IBM extends lead in server market

Big Blue makes sales headway in key market with models using x86 chips and the Unix operating system.

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Stephen Shankland
3 min read
IBM continued to march ahead of rivals in 2004 in server sales, a key market in the computing industry, making gains in models using x86 chips and the Unix operating system.

Big Blue's server revenue increased 9.3 percent to $16.1 billion from 2003 to 2004, according to figures released Wednesday by research firm Gartner. That growth outpaced the overall market, which grew 7.2 percent to $49.5 billion.

Dell grew faster, increasing revenue 20 percent to $4.8 billion. That wasn't enough to pass No. 2 Hewlett-Packard, which grew 6.7 percent to $13.4 billion, or No. 3 Sun Microsystems, which shrank 4 percent to $5.2 billion.

Servers are powerful networked machines that handle tasks such as storing e-mail, hosting Web sites, making airline seat reservations or recording bank transactions. Comprising a strategically significant market in the computing industry, servers are at the heart of customers' businesses, come with plumper profit margins than many other products and influence purchases of other computing equipment.

IBM has been tops in the market for years. It fended off an attack by Sun, which soared in the late 1990s but fell back afterward. Big Blue is now targeting Dell with higher-end x86 servers and HP's Itanium-based products with its Power5 processors.

"IBM was able to take advantage of the Power5 servers in upgrading its current installed base as well as upselling current (Intel server) users," Gartner analyst Mike McLaughlin said.

IBM showed gains in the Unix server market, which overall declined 2.8 percent to $16.2 billion in 2004. IBM's share increased from 24.3 percent to 26.7 percent at a time when Sun dropped from 32.6 percent to 31.8 percent and HP dropped from 31.9 percent to 30.2 percent.

HP has suffered in Unix as it transfers its systems from its own PA-RISC processor to Intel's Itanium. "The increase of Itanium has not

outpaced the decline of PA-RISC," McLaughlin said.

In contrast, dramatic growth took place with servers using x86 processors such as Intel's Xeon and Advanced Micro Devices' Opteron, a market that boomed 16.4 percent to $23.2 billion. HP kept its top ranking with 32.6 percent, but its 14.1 percent growth rate lagged the market. In contrast, No. 2 Dell grew 19.6 percent to capture 20.5 percent of the market and No. 3 IBM grew 22.4 percent for 18 percent of the market, Gartner said.

Dell's gains came chiefly in single-processor and dual-processor models. In contrast, revenue from its four-processor models shrank 3 percent to $633 million, McLaughlin said.

IBM also led two segments of the server market that grew much faster than the overall market did. Servers running the Linux operating system grew 50.9 percent to $4.9 billion, while blade servers, thin models that slip side by side into a shared chassis, grew 123 percent to $1.21 billion, Gartner said.

In blades, IBM's revenue grew 316 percent to $518 million; HP's grew 78 percent to $437 million; Sun's grew 76 percent to $115 million; and Dell's shrank 48 percent to $33 million.

In Linux, IBM grew 48 percent to $1.5 billion; HP grew 36 percent to $1.25 billion; and Dell grew 44 percent to $748 million.

Sun has launched an effort to spread its Solaris version of the Unix operating system to x86 chips--chiefly AMD's Opteron. The company made some headway with that effort, though it's still a tiny sliver of the overall x86 market, with revenue increasing 299 percent to $59 million.

However, even though Sun promotes Solaris at the expense of Linux, the latter fared better at Sun, with 93 percent growth to $59 million.

AMD pioneered the addition of 64-bit extensions to x86 in 2003 with its Opteron. Intel followed suit halfway through 2004. Despite AMD's earlier arrival, more revenue came from servers using Intel's 64-bit Xeon chips, McLaughlin said: $1.3 billion for Xeon servers, compared with $838 million for Opteron servers.

Intel could make more gains soon. In coming months, it plans to release new 64-bit Xeon processors, code-named Cranford and Potomac. These are suitable for four-processor servers, an area where Opteron is already available.