Server shipments up, revenues down

Shipments keep growing, but worldwide revenues decline 3 percent, primarily due to horrid conditions in the Japanese market, a report finds.

2 min read
Server vendors got a dose of good news-bad news in the third quarter of 1998, according to a new report.

The good news is that the worldwide market for servers grew at a healthy pace in the third quarter of 1998, according to International Data Corporation.

The bad news: While server shipments grew 15 percent on a yearly basis, worldwide revenues declined 3 percent, primarily due to horrid conditions in the Japanese market and pricing pressure at the low end of the market, the report said.

On the other hand, "Vendors with well-tuned strategies for exploiting emerging server market trends [such as] Dell and Sun Microsystems continue to deliver positive results," said Jim Williamson, a senior research analyst with IDC.

Among the report's findings:

  • The Japanese market is still in a funk, with server revenues sliding by 38 percent from one year ago.

  • Problems in Japan were offset by strong revenue growth in the U.S. and European server market.

  • The Asia-Pacific region, which excludes Japan, pulled out of its nosedive to show an increase in total server revenues by 15 percent from the same period last year.

    Sun, Dell continue winning ways
    In the U.S., the market gained 8 percent in terms of revenues, fueled by sustained economic growth and corporate investment in information technology, while Western Europe also had a strong showing, with revenues growing 23 percent on a yearly basis.

    Sun and Dell capitalized best on prevailing market conditions. Sun, the No. 4 vendor in terms of revenue, grew server sales 39 percent from 1997, although it slipped behind Compaq Computer in ranking from the second quarter.

    Sun is doing well, Williamson said, because "they are continuing to push Unix at a time when people are realizing Windows NT can't do everything that's been promised." They also have new models that are selling well, and those priced under $50,000 are selling in "high volumes." Dell grew because of a continued focus on corporate customers, he noted.

    On the other hand, even a growing server market couldn't do much to help Compaq. The company continues to suffer from a number of problems in its server business, including lingering after-effects related to an excess of inventory early in the year.

    PC server revenues declined from $983 million in the third quarter of 1997 to $955 in 1998 during a robust market, said Williamson. Some of the decline is due to management's preoccupation with absorbing Digital, he posited.

    "It has taken Compaq a while to absorb Digital. It almost tripled their employees, and I'm not sure they were prepared for that," he said.

    Still, the company managed to reach the No. 3 spot in server revenues behind IBM and Hewlett-Packard, based on revenues from sales of Digital Equipment's servers.

    Meanwhile, Japanese server vendors such as NEC, Fujitsu, and Hitachi posted double digit declines in server revenues on a yearly basis.