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Industry analysts' term FY 2004-05 as a great year for servers with further escalation of the consolidation factor and the market getting more defined in terms of server platforms. This paved the way for the two major categories of servers-x86 and UNIX-seeing good business during FY 2004-05 with large scale projects from various verticals driving the demand. Thanks also to the still buoyant BFSI vertical that went server shopping from high to low end products.

Servers and Workstations occupy a vantage position in the IT hardware space. Unlike PC business the server dynamics are totally different and it's not only a volumes game here. The server industry rides on two critical parameters-power and performance. This is because mission critical data gets processed in various types of servers. Given that servers constitute a key place in an organization's IT infrastructure, they command significant budgets.

The server market had another good year with positive growth both on the x86 and the UNIX front. India might have missed the Top 3 server spenders list in APAC, but it's just a step behind South Korea with 8.5% market share in the first quarter of 2005, a 23.6% growth as compared to same quarter of 2004. For the entire year, x86 grew by 29% in unit terms, while non-x86 grew by 50%. For both these segments, the biggest growth drivers have been the banking and the telecom verticals. All the leading server vendors were able to garner large mandates from both of these verticals. Government and education also responded positively and these verticals hold big promises in the ongoing year too.

x86 Servers: Biggest Slice of the Pie
This category of servers still represents one of the biggest slice of India's server pie cluttered by various vendors offering high to low-end systems. This segment accounts for about 50% of the total server market. But industry analysts doubt its ongoing dominance of x86 32-bit platform for long, as in the recent times the x86 64-bit platform is gaining momentum. Most of the vendors estimate that by 2007, x86 32-bit systems would be almost phased out. Coming to numbers, HP shipped about 17K units of x86 servers during the year. BFSI vertical contributed in excess of 30% revenues for HP. Meanwhile for IBM, its server business is getting to the pink by the day. Aggressive price points, high spend on branding, and new models helped IBM to race past HP in this category by about 1K units. IBM experienced a huge traction in the financial services, telecom, and the SMB segments. It closed the year with a 25% market share and a growth rate of 35% in value terms (more than the market growth of around 19%). IBM was the first vendor to ship more than 5000 units, over two quarters (third and fourth quarter of 2004). Meanwhile, Indian players like HCL faced the MNC aggression and pushed their server offerings with aggressive marketing. Therefore, HCL did shake off the MNC onslaught to post a 62% growth in unit terms to about 10K shipments. For instance, HCL bagged one of the biggest orders from the education space for Punjab government schools to which it supplied close to 1,700 servers.

Another interesting trend during last year was the aggression showed by Sun on the x86 space. Sun, which was predominantly a UNIX server vendor, forayed into the x86 space with its new line of Linux Servers. Linux has enjoyed some success in the lower end server space primarily due to the fact that it is open source and less expensive. Linux has also gained momentum because of the fact that it offers the ability to run Windows applications also. In the Linux server market in India, Sun recorded a spectacular growth in unit shipments to reach the number two spot. Sun's strong growth in the Linux server market in India was due to its new line of x86 servers: the Sun Fire V20z and Sun Fire V40z. Sun also had the Solaris edge that pushed its servers on to the comfort zone. With Sun getting into the x86 space, it saw good wins in segments like retail and biotech. Sun is pitching hard saying that the choice of being able to run Solaris 10 on just about any platform available, makes it a far more compelling proposition for the CIOs.

Meanwhile, Big Blue IBM continues to champion the Penguin. It's emphasis over the last year was in workload consolidation of clustered systems for high performance computing and access to new applications on different hardware platforms. For instance, the entire IBM eServer and total storage product line including clusters acquired the Linux deployment capabilities. During 2004, IBM increased its focus on enhanced secure Linux, carrier grade Linux, datacenter Linux, and topped it with Windows capabilities. In the ongoing year IBM would continue to evaluate, test and improve its support to Red Hat and ensure that Linux is supported on its new products.

During OND 2004 relates to the LG entered into the server space with its Pro Server range. With x86 on the Linux front on the incline, entry of new players like LG, only augurs well for the enterprises. As a result enterprises can go in for cheaper options in the days ahead as Linux gains more traction on the x86 and definitely a space to watch out for in FY 2005-06.

Non-x86 Servers: A Hit with BFSI
In the UNIX space Sun continues to hold its sway, retaining its dominant position. For Sun the core focus areas have been the banking and telecom verticals during FY 2004-05. Sun secured a large mandate for server deployment from Punjab National Bank which rolled-out its core banking solution (CBS) cutting across its 1000 branches and at the back end are a range of Sun servers powering the CBS. Other big time financial segment clients include names like Oriental Bank of Commerce, Andhra Bank, Karnataka Bank, South India Bank and SBI. Additionally, other major segments where Sun made significant in-roads were the education and research segments where Sun's Opteron based systems witnessed lots of traction. For instance IIT Kanpur's deployment of largest Opteron cluster was significant not just for Sun, but also from the perspective of the Indian academic and research communities

In the non-x86 space, IBM has been showing rapid growth, especially with the launch of its Power5 based servers. In the fourth quarter of 2004, IBM managed to outgrow competition to secure the number two place in the UNIX space, with a market share of 30%. IBM was the only vendor to gain share on a QoQ in this space, registering a growth of around 25% YoY. With the rapid improvement in technologies and performance on the IBM servers, IBM has been successful in setting its non-x86 servers, especially its pSeries range. Among the major clients that IBM had in the server space over the year was the UTI bank to which it provided Power 4 based servers for its core banking applications. For Aviva Life Insurance IBM provided its server consolidation on x-series and disaster recovery. Meanwhile, HDFC bank went in for IBM P5 for its core banking application, and IndusInd Bank went for the I-series servers and integrated with x-series and disaster recovery solutions. On the telecom side, IBM provided its p-series range for Hutch for its Oracle implementation. BPCL also went in for IBM's x-series.

