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December 11, 2013

Server Revenue Declines in Q3 as Cloud Computing Remains an Option for Businesses

Revenue in the global server market dropped 2.1 percent when comparing Q3 of this year and Q3 of 2012 – in what was called “weak performance” by Gartner (News - Alert).

Sector watchers blame competition from cloud computing services, as well as some other causes such as the wider economy. Small businesses, especially, may find moving to the cloud instead of replacing an old server more sensible. Cloud is well-suited for many small companies. The cloud offers more flexibility, leads to lower costs and provides more security and greater efficiency, according to media reports. In fact, earlier this year one MYOB survey showed that small- or medium-sized businesses that adopted Cloud technology were “twice as likely to see an earnings uplift in the past year.”

While server shipments increased 1.9 percent in Q3 compared to last year, Jeffrey Hewitt, research vice president at Gartner, said in a statement, "The worldwide server market remains in a relatively weak performance mode as we move through the second half of the year.”

Similarly, IDC (News - Alert) reported the server market saw a 3.7 percent drop in sales in Q3. That represents two consecutive declines, CruxialCIO reported.

When it comes to more positive news, vendor growth was seen in Canada, with a 6.5 percent increase, the Middle East and Africa at 12.1 percent and the United States with 0.9 percent, Gartner said. As far as shipments, the Middle East and Africa saw a 13 percent jump in Q3 compared to Q3 of 2012.

Breaking it down by specific categories, x86 servers saw 2.1 percent growth in units and 4.4 percent increase in revenue, when comparing the two quarters. RISC/Itanium Unix servers dropped 4.5 percent and 31 percent in vendor revenue comparing the two quarters. Mainframes and other CPUs increased 7.8 percent, the Gartner study said.

If any one company had something to celebrate it was Hewlett-Packard (News - Alert). HP saw the most revenue in Q3 for servers. It saw about $3.4 billion in server vendor revenue that led to 27.6 percent market share globally. The percent is 2.2 percent more when comparing the two quarters. In fact, HP and Cisco were the only top five vendors to actually see revenue increases in Q3. Similarly, HP was top in server shipments in Q3. The number increased 5.4 percent for Q3, and its market share was 26.7 percent. That is 0.9 percent more than its market share in Q3 in 2012. Huawei (News - Alert) also saw shipment increases in Q3 of 2013.

In the IDC study, HP was at the top, replacing IBM, which was in second with a 19.4 percent revenue drop when comparing Q3 of 2013 and 2012. Dell (News - Alert) was in third place, with a 6 percent revenue drop. The IDC study showed Cisco, which is ranked in fourth place based on revenue, saw a jump in sales by 42.8 percent, from $419 million to $599 million, according to one report.

But several regions overall saw declines. "Worldwide server revenue declined in all major geographic regions," Matt Eastwood, a vice president of IDC's Enterprise Platforms division, said in a statement. "Third Platform applications are shifting more and more server demand into cloud service provider data centers."

"The performance of server shipments and revenue in EMEA [Europe, Middle East and Africa] is in a downward spiral," Adrian O'Connell, research director at Gartner, agreed in a statement. "Revenue has now declined for nine consecutive quarters and shipments have declined for eight. Server revenue across EMEA is at its lowest level for over 15 years which underlines the increasing contraction of the server market…. Weak demand continues to make EMEA one of the hardest regions for server vendors to do business in."

Looking ahead, the RISC/Itanium UNIX platform does not have a positive outlook as migrations continue. "The fourth quarter is typically the strongest quarter of the year for these platforms, but even a strong end to the year will not change the long term downward trend," O'Connell said. “The market is resetting itself to a new level with architectural shifts making life very challenging for vendors that have relied on high-end platforms in the past. The ongoing economic weakness plays its part here, but there is also a broader shift taking place that brings a new set of competitive challenges. The fourth quarter is also expected to be weak, making 2013 a year to forget for most server vendors."

Edited by Cassandra Tucker

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