Chilling Outlook for High-End Servers
Sales of high-end servers have entered a period of protracted decline. It's unclear, however, what this will mean for mainframe market fortunes.
The latest -- and at this point, speculative -- market research from IDC suggests that the enterprise server segment has entered a rough patch that it won't soon escape. More chilling still is the likelihood that high-end server sales -- which includes mainframe systems -- will decline at a far greater rate than revenues from low-end or midrange servers.
Indeed, although IDC expects sales of volume and midrange servers to recover starting next year, it projects that high-end server sales have entered a period of protracted decline. All in all, IDC's recent Worldwide Quarterly Server Forecasts paints a picture of an inescapably brutal enterprise server market, with server sales expected to plunge by 22 percent this year. Only the midrange server segment (down by just under 10 percent) is expected to finish the year relatively unscathed.
The midrange will be a bulwark for the duration of IDC's survey period -- which extends through 2013 -- recording a slight drop in 2011, but growing incrementally starting in 2012. Volume server sales should also recover by next year, preparatory to posting strong growth in both 2012 and 2013.
The high-end segment, on the other hand, is poised to hemorrhage share: by 2013, IDC projects, it will be down 45 percent from its 2008 tally.
For the present, IDC suggests, server market sales are probably as depressed as they're going to get. With a projected decline of 29.6 percent, the current quarter (Q2 2009) actually constitutes "the largest year-over-year server decline the market will experience in this negative business cycle," according to an IDC statement. More to the point, the Q2 numbers don't just denote the low point of the current negative cycle -- they're the worst numbers in the history of IDC's server market tally, outpacing even Q1's near-25 percent decline. One upshot of this, however, is that things could soon start to improve.
"Although we are now forecasting a 22.1 percent year-over-year decline in server spending for 2009, the worst of the market contraction is behind us. In fact, by the end of the third quarter this year, nearly 90 percent of the cumulative market contraction will have been realized as the market begins exhibiting significant signs of stabilization," said Matt Eastwood, group vice president of Enterprise Platforms at IDC, in a statement. "It's important to note that … many IT users will begin making strategic compute-platform decisions during the remainder of 2009 in advance of improving business conditions and server demand in 2010."
On the other hand, IDC has famously revised its overall IT spending projections downward on several prior occasions -- first late last year, then earlier this year.
Although IDC projects nothing less than a meltdown in the high-end server segment, mainframe sales have thus far bucked, or otherwise outperformed, the prevailing downward trend (see http://esj.com/articles/2009/03/31/big-iron-bucks-trend.aspx). In the midst of the high-end server segment's horrific Q1, for example, sales of Big Blue's System z mainframes were off by just 19 percent -- such that (with overall server revenues plunging by 24.5 percent and sales of high-end servers off by 26.6 percent from Q1 of 2008) System z paradoxically gained market share. By contrast, arch-rival Hewlett-Packard Co.'s high-end practice -- which is anchored by its IA-64-based Integrity servers -- recorded bigger losses than Big Blue's System z practice.
What's more, in Q4 of 2008 -- which was a particularly brutal period for Big Blue's server market fortunes -- System z was the only one of IBM's server businesses to post a year-over-year gain in revenues, according to market watcher Gartner Inc. (Contrast System z's performance with that of the company's x86 server practice, which was off by a staggering 30.5 percent.)