Gartner: Virtualization, U.S. Recovery Drive Strong 2Q Server Sales

Strong U.S. sales and an increase in the use of virtualization drove strong server shipment and revenue growth for the second quarter of 2010, according to a new report from Gartner.

Gartner on Wednesday said a total of 2.1 million servers were shipped in the second quarter, a healthy 27.1 percent increase over the 1.7 million servers shipped during the second quarter of 2009.

The total factory revenue from all those servers hit $11.1 billion, up 14.3 percent over last year's $9.7 billion in server revenue.

Jeffrey Hewitt, research vice president at Gartner, said a surprisingly strong U.S. market led the robust server growth. The number of servers shipped in the U.S. grew 38.9 percent, while the revenue from those servers grew 23.3 percent, over last year. Only the much smaller Eastern European market saw stronger growth, Hewitt said.

He cited the economic recovery, the growing strength of service providers, and pent-up demand as factors leading the U.S. growth.

Another factor contributing to the server growth appears to be the increased adoption of virtualization technology despite the fact that multiple virtual servers are run on individual physical servers, Hewitt said.

"I have a hypothesis, and it's a hypothesis only, that adoption of virtualization drives server purchases," he said. "Virtualization makes rolling out and deploying things like disaster recovery and cloud computing easier. And servers in many of those areas may not be easy to consolidate."

About 10 virtual servers are deployed on the average physical server which is used for hosting virtual servers, Hewitt said. Some customers are pushing 15 to 20 virtual servers on a host in production environments, and up to 40 in test-and-development environments, he said.

However, that number will fall now that the consolidation phase of virtualization is over and customers look to do more with virtualization, Hewitt said.

For example, a customer who has 10 virtual servers on a physical server who is looking to add disaster recovery might deploy a second server in stand-by mode at a remote site to host those virtual servers in the event of a disaster. In this case, instead of 10 virtual servers per host, the average is not five virtual servers per host, he said.

While growth in server shipments and revenue was strong in the second quarter of 2010, they are still off their peaks, Hewitt said.

Next: How The Vendors Did

Server shipments peaked at about 9 million units in 2008, while revenue peaked at about $55.4 billion in 2007, and the industry is not likely to reach those peaks again for a couple years, he said. "And don't forget, 2010 is being compared to a relatively poor 2009," he said.

Hewlett-Packard was the top server vendor in terms of revenue in the second quarter of 2010 at $3.5 billion, up 26.7 percent. It was followed by IBM at $3.1 billion, Dell at $1.8 billion, Oracle at $929 million, and Fujitsu at $354 million.

Dell's server revenue grew fastest at 39.5 percent. However, IBM's server revenue fell 2.7 percent as customers halted mainframe purchases in anticipation of upcoming new models, while Oracle's server revenue fell 10.9 percent over customer concerns over the future in the wake of Oracle's 2010 acquisition of Sun.

In terms of shipments, HP again led the pack by shipping 644,172 servers during the second quarter, up 23.3 percent over last year. It was followed by Dell with 542,799 servers, IBM with 267,614 servers, Fujitsu with 60,974 servers, and Oracle with 47,968 servers.

All the server vendors experienced a rise in shipments except Oracle, which saw a 26.0 percent drop. Dell's server shipments grew 35.0 percent, the fastest of the top five vendors, but the "other vendors" actually grew shipments 37.7 percent, Gartner said.

Shipments of x86-based servers grew 35.1 percent in the second quarter over last year, while total revenue for all those servers grew 29.6 percent, Gartner said. However, shipments of non-x86 servers fell 21.1 percent even though revenue for those servers actually grew a healthy 12.3 percent.