928.51 100.0% $4,457.80 100.0% -34.3%

About IDC

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