Only a Handful of Server Vendors Cheered Their 1999 Revenue Results

An IDC Research Report

Revenue growth in the server market was mixed in 1999, according to three new Commercial System and Servers bulletins released by market research firm IDC (Framingham, Mass.). The high-end and midrange server markets posted revenue declines of 7 percent and 18 percent, respectively, while the entry server market grew its revenues nearly 13 percent. Declines can be attributed to a second-half slowdown of production and new product launches due to Y2K uncertainty.

"If you sold servers that could significantly interrupt any year 2000 integration or unit testing, then you lost out in 1999," says Vernon Turner, VP of IDC's Commercial Systems and Servers research. "Likewise, if you provided any Web-hosting server technology, then you hit the sweet spot of the entire market."

The Y2K lockdown affected the high-end market and midrange market much more dramatically than the low midrange and entry server markets. In anticipation of spending slowdowns, many vendors delayed or accelerated product introductions to lessen the impact. Strong demand in 1999 for entry servers was heightened as need arose in e-commerce, Internet, and PC Server desktop migration.

"We expect to see the latter half of 2000 make up for the lackluster start to the year. The top vendors, Compaq, Dell, Hewlett Packard, IBM, are all pushing new models at every tier of the Internet processing architecture in an attempt to make up for the slumber party of '99," Turner adds.

The high-end market, which includes servers priced above $1 million, suffered the biggest setback in 1999, with an 18 percent revenue decrease, a decrease mainly due to Y2K lockdowns on second-half purchases. The instability in the Japanese market also contributed heavily to the waning revenues in 1999. The bright spot in the high-end market was a small group of companies, Sun Microsystems, Fujitsu, and Unisys, which posted revenue and market share gains.

The midrange server market, which includes servers priced from $100,000 to $999,999, decreased overall in 1999 to $16.2 billion in factory revenue. However, the top three vendors - Hewlett-Packard, IBM, and Sun Microsystems - increased market share and revenue for the same time period.

The entry server market, servers priced less then $100,000, were least impacted by the Y2K slowdown with a strong growth rate of nearly 13 percent in 1999. The top leaders in this category are Compaq, IBM, Hewlett-Packard, Sun Microsystems, and Dell. Much of the growth in this segment can be attributed to a large demand for dual- and quad-processor standard Intel architecture servers, which grew at 24 percent.