According to IDC's Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market declined 14.0% year-over-year to $13.5 billion in the fourth quarter of 2008 (4Q08), marking the second consecutive quarter of market decline. Worldwide server unit shipments declined 12.0% in 4Q08 when compared with the year-ago period. For the full year 2008, worldwide server revenue declined 3.3% to $53.3 billion, while worldwide unit shipments grew 2.0% to 8.1 million units. This is the first time the server market has exceeded 8.0 million units in a calendar year, reflecting continued demand for new physical servers even as virtualization makes significant gains in the enterprise.

Volume systems experienced the sharpest impact, with a year-over-year revenue decline of 16.8%. Midrange enterprise demand weakened with a year-over-year decline of 14.5% while the high-end enterprise segment saw a revenue decline of 7.5% when compared to 4Q07. This is the first time since 2002 that all three server segments have experienced a year-over-year revenue decline in the same quarter, illustrating the immediate impact of the economic downturn, which worsened in the same quarter.

"The server market experienced its sharpest decline since the middle of the dot-com slowdown nearly seven years ago. All server vendors, geographies, and technology segments were impacted significantly as the global recession gained momentum and market conditions weakened as the quarter progressed," said Matthew Eastwood, group vice president of IDC's Enterprise Platforms Group. “It now appears the slowdown will worsen before any improvement is seen in late 2009 or early 2010. In the near term, IT customers will increasingly look for IT optimization projects with strong ROI potential and extend virtualization, consolidation, and migration programs in order to lower capital and operational costs while improving efficiencies.”

Overall Server Market Standings, by Vendor

All of the top five server vendors saw year-over-year declines in their quarterly server revenue and in their annual server revenue – the first time this has happened since first quarter of 2002. IBM held onto its number 1 spot in the worldwide server systems market with 36.3% market share in factory revenue for 4Q08, as its revenue declined 15.0% year over year. Although IBM experienced significant weakness in System x, demand for power-based systems improved in the quarter. HP maintained the number 2 spot with 29.0% share for the quarter as its revenue declined 10.1% compared to 4Q07. HP was helped by a relatively strong October during its fiscal year end. Dell maintained third place with 10.6% factory revenue market share in 4Q08. Dell experienced a 9.9% revenue decline compared with 4Q07, while fourth place Sun experienced a year-over-year revenue decline of 14.1% in 4Q08 to 9.3% market share. Fujitsu/Fujitsu-Siemens, experienced a 14.9% decline in factory revenue holding 4.2% revenue share in 4Q08.

Top Server Market Findings

• Unix servers experienced 6.2% revenue decline when compared with 4Q07. Worldwide Unix revenues were $4.9 billion for the quarter, representing 36.2% of quarterly server spending and reflecting continued IT investment in this server market segment.
• Microsoft Windows server demand was impacted by the slowing x86 market as hardware revenue declined 17.8% and unit shipments declined 10.0% year over year. Quarterly revenue of $4.8 billion for Windows servers represented 35.3% of overall quarterly factory revenue.
• Linux server demand also weakened in 4Q08 with revenue declining 7.0% year over year to $1.8 billion. Linux servers now represent 13.6% of all server revenue, up more than 1.0 points over 4Q07.

"While Unix server revenue declined in the fourth quarter, Unix server share of 36% of quarterly server-market revenue compares well with the year-ago quarter, when Unix server revenue accounted for 33% of quarterly revenue," said Jean S. Bozman, research vice president, IDC Enterprise Platforms Group. "So, while actual revenue was lower this time around ($4.9 billion in 4Q08 vs. $5.2 billion in 4Q07), the share of total revenue shows continued investment in Unix servers, where customers have invested so deeply over the years to support mission-critical workloads."

x86 Industry Standard Server Market Dynamics

The x86 server market decelerated sharply in 4Q08, with factory revenues declining 17.0% in the quarter to $6.5 billion worldwide as unit shipments declined 11.7% to 1.8 million servers. Sun was the only top 5 server vendor to experience positive x86 server revenue growth in the quarter – growing factory revenue 21.3% – and gaining x86 market share in the process. HP led the market with 38.2% revenue share and Dell retained second place securing 21.9% revenue share. For the full year 2008, worldwide x86 server revenue declined 5.3% to $27.8 billion, while worldwide x86 unit shipments grew 2.8% to 7.7 million units.

Bladed Server Market Shows Strong Shipment and Revenue Growth

Although the blade market experienced positive growth in the quarter, the segment decelerated sharply, with factory revenue increasing 16.1% year over year on shipment growth of 12.1% compared to 4Q07. Overall, bladed servers, including x86, EPIC, and RISC blades, accounted for $1.4 billion in the fourth quarter, representing 10.4% of quarterly server market revenue. More than 85% of all blade revenue is driven by x86 systems where blades now represent 18.5% of all x86 server revenue. HP maintained the number 1 spot in the server blade market in 4Q08 with 54.8% revenue share and IBM finished with 21.7% revenue share. Sun, Dell, and Fujitsu/Fujitsu-Siemens all significantly outperformed the market with year-over-year revenue growth of more than 60% respectively. For the full year 2008, worldwide blade server revenue grew 33.3% year over year to $5.4 billion.

"While the x86 market declined double digits, blades remained a bright spot as the only section of the market showing positive unit growth, gaining 8.8% over those shipped in the fourth quarter of 2007,” said Dan Harrington, research analyst, IDC's Enterprise Platforms Group. "End users continue to invest in blades as an attractive option due to their TCO advantages and energy efficiency benefits.”