IDC: Bump From Entry Server Sales to Help Server Market Rebound

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With IT spending still sluggish, IDC’s latest batch of stats reveals a server market that may soon see the light at the end of the tunnel, thanks to increased spending in the entry server space.

According to IDC’s latest Quarterly Server Forecast, spending for the Standard Intel Architecture Server server market will grow to $5.0 Billion in the third quarter of 2002, making it the first quarter since the beginning of 2001 that this segment has shown growth.

However, IDC believes enterprise spending for the worldwide server market will remain cautious and any third-quarter growth will return the market to flat year-on-year growth.

“We are not saying that the server market has broken free from the economic freeze,” said Vernon Turner, group vice president of Global Enterprise Server Solutions. “IT enterprises are buying only the minimum amount of incremental capacity to get the job done. But this represents the first step toward improving market conditions.”

IDC expects third-quarter spending in the United States to increase by as much as 4.7 percent compared to third-quarter 2001 spending. The research firm attributes the spending bump to improving market conditions for low-end servers. Most volume server vendors reported strong sales in July and August as well as renewed request for quote and request-for-proposal activity across several vertical markets.

Although the U.S. markets are still faced with uncertainty, IDC believes conditions are slowly improving, and it anticipates growth of 8.6 percent compared to the previous quarter. The firm notes, however, that any gains in the third and fourth quarters will most likely be offset by a very weak first half, resulting in a 9 percent decline for 2002 compared to 2001.

“While the U.S. and many of the emerging markets in Asia Pacific are beginning to fuel market growth, conservative spending in Latin America, Western Europe, and Japan are conspiring to inhibit a stronger worldwide improvement in market conditions,” added Mark Melenovsky, IDC’s Program Director for Server and Infrastructure Hardware Research. “Additionally, customer demand has shifted substantially to buying smaller increments of infrastructure capacity, fueling growth in the volume server market and continuing to create a very aggressive pricing and competitive environment in the midrange and high-end segments.”

In the longer term, IDC believes the server market will achieve a compound annual growth rate of 3 percent during the next five years, representing a $63.4 billion opportunity in 2006.

Major growth drivers will be Linux hardware sales, which will triple to $6.5 billion in 2006, and Microsoft-based server platforms, which will increase by nearly $5 billion to $19 billion. While RISC-based systems will face greater competition from Linux and 64-bit volume server platforms, IDC expects them to increase their presence among high-end systems competing with proprietary mainframe technology and to contribute approximately $27.7 billion to the server industry by 2006.

IDC’s Worldwide Quarterly Server Forecast is a quantitative tool for analyzing the future global server market. The Forecast includes quarterly shipments (both ISS and upgrades) and customer revenues segmented by region, operating system, price band, CPU type, form factor, and CPU capacity. Product information is available from Steve Josselyn at +1 508 935 4247 or sjosselyn@idc.com.