IDC: Dip in server revenue may herald price war

Revenue from worldwide server sales dropped four per cent during the first quarter of 2001, paving the way for a possible price war that could be a boon to end users, according to market figures due out Wednesday from research company International Data Corp. (IDC).

Actual worldwide server shipments grew 12 per cent in the first quarter of 2001 compared with the same period a year ago, according to IDC. Vendors including Dell Computer Corp. and Compaq Computer Corp. contributed heavily to this increase through the sale of smaller servers running Windows and Linux.

But while unit shipments grew, revenue for the top server vendors fell four per cent from the first quarter a year ago. Tough times for vendors of high-end Unix systems like Sun Microsystems Inc. and Hewlett-Packard Co. dragged down the revenue total, helping pave the way for what could be prime buying season for customers, IDC said.

“We are seeing a marked decline in worldwide server revenue even though vendors appear to be shipping more units than ever,” said Vernon Turner, an analyst with IDC. “This would indicate a very intense price war and a great time for the customer.”

IBM Corp. posted one of its best quarters in recent times, joining Dell as the only two major hardware vendors able to grow their server revenue year-over-year. Dell’s revenue surged 21 percent, while IBM’s climbed 13 per cent. However, while Dell enjoyed the biggest increase, the figures compare with a smaller starting point a year ago, Turner said.

Compaq, Sun and HP all saw their revenue drop for the quarter, declining two per cent, three per cent and five per cent, respectively, IDC said.

All five of the major server players increased the number of servers they shipped compared to last year. Again, Dell and IBM led with gains of 42 per cent and 18 per cent, respectively, followed by HP with 10 per cent, Compaq with seven per cent and Sun with two per cent.

IBM was quick to tout its strong showing, given its long-standing rivalry with Sun in the lucrative Unix server market.

“Clearly our Unix business is on a roll,” said Tim Dougherty, director of e-business strategy at IBM.

The gains are a sign that IBM’s decision last year to rebrand its servers under the eServer name is paying off, according to Dougherty. It also reflects the success of its strategy to simplify the hardware and software choices it offers customers, he said.

“We are doing extremely well in the Asia-Pacific region,” Dougherty said. “A variety of things contributed to this, including our NT offerings, which are prevalent in that marketplace.”

Despite IBM’s strong showing, Sun maintained a seven per cent lead over IBM in terms of market share for Unix servers, prompting the vendor to down play Big Blue’s gains.

“Our comparisons are against growth levels that were 30 to 40 per cent last year,” said Shahin Khan, head of marketing for Sun’s server group. “This is compared to shrinking growth for IBM last year.”

IBM gained five per cent market share in the Unix segment in the quarter compared to zero growth for Sun. Sun, however, claims that IBM focussed its marketing efforts on its Unix servers at the expense of other platforms. In addition, Sun is transitioning to new server products, while IBM is at the peak of its revamped product branding, Khan said.

IBM and Sun appear already to be reacting to the pricing pressure. In the past few months, the companies have worked to bring some of the features found on high-end servers down to lower-end products. This trend looks to continue for some time, IDC said.

Dell and Compaq, meanwhile, have been cutting prices on low-end Intel-based servers. In terms of market share, Compaq maintains a seven per cent lead over Dell in the Windows segment and a 10 percent lead over Dell in the Linux space.

(IDC is a subsidiary of International Data Group Inc., the parent company of IDG News Service.)

IDC, based in Framingham, Mass., can be reached at