White boxes crushing traditional server market

(Image: Stockfresh)

14 June 2017

It may not come as much of a surprise, but the latest numbers from International Data Corp. make it official: The server market is cratering. According to IDC, server vendor revenue plummeted 4.6% year over year the first quarter of 2017.

The pain was widespread, IDC said, with market leader HPE seeing revenue drop 15.8% year over year to $2.9 billion (€2.6 billion). Number two vendor Dell was the only bright spot, notching 4.7% year-over-year growth to $2.4 billion (€2.14 billion) (the growth may have come from Dell’s purchase of EMC’s data centre business). But Cisco revenues fell 3% to $825 million (€736 million), IBM dropped a whopping 34.7% to $745 million (€665 million), and Lenovo tumbled 16.5% to $727 million (€649 million).

Bloody streets in Servertown
There are a number of reasons for the terrible numbers, but a few culprits stand out.

First of all, many customers may have been waiting for the deployment of new machines using Intel’s Skylake processors due later this year. But longer-term issues, like today’s server customers moving to cloud services, will not fade away so quickly.

A statement from Kuba Stolarski, research director, Computing Platforms at IDC, put it this way, “We may be witnessing a shift in how workloads are deployed in the future, and what architectural choices will be made around modularity, operating environments, software and cloud services.”

Basically, Stolarski is warning that the cloud is taking over many tasks formerly handled in private data centres, reducing the need to many enterprises to buy their own servers. In that world, a few hyperscale cloud companies will be the biggest server customers, and that dovetails with IDC’s note that “One customer accounted for more than 10% of the servers shipped in 1Q17.”

Revenge of the white boxes
Just as important, those big cloud companies seem more interested in buying cheaper white-box servers rather than expensive proprietary devices. IDC said revenue from the original design manufacturers (ODM) direct group of white-box vendors grew 41.8% to $1.2 billion (€1 billion). That group is led by Dell and HPE, but according to Fortune, it also includes Taiwanese contract manufacturers such as Quanta and Winstron, which make devices sold in bulk under other brand names—often using Open Compute Project standards.

Given all that, HPE CEO Meg Whitman hinted last week that the company may reconsider whether it makes sense to continue to sell servers to “tier-one” web companies.

No simple solutions
Here is the thing, though: the Facebooks, the Googles, the Microsofts and the Amazons are taking over an increasing proportion of the world’s server workloads—and that is not going to stop any time soon.

Just as important, while those web giants are leading the way toward white-box servers, it may not be long before more traditional enterprises begin to follow suit. The pressure on mainstream server vendors isn’t going away. In fact, it’s likely to intensify.


IDG News Service

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