Commodity Iron on Top

Though mainframe sales may be down, commodity server sales are strong.

Mainframe boosters who hoped for an uptick in sales to close out a dismal 2009 were disappointed. According to IBM Corp.'s own numbers, Big Iron continued to slump through Q4 of 2009, dropping 27 percent year over year. That makes three successive down quarters in the mainframe market.

The commodity server market, however, seems to have turned a corner. For the first time ever, market watchers say, Q4 sales of commodity (x86 and x64) servers surpassed those of midrange and high-end systems.

Both IDC and Gartner Inc.had the overall enterprise server market off only slightly in Q4, down 3.9 and 3.2 percent, respectively. Interestingly, both analysts have unit shipments increasing year-over-year against their 2008 tallies. Throughout 2009, market watchers say, server vendors slashed prices to sell boxes. Starting in Q4 of last year, that approach began to pay off.

Gartner went so far as to suggest that the volume (x64) segment actually grew in 2009. Thanks to the deadweight of the mainframe and RISC-Unix markets, however, overall growth still declined.

"The recovery that began in the third quarter of 2009 based on x86 servers extended into the fourth quarter," said Jeffrey Hewitt, research vice president at Gartner, in a statement. "However, it is important to put this into context. The fourth quarter of 2008 was quite weak, so the fourth quarter of 2009 did not have to produce huge x86 server numbers to result in an increase. At the same time, other segments like RISC/Itanium Unix and mainframes remained constrained and that exerted downward pressure on overall vendor revenue results."

A Shrinking High-End Server Market

It's with this in mind that mainframe watchers can take some comfort. Mainframe hardware wasn't the only segment adversely impacted by the glacial pace of recovery. As with Big-Iron systems, Unix server sales were down -- for the quarter, IDC had the high-end market down by almost 24 percent, year over year. Slumping mainframe sales accounted for much of that, but RISC-Unix sales were also off by almost 20 percent, year over year.

More worrying still was the continued decline in Unix's overall piece of the server market's revenue pie: in the final quarter of 2008, for example, Unix servers accounted for more than one-third (36.2 percent) of quarterly IT spending; in Q4 of 2009, however, Unix's share had dropped to just under 30 percent. It's part of a lengthy and uninterrupted demand for the Unix server segment that continues to cede ground to other platforms.

Part of the reason for Big Iron's slump almost certainly has to do with Big Blue's aging flagship mainframe, System z10. IBM officials -- including CFO Mark Loughridge -- have publicly acknowledged that z10 is at the tail-end of its lifecycle; Big Blue is expected to refresh its mainframe CMOS later this year.

In the meantime, customers aren't budging (see http://esj.com/Articles/2010/01/05/IBM-Linux-Only-Gift.aspx?Page=3).

For Unix watchers, Q4 was undoubtedly a let down, especially compared to the year-ago quarter, when -- in the face of a worsening economic crisis -- Unix server sales were actually relatively good. Q4 is traditionally a big quarter for Unix servers, in part because large shops tend to put off server upgrades until the end of the year. That sales of Unix servers continued to slump during what has traditionally been a strong period for Unix is discouraging.

At the same time, 2009 may go down as an aberrant year in the Unix market: Oracle Corp.'s acquisition of Sun Microsystems Inc. kept Sun customers guessing (and competitors stirring up fear, uncertainty, and doubt) throughout most of 2009, for starters.

Adding to the Oracle/Sun uncertainty was IBM's scheduled refresh of its POWER platform. Late last year, Big Blue announced an upgrade path and special pricing breaks to encourage customers to purchase new POWER6+ systems in lieu of its still-incubating POWER7, which finally shipped last month. Its imminent arrival doubtless encouraged some customers to delay or eliminate new Unix system purchases.

Market demand isn't moving in Unix's favor, nor in Big Iron's, for that matter. "In 2009, x86 servers captured more than 55 percent of all server revenue and more than 96 percent of all server units shipped worldwide," said Dan Harrington, research analyst, IDC's Enterprise Server Group, in a prepared release. "Interestingly, x86 captured more than 57 percent revenue share in the fourth quarter of 2009. Because the fourth quarter is typically the strongest quarter for high-end non-x86 systems, this represents a significant shift in trends for the market, as non-x86 servers have never held less than 50 percent of revenue in the fourth quarter. IDC expects this trend to continue as users became more cost conscious than ever in 2010 and look to x86 servers for relief from capital and operational expenditures."

Finally, Unix wasn't the only operating system to suffer a contretemps (of sorts) in Q4. Sales of new Windows servers far outstripped sales of Linux servers -- by a factor of more than 2:1. Linux server sales, which have arguably been growing at the expense of both Windows and proprietary Unix systems, increased by just over 6 percent, year over year. Sales of new Windows servers, on the other hand, jumped by almost 14 percent, in the last year. Market watchers say Redmond's Windows Server 2008 R2 -- which shipped in July -- has been a catalyst for upgrade or replacement buying.

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