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HP, Dell grab more of server market

Compaq still ships the most lower-cost servers, but other companies are stealing away some of the sales, a report finds.

Hewlett-Packard has passed IBM in lower-cost server sales worldwide, but Compaq still ships more than the two other companies combined, a study released today said.

Compaq had a worldwide market share of 32 percent for Intel-based servers costing up to $25,000 in the third quarter of 1998, the study by International Data Corporation said. However, Compaq slipped 3.6 percent from a year ago, and second-place HP and fourth-place Dell Computers stole away some of those sales.

HP jumped into second place, increasing its market share from 12.3 percent a year ago to 15.2 percent in 1998. At the same time, IBM slipped to third place, its market share dropping from 13.1 percent in 1997 to 12.9 percent this year.

And just as happened with desktop computer sales in recent years, Dell is nipping at the heels of the more traditional big players. Dell's worldwide market share increased from 7.9 percent a year ago to 11.5 percent in 1998.

In the U.S., where customers are more comfortable buying servers directly from manufacturers, Dell's market share gain was even stronger, leaping from 13.4 percent in 1997 to 19.7 percent in 1998, said IDC analyst Amir Ahari.

The low-range server market is dominated by the top four companies, who together have more than 70 percent of the market, Ahari said. "It's making it harder and harder for the second tier to get a break," he said.

The IDC study tracks "PC servers," low-end servers that use chips from Intel. However, the servers can use any operating system, Ahari said. Preliminary figures indicate that Microsoft's Windows NT and Novell's Netware operating systems dominate, with Unix systems such as Santa Cruz operation's UnixWare and Sun Microsystems' Solaris holding only 8 percent of the market share.

Worldwide sales of low-ranges servers in the third quarter of 1998 jumped 22 percent from the same time in 1997, but server manufacturers didn't see much financial benefit from the sales surge, Ahari said. "Many companies did not do well," he said.

Worldwide, 551,000 PC servers were shipped in the third quarter. But companies didn't profit much because a lot of those sales were of old and outdated models, such as servers using Intel's Pentium Pro chip.

Now, though, server vendors have supply problems with new models using the Pentium Pro's successor, Intel's Pentium II Xeon chip.

"The Xeon is still facing supply issues," Ahari said. More often than not, systems ordered with two or four Xeon processors ship with just one, leaving customers waiting for the extra slots to be filled later, he said.

Server manufacturers were stung by selling too many servers earlier this year into the sales channel, the network of dealers who often sell hardware to the actual customers, Ahari said. As a result, there was a lot of older inventory from the last six or nine months that had to be cleared out.

So how did server companies unload their older wares? "Most of the very low-end, outdated products saw their way to Europe," Ahari said. "It seems many companies are seeing Europe as a dumping ground."

Ahari said it was interesting that demand in Japan was surprisingly strong, increasing 14 percent since the third quarter of 1997 despite Asia's financial problems. "It leads me to believe that folks in the entire region see this segment as strategic. It does not get impacted by any budget cuts," Ahari said.

Direct sellers such as Dell, Gateway, and Micron, though, don't have to worry about problems with too many or not enough products in the distribution channel.

Direct sales continued to make inroads in the United States server market, now accounting for 25.9 percent of PC server sales. In the U.S., Dell is in second place for PC servers with 19.7 percent, Gateway is in fifth place with 4.3 percent, and Micron is in sixth place with 1.8 percent.

"It goes right in the face of folks a couple years ago who said direct sales will never be 5 percent," Ahari said.