The latest figures from the EMEA Server Tracker from International Data Corporation (IDC) show that while factory revenue reached €2 billion in the third quarter of 2013 (3Q13), this represented a decrease of 3.0% when compared with the same quarter of 2012.
Shipments reached 535,767 units, representing a 4.9% annual decline. The quarter-on-quarter performance showed a mixed bag, with volumes fairly flat, being only marginally up by 1.3%, but with revenue decreased by 6.3%. These figures, say IDC, hint at continuing price sensitivity in times of economic uncertainty and increasing price competition in the market.
The revenue form x86 servers totalled €1.67 billion, equivalent to 81.5% of the total value market (an increase of 9.0 percentage points quarterly and 4.6 percentage points annually). The x86 industry standard servers achieved year-on-year revenue growth of 2.8% despite a decline in unit terms of 4.9%.
IDC said that the figures point toward investment in more higher-end gear and capacity increases rather through advances in virtualisation and hardware upgrades than scaling out.
Non-x86 sales only accounted for 6,250 units with revenues just over the €364 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.”
The Western European market continued to reflect the general trend toward x86 servers, which generated sales of €1.24 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 €300 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, said IDC. 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 organisations 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-data centre 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 UK, 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 UK,” 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 totalled $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 sub-region 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 sub-region 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), according to IDC, 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, the report found that Windows held 55.3% of the market, generating hardware spending of around €1.16 billion, down 1.3% year on year. Linux achieved a significant rise year on year, growing 7.2% after generating sales of €528 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 data centres.
From a form factor perspective, the report found 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-optimised 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 meagre 3.3%, due to a lower number of mega-HPC projects, as well as flattish growth in cloud environments. Also, IDC believes some large data centre 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.
Interestingly, IDC has said that it is introducing the new category Original Design Manufacturer direct (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’ data centres.
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 data centres in Western Europe, especially in the Nordics, Benelux, and Ireland,” said Olah.
“As cloud services keep growing in importance, it is crucial to recognise the trend and sise the impact of new purchasing models for data centre 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 data centre area tend to develop much more gradually, over years instead of quarters, which allows incumbents to reposition and prepare fight back initiatives to capture growth areas whenever they can.”
HP maintained its market leading position and increased its dominance further by growing its market share by revenue to 38.5%, followed by IBM, which consolidated its position too with a 22.5% share for the quarter. Dell maintained third position but experienced a drop in revenues of 5.8% YoY following the increases in previous quarters.
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