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EMEA Server Revenues Down Again in 3Q13 But Signs of Revival in Southern Europe and on Blade Side, Says IDC
x86 server revenues totaled $2.3 billion, equivalent to 81.5% of the total value market (an increase of 9.0 percentage points quarterly and 4.6 percentage points annually). x86 industry standard servers achieved year-on-year revenue growth of 2.8% despite a decline in unit terms of 4.9%.
These figures point at investment in more higher-end gear and capacity increases rather through advances in virtualization and hardware upgrades than scaling out.
Non-x86 sales only accounted for 6,250 units with revenues just over the $500 million mark, which is a decline of 22.2% year on year - far more significant than the drop of 2.6% experienced in the previous quarter.
"Although the trend away from legacy machines has intensified, the sharp drop in the quarter was accentuated by a tough comparison versus last year's large Blue Gene projects in a few European countries," said Giorgio Nebuloni, research manager, Enterprise Server Group, IDC EMEA. "CISC was the only non-x86 category that showed moderate revenue growth of 8.1%, which is mainly down to larger hardware refreshes but also the specific use cases for CISC that are less exposed to x86 migration than most RISC systems. However, non-x86 technologies will continue to be eroded from migration to x86, and we believe it is unlikely sales will ever return to pre-recession levels."
Western European Highlights
The Western European market continued to reflect the general trend toward x86 servers, which generated sales of $1.7 billion, or 80.5% of total factory revenue in 3Q13 (compared with 76.8% in 3Q12). Non-x86 sales contributed less than a fifth of the market in 3Q13, at $412.5 million, or 19.5% of the total Western European market.
The decline in revenue terms has been felt less in Western Europe than in the emerging economies of EMEA as firms continue to upgrade and consolidate their IT infrastructure. However, unit shipments declined 7.4% year on year in Western Europe, which is a sharp contrast to the positive growth of 1.8% in CEMA - this can be partly explained by organizations in Western Europe consolidating on richer configurations due to their size compared to their peers in the CEMA region.
"In Western Europe demand was strong particularly in the Nordics due to mega-datacenter expansion by global cloud providers and social networks. Switzerland and the Netherlands saw moderate rises in shipments while the major markets of Germany, France, the U.K., and Ireland saw declines in volumes. Despite these drops in shipments, France and Ireland managed to achieve flat to moderate revenue growth in contrast to the declines experienced in Germany and the U.K.," said Andreas Olah, research analyst, Enterprise Server Group, IDC EMEA. "On a positive note, some signs of a possible recovery have started to appear across southern Europe, with Italy and Portugal back on the growth side and only minor declines in Spain. Investments have even started to rise in Greece despite the freeze on government expenditure."
"Central and Eastern Europe, the Middle East, and Africa server sales continued in the negative trend recording a decline in every quarter over the past year. In 3Q13, server revenue totaled $728.42 million, representing a 4.5% year-on-year decrease. The overall decline in revenue can be attributed to weak sales of non-x86 servers shrinking by 33.6% year over year, while x86 server revenue grew 4.1% in 3Q13," said Jiri Helebrand, research manager, IDC CEMA.
"The Central and Eastern Europe subregion was down 12.9% to $376.94 million impacted by the continuous transition away from legacy systems as non-x86 servers displayed a 49.0% year-over-year decline in revenue. Overall server sales recorded mixed performance across the CEE region with Russia, the Czech Republic, and Kazakhstan being down double digits, while Poland, Hungary, and Slovakia observed growth. The Middle East and Africa subregion was the only region in EMEA with positive growth, up 6.6% year over year to reach $351.48 million. Infrastructure investments in United Arab Emirates and the Gulf Cooperation Council countries were the main contributing factor as well as the major HPC deployment in Israel."
- The strong decline in non-x86 revenues (-22.2% YoY) is mainly down to the continuous migration to x86 that has been evident mainly from 2H11 onward. Although there is no sign of a recovery in this category, the decline has been slower in the three quarters of 2013 than in 2012 because many clients who want to migrate have already done so. Also, advanced automation and workload management tools increasingly allow for legacy environments to be seamlessly integrated, so there are less incentives to move away from mainframes today than one to two years ago.
- By operating system, Windows held 55.3% of the market, generating hardware spending of around $1.6 billion, down 1.3% year on year. Linux achieved a significant rise year on year, growing 7.2% after generating sales of $726.2 million, and capturing over a quarter (25.5%) of the total market. In contrast, Unix revenues declined 23.8% year on year, reaching sales of only $321.9 million on the back of weaker RISC system sales and lack of demand from new customers. Due to IBM's strong refresh cycle, z/OS revenues increased 40.9% year on year and reached $156.6 million.
