EMEA Server Revenue Hit $2.8 Billion in 3Q12, Down 10.4% Due to Unfavourable Currency Rates, but Large and Mega-Datacenters are Driving Demand, Says IDC
Shipments reached 526,701 units, representing a 4.0% annual decline. The quarter-on-quarter performance displayed a mixed picture with growth in the single digits in the volume area, which was up 2.4%, and the usual seasonality in overall dollar revenue, showing a quarterly decrease of 7.0%.
The x86 server segment remained the main growth engine, with revenue of $2.1 billion, equivalent to 76.4% of the total value market (an increase of 4.2 percentage points quarterly and 2.9 percentage points annually). Industry-standard servers suffered declines in both the value and volume areas, down 6.8% and 3.6% respectively year on year. x86 average selling values in dollars declined 4% quarter on quarter due to larger numbers of ultra-low-end towers and density optimized servers.
Non-x86 sales could not overcome the $1 billion mark in the quarter - with revenue of $678.2 million, they were down 20.3% year on year. Despite a gentler decline than in previous quarters, when annual comparisons were distorted by pent-up demand from post-recessionary refresh cycles, when looking at the absolute dollar figures, non-x86 revenue has hit its lowest point in EMEA since IDC records began. This is due to the combination of a tight macroeconomic environment in parts of the region and the CPU refresh cycles that are expected from all the major platforms - IBM (Power and z Systems), HP (Integrity), and Oracle (SPARC T5) - between the very end of 2012 and the beginning of 2013.
RISC systems performed slightly better than the non-x86 market average, mostly due to a few very large HPC deals based on IBM BlueGene technology in Western Europe. IDC believes legacy platforms should show some improvements with the product refreshes in the next few quarters, but it is unlikely sales will ever return to pre-recession levels.
EMEA Market Highlights
"In a constrained business environment, server spending across the board was relatively solid, considering that legacy platforms had a low quarter due to pending product refreshes," said Giorgio Nebuloni, research manager, Enterprise Server Group, IDC EMEA. "The run-rate datacenter business, which is fundamentally sustained by 2-socket x86 rack and blades, performed well enough across the regions in the wake of latest processor refreshes, but the real boosts were provided once again by large HPC projects and, especially in northern Europe and Russia, by vast deployments at cloud and Web service providers. IDC maintains that healthy volume growth will continue to come from these two sources in 2013, but vendors might feel the pressure on margins as mega-datacenters demand more compute capacity at lower prices."
Western European Highlights
The Western European market continued to reflect the general trend toward x86 servers, which generated sales of $1.6 billion, or 76.2% of the total factory revenue in 3Q12 (compared with 72.3% in 2Q12). Non-x86 sales contributed less than a quarter of the market in 3Q12, at $504.6 million, or 23.8% of the total Western European market.
"Western Europe was affected by stronger declines than the emerging economies of EMEA, with server revenue down 11.7% annually, slightly worse than the EMEA average," said Beatriz Valle, senior research analyst, Enterprise Server Group, IDC EMEA. "Despite this, the discrepancies between the mature economies of this area and the rest of EMEA are starting to soften as the deteriorating macroeconomic conditions begin to have a negative impact across all the geographies in the region. Server market trends are becoming more uniform and the percentage of non-x86 expenditure was nearly on a par with CEMA, pointing at an acceleration in the migration to x86 and a progressive demise in demand of legacy architectures. In Western Europe, demand was strong in Germany and the U.K. but weakened in geographies such as France and Italy, where the current EU crisis is driving organizations to be extremely cautious with their IT budgets."
Server revenue in 3Q12 in Central and Eastern Europe, the Middle East, and Africa (CEMA) declined by 6.4% year on year to a total market value of $758.3 million. "Fragile economic conditions in Europe, and traditionally slow demand in the third quarter across the Middle East, took its toll and 3Q12 witnessed the worst performance in two years," said Jiri Helebrand, research manager, IDC CEMA. "The Central and Eastern Europe [CEE] subregion was down by 5.3% to $432.6 million with Czech Republic and Poland suffering double-digit declines. Russia was flat, benefiting from large shipments to Web service providers. The Middle East and Africa [MEA] subregion declined by 7.9% year on year to $325.6 million, impacted by weak performance in South Africa, Israel, and Turkey, all down by double-digit numbers. Despite overall weakness, solid demand was observed from the government, finance, and IT service provider segments."
Modular Server Highlights
In the EMEA region the share of modular servers has increased significantly compared with 2Q12, and this growth is mainly driven by density optimized servers. "The share of this server type increased from 6% to 14% of the overall shipped units," said Andreas Olah, research analyst, Enterprise Server Group, IDC EMEA. "Most of the growth in this market took place in Germany, where the number of density optimized servers almost quadrupled to more than 10,000 units. The largest chunk of these shipments can be attributed to the installation of a one-off large-scale supercomputer in Germany. Large cloud projects in northern Europe also helped increase the density optimized volumes. There has also been a moderate increase in the number of blade servers shipped following a sharp drop in 2Q12, but volumes have not reached the levels of 3Q11. Strong increases in modular server shipments can also be seen in Russia, particularly on blades, as well as moderate growth in the U.K. Italy and France have experienced a decline in blades, but the French market for density optimized servers has grown moderately."
