Server Vendors Stung by Falling Sales

If companies around the world are freezing technology spending, then it's the server market that appears to be bearing the brunt of the financial chill.

According to the latest Gartner figures, worldwide server shipments declined by 11.7 percent in the fourth quarter of 2008 compared to the same period a year earlier, which added up to a nasty 15.1 percent contraction in overall revenue.

All vendors and most market segments posted declines, but the strange geographical concoction known as EMEA (European, the Middle East and Africa) posted the worst figures, showing revenue declines of 20.6 percent, ahead of the US which dropped 14.6 percent. Only Japan posted a rise, reflecting the fact that the worst of the slump had yet to reach the Far East.

Unix server shipments were down 10.5 percent, which sounds bad but was still less severe than the 11.4 percent experienced by the more mainstream x86 market. The single bright spot for server technology was blade servers which posted gains in a year, 2008, Gartner still predicts revenues will have increased by 30 percent.

As to vendors, IBM was the biggest loser, down 22.4 percent in server shipment numbers, with Dell (-7.1 percent), Sun (-3.9 percent), and HP (-1.6 percent) less affected. It is worth pointing out, however, that shipments don't tell the whole story; all of the above saw substantial falls in server revenue, which suggests that some have kept shipment numbers up by cutting prices.

"The weakening economic environment had a deep impact on server market revenues in the fourth quarter as companies put a hold on spending across most market segments," said Gartner's senior research analyst, Heeral Kota, perhaps stating the obvious. "Almost all segments exhibited similar behaviour as users sought to reduce costs and spending, deferring projects where possible."

What the figures underscore is that US spending has contracted sharply, while spending in Europe and other parts of the world has also dropped off sharply, not helped by fluctuating currency rates which can cause prices to rise.

The next year won't be much better. "The continued weak economic environment will cause users to be extremely cautious with levels of expenditure which will make for a particularly challenging environment for vendors. The server market already has high levels of vendor consolidation but the conditions expected during 2009 will increase the threat of further consolidation," said Kota.

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