In-Depth

Mainframe Sales Drive Surging Server Market

Server revenues were way up in Q3, and IBM lucrative System z mainframes helped lead the charge

• By Stephen Swoyer
• 12/05/2006

Lost in the pre-Thanksgiving bustle, IDC’s latest server market research—which the market watcher published just two days before the holiday—had encouraging news for mainframe boosters.

Server revenues were up in a big way, and IBM Corp.’s System z mainframes helped lead the charge. For the record, IDC cited strong demand for high-end servers and server blades, culminating—the researcher says—in the strongest server market growth in 12 months.

Worldwide server revenue grew by 3.5 percent on a year-over-year basis (reaching $12.9 billion) in Q3. Not only was this the fastest growth rate in four quarters, it was also the largest third-quarter splurge since 2000.

What’s to account for runaway growth of this kind? Server blades, for one: worldwide demand for blades was grew at an annualized rate of 29.9 percent. Asia/Pacific (excluding Japan) and Europe/Middle East/Africa were the strongest regions, with growth of 13.7 percent and 4.8 percent respectively.

Ditto for high-end server revenue, which grew by almost 10 percent on an annual basis. That’s the first positive growth for this lucrative segment (which comprises the primary growth engine for the server market as a whole) since Q3 of 2004. IBM’s System z had a standout quarter, IDC researchers say.

"High-end enterprise revenue grew over 9 percent on the strength of IBM's System z product family. The introduction of the z9 BC [business class] machines coupled with the previously announced z9 EC [enterprise class] systems, invigorated the mainframe market during the quarter," said Steve Josselyn, research director for Enterprise Platforms at IDC, in a statement. "IBM's System z revenue growth of 25 percent contributed a significant amount to overall market performance, and further highlights the continued customer demand for mainframe-class systems."

The volume server market, conversely, posted only modest growth (3.8 percent year-over-year expansion). That made for its fourth consecutive quarter of single-digit growth, and its slowest growth since Q3 of 2002.

Midrange server revenue, on the other hand, was down by 2.3 percent year over year, its fourth consecutive quarterly decrease.

In the face of mounting concern over the cost of cooling, powering, and housing the enormous data centers of today, it’s not surprising that enterprises are disproportionately breaking for massively consolidated systems: either server blades or high-end servers—such as mainframe systems, IDC says. "For end-users, new levels of compute density mean increased power densities and expanding power and cooling challenges, which are driving different IT infrastructure acquisition patterns,” said Matt Eastwood, program vice president of Enterprise Platforms at IDC, in a statement.

Other big winners were Windows- and Linux-powered servers. Windows server revenues, for starters, increased by 4.6 percent on a year-over-year basis. In fact, IDC says, the $4.8 billion in revenue generated this quarter by factory sales of Windows servers comprised the largest single segment of the server market. Linux server revenue, for what it’s worth, amounted o $1.5 billion for the quarter. Year-over-year growth outpaced that of Windows servers, clocking in at 5.4 percent. Linux servers now account for 11.8 percent of all server revenues.

Unix, on the other hand, was down, with factory revenue declining 1.7 percent. Nevertheless, sales of Unix servers are nothing to sneeze at, comprising 30.1 percent of overall quarterly factory revenue (or $3.9 billion).

For the quarter, IBM Corp. was number one overall, generating nearly one-third of all server revenues and posting revenue growth of 6.6 percent, compared to the year-ago quarter. HP was again number two, with a 27.7 percent share of server market revenues and a 2.1 percent year-over-year decline in revenue. HP’s decline is related to difficult fiscal to calendar quarter conversions, IDC says. In terms of unit shipments, on the other hand, HP was again number one, with a 28.8 percent share, growing its shipments by 7.6 percent on year-over-year basis. Dell Computer Corp. was number two on a per-unit basis, with 24.6 percent share, up from 23.9 percent in the year-ago quarter.