Server Market Deceleration Continues in Second Quarter, But Signs of Stabilization Emerge, According to IDC

FRAMINGHAM, Mass. – September 2, 2009 – According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market declined 30.1% year over year to $9.8 billion in the second quarter of 2009 (2Q09). This is the fourth consecutive quarter of revenue decline and the lowest quarterly server revenue since IDC began tracking the server market on a quarterly basis in 1996. Server unit shipments declined 30.4% year over year in 2Q09, accelerating from the 26.5% decline experienced in 1Q09 and representing the largest ever year-over-year quarterly server unit decline as customers continued to defer server refresh activities.

Revenue for all classes of servers weakened further in the second quarter, with volume systems declining 30.0% and midrange enterprise revenue off 28.1% year over year. The slowdown extended to the high-end enterprise segment where revenue declined 32.0% when compared to the same quarter one year ago. This is the third consecutive quarter that all three server segments have experienced a year-over-year revenue decline in the same quarter.

"Over the past four quarters, the worldwide server market has experienced significant revenue deceleration in all geographic regions as the economic recession has deepened," said Matt Eastwood, group vice president of Enterprise Platforms at IDC. "Fewer servers have been shipped over the past four quarters than at any time since 2005 and it is clear that the worldwide server installed base is aging rapidly. In the weeks and months ahead, IDC believes that IT customers around the globe will begin to focus on the future once again, making strategic compute platform decisions for the next business cycle, and driving more predictable server demand as market conditions stabilize in the second half of 2009."

Overall Server Market Standings, by Vendor

IBM held onto its number 1 spot in the worldwide server systems market with 34.5% market share in factory revenue for 2Q09 and gaining 1.8 points of share in the quarter on the performance of System x and System p. HP maintained the number 2 spot with 28.5% share for the quarter, on a 30.4% year-over-year revenue decline. Dell and Sun held the number 3 and 4 market positions with 12.4% and 10.0% factory revenue share respectively. Dell's factory revenue declined 26.8% and increased their market share by 0.6 pts year over year while Sun's factory revenue declined 37.2% year over year. Fujitsu/Fujitsu-Siemens maintained its fifth-place standing in terms of factory revenue, with 3.5% market share in the quarter.

Top-Level Server Market Findings

* The market for non-x86 servers, including servers based on RISC, EPIC, and CISC processors, declined 32.2% year over year to $4.7 billion in 2Q09. After outperforming x86 servers recently, this is the first time in the past six quarters that non-x86 servers have underperformed x86 servers in the market. IBM maintained its leadership position, posting 53.3% share in this segment, followed by Hewlett Packard (19.2%) and Sun Microsystems (17.3%), respectively, based on factory revenue.

* Microsoft Windows server revenue was $3.7 billion in 2Q09 showing a 27.7% year-over-year decline and comprising 38.1% of all server revenue in the quarter. Windows servers account for the single largest segment of spending, by operating system, in the worldwide server market.

* Linux server revenue declined 28.9% year-over-year to $1.3 billion in the quarter. Linux servers now represent 13.8% of all server revenue, up slightly from 13.5% a year ago.

* Unix servers experienced a 30.9% revenue decline when compared with 2Q08. Worldwide Unix revenues were $3.1 billion for the quarter, representing 31.5% of quarterly server spending. IBM gained 7.4 points of share year over year and holds the 2Q09 leadership position, posting 41.4% share in this segment, followed by Sun Microsystems (27.3%) and Hewlett Packard (24.8%) respectively, based on factory revenue.

x86 Server Market Dynamics

The x86 server market remained weak in 2Q09, declining 28.1% in the quarter to $5.2 billion worldwide as unit shipments declined 30.0% to 1.4 million servers. This is the lowest x86 server revenue since 3Q03 with the top 3 x86 server vendors all experiencing server revenue declines of 20% or more in the quarter. IBM exhibited the strongest x86 performance of the top 3 OEMs, gaining 1.4 points of market share on a 21.8% year-over-year factory revenue decline. HP led the market with 36.9% revenue share as Dell held second place with 23.7% revenue share and IBM maintained the third position with 17.5% revenue share.

"x86 servers continued to show marked weakness due to economic instability throughout the second quarter. While the year-over-year revenue decline is particularly steep, it should be noted that the comparison was to a strong second quarter in 2008, which had the highest second quarter revenue for the x86 market since 2004," said Daniel Harrington, research analyst, Enterprise Server Group. "This quarter’s performance was not unexpected, and with the lack of normalcy from seasonal patterns it should be noted that unit shipments did increase quarter over quarter. IDC believes that due to constrained IT budgets, users refrained from investing what capital they had in preparation for the significant product refresh led by the latest AMD Istanbul and Intel Nehalem server CPU's, which began ramping during the quarter. Indications from the market support an optimistic view for x86 in the coming quarters.”

Blade Server Market Shows Strong Shipment and Revenue Growth

The blade server market segment experienced quarterly revenue declines for the second consecutive quarter with factory revenue falling 12.1% year over year on a 19.8% year-over-year shipment decline. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $1.2 billion in the first quarter, representing 11.7% of quarterly server revenue. IBM exhibited the strongest blade server performance of the top 5 OEMs, gaining 3.8 points of market share on 2.3% year-over-year factory revenue growth. HP led the market with 52.9% revenue share as IBM held second place with 27.2% revenue share and Dell maintained the third position with 9.1% revenue share.

"Compared to the overall server market, the blade segment experienced relatively good results for the quarter,“ said Jed Scaramella, senior research analyst in IDC's Datacenter and Enterprise Server group. "The converge nature of the blade platform enables IT organizations to increase IT efficiency through improving manageability and lowering operating expenses. These are key customer criteria during the current economic recession."

Top 5 Corporate Family, Worldwide Server Systems Factory

Revenue, Second Quarter of 2009

(Revenues are in Millions)

Vendor 2Q09 Revenue 2Q09Market Share 2Q08 Revenue 2Q08Market Share 2Q09/2Q08Revenue Growth

IBM $3,385 34.5% $4,596 32.7% -26.3%

Hewlett-Packard $2,798 28.5% $4,017 28.6% -30.4%

Dell $1,221 12.4% $1,667 11.9% -26.8%

Sun Microsystems $981 10.0% $1,562 11.1% -37.2%

Fujitsu/Fujitsu Siemens $345 3.5% $531 3.8% -35.0%

Others $1,084 11.0% $1,668 11.9% -35.0%

All Vendors $9,814 100% $14,040 100% -30.1%

IDC's Worldwide Quarterly Server Tracker, September 2009

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 hnguyen@idc.com.

About IDC

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries. For more than 45 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com[http://www.idc.com].

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