- x86 revenue reached $2.2 billion, equivalent to 76.4% of the total market, a decline of 6.8% annually. This was the 15th consecutive quarter in which x86 sales surpassed non-x86 servers, as the market trend toward industry-standard servers consolidates across EMEA. The average rate of decline in the non-x86 market was 20.3%. EPIC-based systems suffered the sharpest fall in non-x86, down 35.6% annually, followed by CISC and RISC systems, down 21.6% and 13.6% respectively. RISC revenue reached $392.0 million, or 13.6% of the total server market combined. Mainframe sales reached $170.0 million, or 5.9% of all server sales in EMEA.
- By operating system, Windows-based servers held 55.2% of the hardware spending (around $1.6 billion), down 7.2% year on year. Linux experienced the softest decline year on year, down 3.9% after generating sales of $608.1 million, around 21.2% of the total market. 3Q12 was the fourth time that Linux overtook Unix in revenue share. Large HPC deals in Western Europe, especially in Germany and the Nordics, fueled demand. Unix declined 23.6% on the back of weaker RISC system sales, and reached sales of $444.9 million, equivalent to just 15.5% of the total market. Of the main operating systems, only z/OS declined faster than Unix, by 33.9%, to reach $111.1 million.
- Volume servers priced at $25,000 or below continue to grow their share of the market as commoditization of the server hardware accelerates, and now take up 71.0% of the total revenue, or $2.0 billion, despite a decline of 6.9%. Both the midrange and high-end segments saw double-digit declines, at 23.5% and 13.0% respectively. High-end server revenue reached only $466.1 million, around 16.2% of the total EMEA market (compared with 20.2% in 2Q12), due to a cyclical slowdown in mainframe sales.
- From a form factor perspective, racks remained the single largest segment of the market, with $1.5 billion, equivalent to 53.5% of total sales, despite declining 8.9% year on year. Tower or standalone servers suffered a sharp decline in revenue, down 21.2% year on year. Although they retained second position, the gap between market share for blades and towers is quickly narrowing, with blades taking 20.9% of the market against 22.3% for towers.
- Blades declined in dollar terms, down 7.4% annually, as the technology matures and after reaching $600.6 million in sales. Density optimized servers enjoyed strong annual increases of 63.4%, albeit from a very low base. Sales of this technology were close to approaching the $100 million mark for the first time, but they continue to be a small niche in the market at 3.3% of the total in EMEA.
Vendor Highlights, 3Q12
- HP held the top spot in the EMEA server market in 3Q12 after outperforming IBM by 10.8 percentage points and surpassing the $1 billion mark despite declining by 17.0% annually. HP remained the x86 leader, with the ProLiant line reaching the equivalent of 44.1% of the total x86 market in EMEA. HP had a revenue share of 56.8% of the total blade market combined, with blade revenue from x86 servers surpassing $300 million, and the Integrity NonStop line growing strongly.
- IBM had a revenue share of 27.0% of the total EMEA market in 3Q12, and the single-digit revenue decline of 8.5% was much softer than the 19.0% decline seen in the previous quarter. Notably, the vendor's top revenue-generating server line was the x86 System x family with $262.2 million, followed closely by the RISC Unix line of Power Systems, which sold $239.4 million. System z servers sold $94.2 million and were down 27.8% annually, a softer decline than the 51.4% seen in 2Q12.
- Dell increased its share of the EMEA server market by two percentage points in 3Q12, the same rate of growth as in 2Q12, and has been maintaining a consistent pace of expansion throughout the last few quarters in terms of market share. The vendor's PowerEdge line grew 3.0% annually, at around $439.9 million. Dell was the only vendor in the top 5 to enjoy annual growth, as it is not exposed to declines in the non-x86 area.
- Fujitsu maintained its market share year on year, and maintained a single-digit decline that was softer than the market average, down 7% annually. Moreover, it climbed to tie Oracle at fourth position in revenue share. The Primergy line of x86 servers accounted for 68.1% of its total revenue, while the BS2000/OSD family of mainframe servers continued as an important source of server sales for the vendor, exceeding the $50 million mark for the quarter.
- Oracle's revenue declined by 35.4% year on year, the strongest annual drop of all the main players. The RISC Unix family of SPARC systems declined 43.1% annually, after generating $87 million. Oracle is growing its share of server sales in the area of x86-based solutions, thanks to the expanding family of Engineered Systems. x86 servers accounted for 41.8% of Oracle's total business in the quarter.
IDC Central Europe GmbH
IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For more than 44 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com.