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Servers constitute a significant slice of the systems pie and FY 09 turned out to be a big dampener. Both x86 and non-x86 markets faced the heat of recession and saw unit shipments going down. The non-x86 UNIX market continued as the preferred servers for mission critical large IT deployments. What was missing last year were the huge deals that used to pump in the volumes, which did not happen in large scale. Overall, the server market managed to register a growth of 4% during FY 09.

x86 Servers: Tough Going
As per estimates, the x86 servers contributed predominantly to the overall server revenues. It was a tough year for x86 servers because its a volume space and the market is predominantly driven by various segments from large enterprises to SMBs. Last year, most of the enterprises did not invest much in IT hardware, and that was evident from the 4% dip in x86 unit shipments. If we look at the way the x86 servers are segmented from a technology perspective, the 1P category is the predominant slice followed by 2P and 4P. In all these categories the intake was far lesser and H2 09 saw both volume and value declining.

CyberMedia Research                                                                                              DQ Estimates

HP and IBM took the major chunk of the server slice, both managing to sustain value. Overall, servers saw a modest growth of 4%, not bad in a challenging year

If we look at the market dynamics in FY 09 for x86 servers, the biggest spoilers were the IT/ITeS and manufacturing verticals which drastically cut down their IT spending on servers. This segment used to be a major consumer of x86 in all these years, but in FY 09 most of them went very slow on new purchases leading to a decline in many vendor unit shipments. Experts aver that it will take a while for the IT/ITeS segment to boom again. Meanwhile, the verticals that actually helped vendors like HP sustain their overall performance were government, telecom, and education.

CyberMedia Research                                                                                              DQ Estimates

FY 09 was the year in which customers went slow on hardware purchases, and that put brakes on x86 shipments, which saw a decline of 4% in terms of units

Given the tough market conditions, vendors adopted various strategies to sustain their market share. For instance, HP adopted a very aggressive go-to-market strategy backed by a slew of products across processor categories. It saw good momentum for its G6 range of servers and positioned it as an ideal cost efficient and powerful server for the SMBs. HP also did various customer handholding exercises like road shows to deepen its presence in the upcountry markets where it saw some good wins. HP also saw good demand for its custom built pre-configured servers which came with bundled software for specific verticals. These kinds of servers were well received in upcountry markets.

Meanwhile, for IBM, during FY 09, it concentrated on becoming more customer-centric from a product-centric approach. It launched the Partner Sales Support Center (PSSC) initiative in India. The initiative helped its business partners better position its servers on all aspects like configuration, pricing, and customer needs among others. Clearly, IBM took a consulting approach on servers and looked at meeting customer requirements rather than selling the servers as a box. With continuous expansion in the telecom space, this vertical saw some good deals for IBM over the last year.

For other vendors like Sun Micro, it was a rather subdued year in x86. However, Wipro was one vendor which managed to post a unit growth in x86. As per available numbers, Wipro grew its x86 unit shipments by an impressive 17%. Players like Dell also attacked the SMB opportunity aggressively, but it is very strong in the IT/ITeS space, and a massive cut in those verticals did spoil its overall performance in the server business. Meanwhile, on the blade server front, the data centers and the compute intensive environments continued to drive overall demand.

Non-x86 Servers: Driven by Value
A look at the way the non-x86 UNIX server space is developing over the last couple of years indicate steady decline in unit shipments. But while bigger units signify bigger revenues, at the same time, experts point out that unit shipments are not a sole benchmark and non-x86 is rated more on value terms. In unit terms, non-x86 declined by almost 15%. So going by industry estimates in value terms, HP leads the overall non-x86 market followed by IBM and Sun. But in unit terms, Sun would be the leading vendor in UNIX.

If we look at vendor wise performance, HP signed some big deals in FY 09 on the non-x86 side with customer wins like ONGC, BSNL, Bank of Baroda, and SBI, in addition to many PSU wins. What augured well for HP were the large SAP rollouts in some of the leading enterprises that went in for HP. The predominant chunk of the non-x86 revenues came for its high-end offerings that translated into higher revenue yield.

IBM, on the other hand, reached the market with its Power series of systems. According to IBM, it says that it has emerged as the leader in the India non-x86 UNIX Server market in terms of factory revenue in Q1 09 (JFM 09 quarter) as per IDCs Asia/Pacific Enterprise Server Tracker, Q1 2009 June 2009 release. IBM was the only vendor to attain a positive y-o-y revenue growth of 4.3% (Q1 09 over Q1 08) in the India non-x86 UNIX server market. Clearly, on the non x86 side, one is increasingly seeing the quarter on quarter swing with one big account altering the vendors positioning. Right now, there is a high degree of ambiguity in classifying UNIX leadership due to this swing factor. Furthermore, the unit/value leadership also makes the market leadership a little ambiguous.

Outlook
The leading vendors expect that there will be a spurt in server demand at the end of the year, and expect the IT/ITeS segments to go on a buying mode if not a spree. Most of them are pitching hard on recession-proof verticals like education and government and are trying to gain more market share and value. Specifically, on the x86 side, the coming two quarters are going to be critical for many vendors to reclaim the lost ground in H2 09. But a lot depends on how SMBs are going to handle their IT budgets this year as SMBs are one of the key customers for the x86 servers. Meanwhile, the non-x86 side will be increasingly characterized by a high value low volume trend with very large enterprises continuing to drive this segment. Overall, a look at FY 10 shows a mixed bag with the overall server growth pegged at 8% in value terms.

Shrikanth G
shrikanthg@cybermedia.co.in

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