EMEA Server Market Rebounded in 1Q10, With First Annual Growth Gains Since 2008 and Revenue Up 7.4% Annually, Driven by Demand for x86 Systems, Says IDC

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According to IDC's EMEA Quarterly Server Tracker, the server market enjoyed a strong pickup in the first quarter of 2010, with revenue up 7.4% annually to $3.2 billion. Units returned to doubledigit growth, up 16.4% year on year, with around 560,000 systems shipped. The figures indicate a welcome upsurge in the market after doubledigit annual revenue declines in every quarter of 2009.

However, EMEA server revenue in 1Q10 remained weak when compared with the prerecession figures of $4.4 billion in 4Q08, and was far below the peak of the market in 4Q07, when server sales hit $5.4 billion. Quarteronquarter performance took a dive in the value area, with revenue down 19.9%, indicating the market is still fluctuating.

There was a sharp imbalance between x86 and nonx86 technologies, with industrystandard servers as the main market engine, taking a record 64.8% of the total revenue. Sales of x86 servers nearly doubled that of nonx86 servers, with industrystandard systems generating $2 billion of factory revenue against $1.1 billion for enterprise servers.

According to Nathaniel Martinez, research director in the Enterprise Server Group for IDC EMEA, "The server market is currently undergoing a silent revolution, whose main drivers are technology developments that are driving seismic changes in customer usage patterns. European organizations are currently evaluating technologies such as scaleout environments, virtualization, and cloud computing, which are all promising to run IT infrastructure more efficiently."

In the nonx86 segment, new competitive vendor dynamics, such as the Sun acquisition, combine with server refresh cycles and gotomarket strategies to create a particularly challenging market.

"This quarter marked the first incursion into positive annual growth rates by the EMEA server market since the second quarter of 2008. While it is encouraging that annual growth rates in EMEA are higher than trends recorded on a worldwide basis, the quarteronquarter growth data indicates this recovery is far from consolidated," said Beatriz Valle, senior research analyst in the Enterprise Server Group for IDC EMEA.

Blade Server Segment

"With yearonyear growth of 12% in units, blade servers performed slower than the market average for the first time ever, as the bulk of shipments in 1Q10, both from mid and large enterprises, came from a huge refresh of 2socket x86 rack machines. However, blade grew yearly 32% in revenue against a 7% market average, a sign that those platforms keep attracting large enterprise investments," said Giorgio Nebuloni, senior research analyst in the Enterprise Server Group for IDC EMEA.

Emerging Market Dynamics

According to Stefania Lorenz, research director for IDC CEMA, "Both emerging markets in the EMEA region resumed growth at faster rates than Western Europe. The economies of the Central and Eastern European [CEE] subregion, which lost market share against the Middle East and Africa during 2009, enjoyed the fastest growth rates, with sales growing 14.1% in 1Q10 on 1Q09, on the back of strong growth in Russia, whose revenue was up 58% year on year, with most of this growth in the x86 segment. In the Middle East and Africa [MEA], server revenue was up 9.4% annually. Revenue from the CEE and MEA subregions was 9.4% and 11.2% of the total EMEA revenue respectively in the first quarter of 2010."

Top Server Market Findings

- x86 servers grew annually by 33.3%, while enterprise nonx86 systems saw their revenue decline 20.7% annually. In the nonx86 segment, there were varying degrees of deacceleration. RISC servers suffered the most, down 23.9% in 1Q10 on 1Q09. Both CISCbased mainframes and EPICbased servers running on Intel's Itanium processors experienced similar annual losses of 16.1% and 17.3% respectively.

- RISC continued as the single biggest nonx86 segment, with $600 million in revenue. Issues around time to market are having an impact on RISC Unix results, and it will be necessary to hold on for a couple of quarters to appreciate the full picture of this segment's results.

- The gap between the two main operating systems widened, driven by the shift towards the x86 market. Windows outstripped Unix by a factor of nearly two to one, taking $1.5 billion in revenue in EMEA. Microsoft's operating system saw its revenue increase 32.9%, while Unix was down 20.8% year on year.

- Volume servers, those priced below $25,000, continued to drive the market with annual growth of 31%, reflecting the dominant position of x86 technologies. The midrange and highend segments both suffered doubledigit annual revenue losses at 24.7% and 18.5% respectively, but the midrange segment is expected to pick up in the next few quarters as a result of new RISC Unix platform introductions.

- Blades were the fastestgrowing form factor, up 32.4% year on year. Rack servers generated $1.6 billion against $1 billion for pedestal systems. Pressing customer pain points around the physical limitations of the datacenter, including space constraints and power and cooling issues, will drive this trend forward in the foreseeable future.

Vendor Highlights

- HP stayed in the number 1 spot for the ninth consecutive quarter, with revenue growing in the double digits, on the back of its ProLiant family of servers. Sales of this server family exceeded $1 billion in EMEA. HP's Integrity systems, based on Intel's Itanium processors, saw their percentage of the vendor's business decrease. The vendor released nextgeneration Itaniumbased systems in April based on Itanium 9300 processors. In terms of blades, HP remains the leader with 63.7% revenue share.

- IBM continued as the second vendor this quarter, with a slight dip in revenue year on year due to its reliance on the RISC Unix platform business, and the time to market of the new Power System models running on POWER7 processors, released in February. Its percentage of the overall server revenue, however, increased year on year by three full percentage points. Its x Series family of servers took a record 37.6% of the total business for this vendor.

- Dell enjoyed doubledigit annual revenue growth of 29.2%, on the back of the overall market uptake in x86 and improved business conditions in the key U.K. market. The vendor has been quick releasing to market models based on nextgeneration x86 processors by both Intel and AMD. Dell is currently bringing to market new x86 products to address both scaleout and scaleup computing environments in the EMEA region.

- Sun Microsystems, whose servers are now cobranded under the Sun/Oracle name, suffered annual revenue declines in the double digits, despite a market share increase of more than two percentage points year on year. With RISC Unix market dynamics set to unfold over the next few quarters, the current uncertainty surrounding Sun's server roadmap, and other market players targeting its RISC Unix offerings, the way Oracle develops its strategy in this area will play a critical role in the future of this server segment.

- Fujitsu enjoyed annual growth rates approaching doubledigit territory. The vendor is benefiting from the strength of its CISCbased business, particularly in Germany. Its mainframes retained the same percentage of the total revenue as in the first quarter of 2009, with 33.9% of total revenue. At the same time, x86 revenue from Primergy servers grew 17.2% year on year, facilitating Fujitsu's expansionary plans in this x86 area.
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