An IDC survey indicates that factory revenue in the global server market plummeted by 5.2 per cent to $12.6 billion during the third quarter of 2008.

The significant decline, which has been attributed to the worldwide economic recession, marks the largest quarterly loss since the fourth quarter of 2002. Indeed, server unit shipment growth of 2.8 per cent year over year in 3Q08 represented the slowest increase in server shipments since 4Q06, while volume systems revenue fell by 7.2 per cent. Although midrange enterprise server revenue decreased by 9.5 per cent, high-end enterprise servers managed to generate revenue growth of four per cent.

"The server market experienced significant deceleration in the third quarter, with particular weakness in September. The slowdown impacted a wide range of traditional server technologies, with improved demand for blades and IBM System z notable exceptions," said Matt Eastwood, group vice president of Enterprise Platforms at IDC. "Many OEMs experienced significant pricing challenges in the quarter, and revenue declines were experienced in all regions except Latin America and the Middle East and Africa (MEA). Enterprise budgets continue to face increased scrutiny as IT organisations of all types look to run their hardware harder and defer acquisitions wherever possible."

Indeed, HP and IBM reported similiar overall market share results, with the former recording 30.7 per cent and the latter, 30.2 per cent. Although HP recorded a two per cent revenue decline, its Blade System business demonstrated continued success. IBM's overall revenues declined 3.1 per cent despite strong System z sales. Dell, with a 4.3 per cent revenue decline, maintained its third place with a 12.0 per cent overall market share, while Sun was relegated to fourth place with a 10.9 per cent revenue decline and a mere 9.5 per cent market share.

Industry heavyweight Microsoft boasted a revenue market share of 40.8 per cent, but showed a a 5.1 per cent year-over-year revenue decline. Linux, which represented 14 per cent of all server revenue, cited a slight 2.5 per cent decline for a total of $1.8 billion. Unix servers also suffered a 8.4 per cent revenue decline when compared with 3Q07.

In sharp contrast, IBM's System z servers running z/OS experienced their third consecutive quarter of growth, with increased revenue of 24.8 per cent and 9.4 per cent  of all server revenue.

"In the face of the worsening economic climate, IBM was still able to post significant growth in their mainframe business during the quarter," said Steve Josselyn, research director for IDC's Enterprise Computing group. "While we believe some of this is based on pent-up demand after a lengthy refresh cycle before the introduction of the new z10 machines late last year, there is still a large number of customers that continue to invest in the System z platform as an integral part of their compute infrastructure."

Although standard x86 server revenue declined 6.6 per cent to $6.9 billion, blade server revenue increased by 29.5 per cent. For example,  x86, EPIC, and RISC bladed servers snagged $1.4 billion and represented 11.0 per cent of all server market revenue in the quarter. HP managed to maintain its number one spot in the blade market with a respectable 54.7 per cent market share and quarterly factory revenues growth of 55.5 per cent.

"Blades were the only form-factor to experience positive growth in the quarter, with all major vendors exhibiting double-digit growth in blade volumes," said Jed Scaramella, senior research analyst in IDC's Enterprise Computing group. "IT customers continue to adopt blades due to energy efficiency, serviceability, and flexibility benefits derived from the consolidated platform." X

Top 5 Corporate Family, Worldwide Server Systems Factory Revenue, Third Quarter of 2008
(Revenues are in millions)