Trend Setters
One of the biggest trends over the year was the blade servers garnering major attention and getting more mainstream. By 2008 the blade server market will reach 9.9 mn units and values in excess of $3.7 bn, says IDC. In India, vendors like Sun, IBM and HP pursue the blade market aggressively. HP, for instance, announced its new breed of servers based on the Intel Xeon 64-bit platform, code named Nacona. HP was also the first vendor to push more than 100,000 blades worldwide in the last one-year or so. Blades, hence, became one of the preferred options for enterprises during 2004 and expanded the enterprises' server capabilities. Unlike traditional servers, blades occupy very less floor space and come in thin form factor. They also offer enormous flexibility in running different applications on various operating environments. For instance, by using blades, an enterprise can run Windows in the day and Linux during night. Simplicity and flexibility are the hallmark of a blade system and that is exactly what most of the CIOs asked for. In the entire server value chain the blades moved one level up on the server maturity ladder during FY 2004-05.

With server technologies becoming more evolved, companies also came to realize that increased performance and utilization could help reduce cost of operations. They also realized that getting more work done with fewer servers considerably lowers the cost and complexity of managing the IT environment, ultimately making more funding available for desperately needed services that actually improve business. Hence, server consolidation became a major thought and most of the CIOs explored ways and means of optimizing on the existing servers they had instead of going to new ones. While server consolidation will thin out repeat orders from large enterprises, at the same time, vendors firmly believe, server volumes will grow with new application demands. For instance, SMB is a segment where many of the vendors pin their hope for future server growth. This is where servers and workstations volumes lie in the x86 space.

Hence, server consolidation became the key trend during FY 2004-05. It also provided users like educational institutes to optimize on their computing capabilities to support their programs and initiatives at just the right cost, enabling higher adoption rates amongst these organizations. Further, businesses, which traditionally ran their IT infrastructure in a fragmented or decentralized manner are now recognizing the need for higher optimization, manageability and security levels. An optimized datacenter helps deliver higher level of service at lower costs. Hence, to tap that consolidation market, most of the vendors provided consolidation services for companies who want to reduce IT costs, improve service levels, and improve IT manageability.

According to industry experts, gone are the days when a customer looked for RAS (reliability, availability and serviceability) when purchasing a server. During 2004 the tone was about simplicity, affordability and productivity. CIOs in the last year became aware of the infrastructure simplicity and its benefits. Given that virtualization as a concept became more realistic during 2004 from just the buzzword that it was in 2003. Most of the vendors also drove home the point that Virtualization is not just about hardware consolidation-where one brings together multiple servers into one box, and still ends up with multiple servers handling multiple jobs within the organization. A true virtualization environment is where all servers were optimized for seamless activity. The second trend that is already visible, but will gain greater significance with different ramifications is that of 'affordability'. Says one server expert, "Affordability is not just about reducing costs by increasing volumes-affordability is about using industry standard technology, combining it with the best of design skills to reduce overall cost of ownership". The best example is that of blade servers. Meanwhile, affordability also has another dimension to it-capacity on demand. This implies, pay for capacity only when needed and used. Here the vendors pitched concepts like 'pay as you grow' or scale up or scale down.

While we look at the vendors' server strategies over the year, we see a perceptible shift in selling style. Rather then selling plain vanilla servers, they emphasized on IT infrastructure optimization and offered mix-n-match solutions. This is so because of CIO pressures on factors like TCO and RoI. Vendors had no way out but be more flexible and support open standards and listen to needs of the enterprises rather than pitching hype factors. This approach brought lots of rationalization on the server market and enabled vendors to hold on to their traditional strengths.

What to Look Out For
The outlook for the server market for FY 2005-06: the leftover PSU banks will adopt the CBS and that will secure BFSI demand for servers. But ultimately, demand will thin out by the latter part of 2006 as banks will reach higher levels of automation, most even achieving 100% computerization across branches by then. But, most vendors are bullish on the automotive and the education front that will, they hope, pump up the server market in 2006 and beyond. With all the leading automotive manufacturers adopting ERP and having consolidated their operations on ERP, they are now going beyond. This is one of the biggest market opportunities for server vendors who will actually power the CRM, dealer management system (DMS) and SCM initiatives that various auto majors are planning. In terms of technology, x86 32 will be cannibalized by x86 64 systems that will usher further reliability and robustness to the x86 server platform. Meanwhile, high-end enterprise demands will be met with RISC/UNIX combo.

Beyond the x86 and the UNIX terrain, a space that is fast gaining traction is high performance computing (HPC) wherein vendors like HP and Silicon Graphics are seeing lots of traction. HP secured mandates from organizations like TIFR and Integrated Genomics for HPC deployments. Meanwhile, vendors are also bullish on the Healthcare vertical for HPC with hospitals talking about digitizing patient records like X-ray images, that will be embedded in the patient record systems. And as enterprises think of a cost conscious server optimization plan, blades will invariably find their acceptance growing in those places gaining further traction during FY 2005-06. In all, looking at the current server market dynamics, the outlook remains extremely positive for India with vendors hoping for yet another great growth year ahead.

Shrikanth G

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