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Server shipments fall as firms use cloud and virtualisation to cut hardware costs

Gartner’s latest global server sales tracker highlights the toll that cloud and virtualisation are taking on the market

Hyperscale datacentre builds are propping up the worldwide server market, as SMEs and enterprises look to cloud and virtualisation technologies to cut hardware costs.

According to Gartner’s quarterly worldwide market tracker, global server revenue was down 2.3% on Q1 2015, while shipments were up by 1.7%.

Jeffrey Hewitt, research vice-president at Gartner, said the overall decline in server revenue reflects the fact that the average price of hardware has fallen during the past 12 months.

“Although revenue declined, the first quarter of 2016 continued with a trend of low-level shipments growth on a global level with a variation in results by region,” said Hewitt.

“The drop in revenues in the light of shipment increases demonstrates that the servers that shipped during the period had lower average selling prices than those that shipped in the same timeframe last year.”

The market watcher’s data shows shipments were down across all geographical regions, apart from Asia Pacific, where revenue was up 9.7% on last year against an 8.4% year-on-year rise in shipments.

The picture in Europe, the Middle East and Africa (EMEA) was particularly bleak, with shipments down 1.3% and revenue down 2.4% year-on-year, prompting Gartner to warn of challenging times ahead for server suppliers operating in the region.

Adrian O’Connell, research director at Gartner, said supplies will struggle to increase shipments and revenues over the year ahead, as EMEA firms focus on consolidation and cost-cutting.

Read more about datacentre growth trends

“Ongoing business concerns, combined with the consolidation pressures of virtualisation and cloud delivery, led to the weakest start to the year from a volume perspective since the downturn in 2009,” he added.

While enterprises and SMEs are looking to cut their hardware costs by moving their IT infrastructure off-premise, cloud providers are driving demand for server kit as they build out hyperscale datacentres to keep up with the demand for their services.

“The real driver of global growth continues to be the hyperscale datacentre segment,” said Hewitt.

“The enterprise and small or mid-size business segments remain relatively flat as end-users in these segments accommodated their increased application requirements through virtualisation and considered cloud alternatives.”

Runners and riders

In supplier terms, Hewlett Packard Enterprise (HPE) retained its position as the worldwide server market leader based on revenue, with a 25.2% share, and was the only firm in the top five to achieve growth.

IBM came third (9.7%), behind Dell (17.3%), and suffered the biggest decline in revenue growth in the top five. In fourth and fifth places were Lenovo and Cisco, with market shares of 6.7% and 6.5%, respectively.

Looking ahead, Gartner predicts server shipments and revenue growth will pick up during the second quarter, if certain market conditions are met.

“We expect server shipments and revenue in the second quarter of 2016 not to be as weak as those achieved in the first quarter,” said O’Connell.

“However, this is all relative, because if the poor performance of server suppliers in Russia and related geographies continues to weigh on the market, 2016 will be a tougher year for server suppliers in EMEA.”

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