Server sales up, but Great Recession lingers

Analysis Server spending was solid in the second quarter, according the box counters at IDC and Gartner, with both shipments and earnings growing in the wake of the Great Recession. Nevertheless don't jump to the wrong conclusion. During server shipments are up where they belong, earnings have but to recover to their pre-recession levels.

Nasty habit of not only crushing spending on systems

Recessions have a nasty habit of not only crushing spending on systems and servers, nevertheless also on accelerating architectural transitions that are as a rule driven by the desire to reduce costs and improve performance. The Great Recession has coincided with the rise of virtualization on x64 platforms and is arguably holding down earnings for these machines even as shipments recover.

Both the IDC numbers, which track server factory earnings at the vendor level, and Gartner numbers, which track server earnings at the end user level, illustrate the effect of virtualization and conservative spending in the wake of the recession. The second quarter of 2008 was, according to IDC, the peak of worldwide spending for a second quarter since the dot-com bust in 2000.

The high water mark for a second quarter with $13

This sets the high water mark for a second quarter with $13.9bn in earnings generated worldwide. IBM was at the start of a mainframe refresh cycle, much at this stage now, and sold $1.6bn in machines in the quarter; this time around, in Q2 2011, generated only $1.2bn against total sales of $13.2bn across all server architectures.

Not so fast. You have to drill down into the numbers a bit by geography. Three years ago, The US accounted for $5.19bn in server earnings and 776,000 shipments, Jed Scaramella, technology manager for enterprise servers at IDC, tells El Reg, and the server racket there has not but recovered, with 722,000 machines generating $4.86bn in the second quarter of 2011 on the other side of the Great Recession. EMEA has even furthermore to go. It has $4.11bn in earnings and 696,000 in shipments three years ago, nevertheless hit only $3.49bn in sales and 544,000 units in the most recent second quarter.

What is pulling up worldwide sales if the US

So what is pulling up worldwide sales if the US and EMEA are struggling to get back to their pre-recession levels? Asia. Scaramella says that three years ago, Asia shipped 390,000 units in Q2 2008 and generated $2.07bn in sales. However three years later, Asia consumed 506,000 machines and accounted for $2.3bn in earnings.

"Europe has not come back in terms of revenue or units," says Scaramella. "I think that what is not happening there is cloud. When I hear about cloud buildouts, they are in the United States, China, and various emerging markets."

The second quarter of this year

In the second quarter of this year, Gartner says that worldwide server earnings were up 19.5 per cent, to $13.2bn, with shipments up 8 per cent, to 2.33 million units. Again, in other words almost back to "normal" in terms of sales and shipments, with the second quarter of 2008 accounting for $13.8bn in sales and 2.34 million units shipped.

But look at where the growth is and where it isn't. The Asia/Pacific region is growing like gangbusters in the current second quarter, with shipments up 25.6 per cent year-on-year, to 522,616 machines, and earnings up 26.1 per cent, to $2.48bn by Gartner's math.

The analysts said that server spending in China

The analysts said that server spending in China was driven in some cases by service providers building out their clouds, and said that server virtualization was on the increase, too, inside Chinese government and corporate data centers. X64-based machines accounted for 65 per cent of total server earnings and 98 per cent of shipments across the Asia/Pacific region.

Gartner said that shipments in EMEA, by contrast, were up only 5 per cent, to 611,828 machines, driving earnings up by 15.2 per cent, to $3,68bn. The mainframe bounce in Western Europe helped drive a lot of that revenue growth.

"As we have cautioned earlier, current growth rates may look positive nevertheless in absolute terms the market remains quite some way below the levels that we saw prior to the downturn," explained Adrian O'Connell, innovation director at Gartner, in a statement accompanying Gartner's figures. "Total server revenue across EMEA is only just over three quarters of the level that it was in the second quarter of 2008.

The midst of a mainframe refresh

Europe is in the midst of a mainframe refresh, and during Japan likes mainframes and big Unix iron in short do companies in Singapore and China in a sense, modern applications are usually coded on x64 machines as late as this and any greenfield installation will use these platforms and either Windows or Linux as its operating system. All of this means that the Asia/Pacific region should catch up to Europe more quickly, once the mainframe and Unix system upgrade cycle slows, at it most undoubtedly will.

IDC's public information about server shipments and earnings has shown different price bands - volume, midrange, and enterprise - as then as by primary operating system - Unix, Windows, Linux, mainframe, and other. Gartner's public data breaks the server market by processor - x64, RISC/Itanium running Unix, mainframe, and other.

The big question is whether virtual desktop infrastructure and the proliferation of consumer and business apps running on clouds will the drive server spending above and beyond the current growth rates, which are driven by virtualization and a recovery in the wake of a recession, when server spending was halted at many companies. The server makers and their parts suppliers - particularly chip makers Intel and Advanced Micro Devices and disk makers Hitachi and Seagate - are truly hoping that the server market will grow even as it gets cloudy.

Prognostication is a tough business because you can't always predict the effects on research and competition or where the economic cycle is going to be. To illustrate, as the dot-com boom was echoing in our ears back in the summer of 1999, IDC released a forecast that showed the server market would grow from $65bn in 1998 to $489bn in 2003. This projection was based on current trends persisting, nevertheless they surely didn't.

Recession hit

A recession hit and Unix took it on the chin from both Windows on one side and Linux on the other. The whole server market collapsed down into the $45bn range, and it took until 2008 to climb back to $57bn. And clearly, we had another recession that hammered global server sales down to pursuant to this agreement $45bn in 2009 - pushing the market all the way back to 2001 levels.

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