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Intel server revenue to outpace rivals

In 2003, revenue from servers built on Intel processors will for the first time exceed revenue from more customized Unix systems built on RISC processors, analysts say.

In 2003, revenue from servers built on Intel processors will for the first time exceed revenue from more customized Unix systems built on RISC processors, analyst firm Gartner Dataquest has predicted.

The change will be a milestone for Intel and allies like Microsoft and Dell Computer, which for years have sold large quantities of servers but haven't made as much money as rivals such as Sun Microsystems that sell Unix servers that use RISC (reduced instruction set computer) processors. Intel server advocates have been working for years to endow their hardware and software with the reliability and performance features of the more customized RISC-Unix systems.

Gartner Dataquest analyst Jeff Hewitt said in a report that the change was driven by fierce price competition among Unix server sellers combined with a growing Linux industry. Linux is a clone of Unix that most often runs on Intel servers.

"RISC server vendors will need to take strong action to ensure that they position these hardware platforms as viable," Hewitt said. Sales of RISC-Unix servers are expected to drop from $18.8 billion in 2002 to $18.1 billion in 2003, while Intel server sales will increase to $20 billion, Gartner Dataquest forecast.

Servers are higher-end machines that typically run around-the-clock for critical computing tasks such as logging a retail chain's sales or powering a stock exchange. They range from high-end Unix servers and mainframes with numerous processors and multimillion-dollar price tags to comparatively inexpensive Intel-based machines running Linux or Windows.

Of the largest server sellers, IBM and Hewlett-Packard sell both Intel and RISC servers; Sun Microsystems sells Unix-RISC servers but has just begun selling Intel servers; and Dell sells only Intel servers.

The change in fortunes for Intel servers was foreshadowed by U.S. server sales in the third quarter, when Gartner Dataquest said Intel server sales exceeded RISC sales. Buying patterns in the United States often spread later to the rest of the world.

Back to growth
For the first time since 2000, the server market will grow again, the report predicted, driven largely by increasing sales of Intel servers running Windows and Linux. However, it won't be a big jump: Server revenue is expected to increase less than 1 percent from 2002 to 2003, Hewitt said.

Still, it would be an improvement from years past for server makers, which have been suffering with the demise of manic Internet spending and with the economic recession.

With resumed growth, though, companies won't be able to blame the economy for poor sales. "Ailing economies will no longer be an acceptable excuse for poor performance," Hewitt said. Without effective sales and marketing in 2003, server makers likely won't be able to participate when server sales growth accelerates in 2004, he said.

Part of the reason for the revenue growth is that server makers simply can't cut prices much more, Hewitt said. "Because 2002 saw this aggressive pricing by vendors, it does not leave much room for continued price reductions in 2003. This will help to keep pricing more stable in 2003," he said.

Shipments of Linux systems likely will double from 2002 to 2003, rising to about 800,000 units, Hewitt predicted. Linux server revenue will increase to about $4 billion in 2003.

Server makers must build effective Linux marketing, sales and support programs as a result, Hewitt said.

"Lip service will not be enough; the ability to execute and show significant participation in Linux server market share will be vital to capture growth from this operating system as Linux continues its acceleration in 2003," Hewitt said.

One compelling pricing advantage of Linux is lower "client license" fees, the money software companies charge according to how many computer users are tapping into a server. Linux software, unlike many competitors, often comes with no client license fees.