Google, Facebook's hunger for servers drives market

Uncertainty about the economy and budgetary caution have hung over the server market for a few years and so far, this year hasn't been easy for the big server vendors. Server shipments grew year over year by just 1 percent and revenue by 1.7 percent in the third quarter, according to a survey by market research company Gartner released Wednesday.

Most of the growth in the third quarter came from demand by Web giants Google, Facebook and Microsoft in the U.S. and the likes of Tencent and Alibaba in China, according to Errol Rasit, research director at Gartner.

The problem for the server vendors is that those companies like to have their own hardware built for them and use third-party design manufacturers, which helps increase shipments and revenue for server makers like Quanta. But it doesn't do much for HP's, Dell's and IBM's bottom line.

The "other vendors" share in Gartner's data reflects that. The category is bigger, in terms of both revenue and shipments, than HP's share of the market. While HP still ships more servers and makes more money from them than any other single manufacturer, the market share belonging to "others" has had steady growth, and that is expected to continue, Rasit said.

However, enterprises haven't stopped buying servers. The growing interest in real-time analytics and on-line transaction capabilities has helped save enterprise sales. Businesses are using analytics to make the most of the tidal wave of data coming in from customers and suppliers on the Web.

"We are seeing a lot of projects around in-memory computing, which is really starting to take off now," Rasit said.

The move to more software-defined infrastructures is also helping to increase server growth, though IT organizations have also started to invest more in other areas to improve efficiency.

"In some cases, the budget for server acquisitions has been borrowed to fund the storage and networking projects," Rasit said.

The vendor landscape is going through two major changes at the moment; Hewlett-Packard's split and Lenovo's acquisition of IBM x86 server business. Server buyers seem to be more nervous about the latter, according to Rasit. Lenovo will be under close scrutiny next year to see what it can deliver, he said.

Of the tope five server makers, HP had US$3.38 billion in server sales during the third quarter, followed, in order, by IBM, Dell, Cisco and Oracle. HP shipped 569,426 servers, followed by Dell, IBM and Chinese vendors Huawei Technologies and Inspur Electronics.

But HP's share of shipments and revenue slipped. Meanwhile, shipments from "other vendors" rose 8.1 percent year over year to 2.5 million, while revenue increased 11.9 percent to $3.4 billion.

Overall server revenue during the third quarter was US$12.6 billion and 2.5 million servers where shipped.

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