Virtualization takes toll on physical server sales

New numbers from Gartner show that computer server sales slowed in the third quarter, a trend the research company attributes to virtualization.

Gartner’s latest report on servers, released Tuesday, shows that worldwide sales grew by 4.4 percent, based on revenue, to just over US$13 billion, and 9.1 percent by unit volume, to 2 billion servers. In the second quarter, sales rose 2.5 percent by revenue and 12.8 percent by unit volume.

“We have seen double-digit growth in the past,” said Jeff Hewitt, research director for Gartner. “Server sales are still growing, but because of virtualization, customers don’t have to buy as many servers.”

Virtualization makes it possible to run more programs on one physical server, using more of its capacity and making it possible for a data center to handle more work with fewer servers.

Among the server vendors, market share rankings remained the same in Gartner’s numbers, which cover the three-month period ended Sept. 30, compared with previous quarters.

IBM retained the market share lead, with 33.7 percent, based on a 7.4 percent revenue gain to $4.38 billion, from the third quarter of 2005. Hewlett-Packard followed with 25.3 percent market share on a 6 percent decline in revenue to $3.29 billion. Dell ranked third with a 10.8 percent share on a 10.2 percent revenue gain to $1.41 billion. Sun ranked fourth with a 10.1 percent share based on a 24.7 percent revenue gain to $1.31 billion. Fujitsu ranked fifth, with a 4.9 percent share on a 5.6 percent revenue gain to $634 million. Other vendors combined for a 15.3 percent share based on 6.5 percent revenue growth to $1.99 billion.

Hewitt attributed Sun’s resurgence to the introduction of new servers running the Opteron microprocessor from Advanced Micro Devices, which has emerged as a strong competitor to the processors from Intel.

In sales based on unit volume, HP led the way with a 26.5 percent share based on 7.2 percent growth to 540,609 units; Dell ranked second with a 22.5 percent share on 10.5 percent growth to 459,950; IBM third with 16.3 percent share on 7.7 percent growth to 332,777; Sun Microsystems fourth with a 4.1 percent share on a 6.4 percent growth to 83,018 units; and Fujitsu fifth with a 3.2 percent, based on a decline of 5.9 percent to 65,171. Other server brands collectively reported 27.5 percent share on growth of 13.4 percent to 560,913 units.

Following is a chart of Gartner’s worldwide server vendor revenue estimates for the third quarter of 2006.

Estimated Global Server Vendor Revenue

Company Q3 2006 Revenue Q3 2006 market share Q3 2005 Revenue Q3 2005 Market Share (percent) Q3 2005-Q3 2006 Growth
IBM $4.3 billion 33.7 percent $4 billion 32.7 percent 7.4 percent
Hewlett-Packard $3.2 billion 25.3 percent $3.5 billion 28.1 percent -6 percent
Dell $1.4 billion 10.8 percent $1.2 billion 10.2 percent 10.9 percent
Sun $1.3 billion 10.1 percent $1 billion 8.5 percent 24.7 percent
Fujitsu $634 million 4.9 percent $694 million 5.6 percent -8.6 percent
Others $1.9 billion 15.3 percent $1.8 billion 15 percent 6.5 percent

Source: Gartner Inc.

Virtualization became popular on the Mac with Apple’s Intel-based computers. Parallels, which has already released its virtualization software, will face competition from others like VMWare that announced its intention to enter the burgeoning Mac market.

Jim Dalrymple contributed to this report.

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