- The market share of volume servers has once again grown significantly, to 75.6% of total revenue, or $2.2 billion. Volume servers are the only category that achieved positive year-on-year revenue growth (2.4%). The midrange saw a moderate decline of 8.8% and generated revenues of $308.7 million, while the high-end contracted substantially by 21.8%, to $386.0 million, which is mainly due to a slowdown in mainframe sales and the rising popularity of denser, less expensive form factors for hyperscale datacenters.
- From a form factor perspective, rack servers are still accounting for over half of the market by revenue (55.1%), though declining slightly by -0.9% year on year. Towers or standalone servers once again suffered a sharp decline, down 19.0% year on year.
- Blades are back on the growth path (+7.1% year on year) following continuous declines in previous quarters as the market has started to mature for this category. In terms of revenue share of the total market, blades have now overtaken towers as the second largest form factor (22.4% share). Now covering almost 9% of the x86 volumes, density-optimized servers continued to grow from their small base, though no longer at the exponential levels seen in previous quarters. Their year-on-year revenue growth was a meager 3.3%, due to a lower number of mega-HPC projects, as well as flattish growth in cloud environments. Also, IDC believes some large datacenter customers have started to review large-scale investments in this area to allow them sufficient time to test new ultra-dense models and the upcoming Atom/ARM architectures.
Introducing ODM Direct Servers
IDC is introducing the new category "ODM direct" in this quarter in order to account for original design manufacturers based out of Taiwan or China that are selling both complete systems and partial subsystems into the market. Shipments by these vendors in EMEA have increased gradually over the past five years, driven by large-scale deployments at cloud service providers' datacenters.
Complete ODM direct systems were previously captured in the IDC Worldwide Quarterly Server Tracker as a component of "Others" while partial subsystem assemblies, frequently referred to as "self-built" servers, were not counted in the Tracker at all. IDC is now aggregating these server shipments under a new vendor category called "ODM direct" with restated market data going back to 1Q08.
ODM direct server revenue grew 94.7% year over year in 3Q13 to $69.8 million as unit shipments increased 74.0% to 38,589 servers. ODM direct servers now represent 2.5% of all server revenue and 7.2% of all server shipments.
"Following continuous growth, ODM direct shipments have accelerated this quarter as major cloud providers and social networks including Google and Facebook are expanding their hyperscale datacenters in Western Europe, especially in the Nordics, Benelux, and Ireland," said Olah.
"As cloud services keep growing in importance, it is crucial to recognize the trend and size the impact of new purchasing models for datacenter compute capacity, primarily for high-growth business-to-consumer [B2C] web players and, partly, for infrastructure-as-a-service B2B providers," said Nebuloni. "At the same time, we advise against falling for the hype. IDC believes that in EMEA, enterprise and public sector customers accounting for most of the spending are still almost exclusively purchasing through traditional channels. Also, and contrary to what happens for example in mobile devices, shifts in the datacenter area tend to develop much more gradually, over years instead of quarters, which allows incumbents to reposition and prepare fightback initiatives to capture growth areas whenever they can."
Vendor Highlights, 3Q13
- HP maintained its market leading position and increased its dominance further by growing its market share by revenue to 38.5% (+1.5 percentage points YoY). HP was also the only top 5 vendor that managed to grow its revenue this quarter, though only by 1% YoY.
- IBM followed in second position with a 22.5% share for the quarter with a factory revenue decrease of 17.4% compared with 3Q12, which is mainly down to fewer Blue Gene projects this quarter compared with the large orders last year.
- Dell maintained third position but experienced a drop in revenues of 5.8% YoY following the increases in previous quarters. The decline was mainly down to the weak Western European business, with a slower quarter on the DCS side.
- Fujitsu was in fourth place, overtaking Oracle with only a small decline of 1.8% annually, resulting from a mixed picture of good performance in PRIMERGY in several countries but some declines in Germany.
- Oracle was down to fifth place with revenues declining 14.3% year on year, with significant drops in revenues from its Sun x86 business, a moderate decline in SPARC Enterprise, and single-digit growth in Engineered Systems.
IDC's Server Taxonomy
IDC's Server Taxonomy maps the 11 price bands within the server market into three price ranges: volume servers, midrange servers, and high-end servers. The revenue data presented in this release is stated as factory revenue for a server system. IDC presents data in factory revenue to determine market share position. Factory revenue represents those dollars recognized by multi-user system and server vendors for ISS and upgrade units sold through direct and indirect channels and includes the following embedded server components: frame or cabinet and all cables, processors, memory, communications boards, operating system software, other bundled software and initial internal and external disk shipments.
IDC's EMEA Quarterly Server Tracker is a quantitative tool for analyzing the server market on a quarterly basis. The tracker includes quarterly shipments (both ISS and upgrades) and revenues (both customer and factory), segmented by vendor, family, model, region, country, operating system, price band, CPU type, and architecture.
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