IDC: Public Cloud Giants Push Server Business Recovery; Legacy Vendors See Mixed Results

The worldwide server business is growing with volume purchasing from large public cloud providers moving the needle considerably, according to the latest data from analyst firm IDC.

IDC on Tuesday said worldwide server business grew to $15.7 billion in the second quarter of 2017, a 6.3 percent increase over the year-ago quarter. Server shipments increased during the same period by 1.9 percent to 2.45 million units.

A big sales driver, after several quarters of slow sales, was the availability of Intel's new Skylake processors, IDC said. Intel in July rolled out its new Intel Xeon Scalable Platform, or "Skylake," processors, based on its Purley architecture, and stated that they are aimed at helping customers and partners find new ways to transform data centers to meet the requirements of new cloud, networking and artificial intelligence applications.

[Related: Check Out These Hot Products Using New Skylake Purley Intel Xeon Scalable Processor]

However, despite the growth of the server business overall, the results were mixed for traditional server vendors.

What IDC calls "ODM direct" and "others" represented hyper-scale data center providers and cloud data center providers who purchase low-cost server hardware in large volumes. One such customer, Amazon, accounted for over 10 percent of servers shipped on a volume basis, IDC said.

For the quarter, the leading vendor in server revenue was Hewlett-Packard Enterprise, which sold $3.3 billion worth of servers in the quarter for a 21.3 percent share of the total market. IDC reported that revenue from HPE and New H3C Group, which is an HPE joint venture in China, fell 8.4 percent compared to last year.

Dell EMC had second quarter server revenue of $2.8 billion, giving it a market share of 17.7 percent. Dell EMC was the only top vendor to show significant growth during the quarter, with sales up by 7 percent over last year.

IBM had sales of $1.0 billion. That represented a huge 20.8 percent drop over last year as the server market increasingly turned to x86-based servers. IDC estimated demand for x86 servers increased 10.4 percent in the second quarter while that of non-x86 servers declined 21.5 percent during the same period.

Cisco had second quarter server sales totaling $874.0 million, according to IDC, giving the company a 6.6 percent market share. That represented a moderate 1.7 percent rise in server sales compared to last year.

Lenovo had server sales of $834.1 million, a 13.9 percent drop from the second quarter of 2016, IDC reported.

IDC broke out Supermicro server sales for the first time in this report, estimating that the company sold $448 million worth of servers for a 2.9 percent market share. Sales were up 49.8 percent year-over-year, IDC said.

The biggest part of the overall server market was the ODM direct sector where sales reached $3.5 billion, up 48.1 percent over last year, IDC estimated. The "other" vendors accounted for 21.9 percent of the market, or $3.3 billion in revenue, which was up 10.2 percent over last year, IDC said.

Dell EMC's significant growth in the server market vs. that of its server vendor peers was no surprise to Paul Clifford, president of Davenport Group, a St. Paul-based solution provider and long-term Dell EMC channel partner.

While server vendors tend to leap-frog each other in terms of technology, Dell EMC has consistently offered the best technology, Clifford told CRN. "Good technology is table stakes in this business," he said. "But this strategy works well for Dell EMC."

More important to Dell EMC's growth, however, is the addition of legacy EMC sales reps to the Dell server business in the wake of Dell's huge acquisition of EMC, which closed just over a year ago, Clifford said.

"Dell has always had a strong sales force for its servers," Clifford said. "But when EMC sales reps came over, they were not focused on selling corporate compute. If they were, they were likely pushing Cisco servers. But they're not pushing Cisco anymore. They are focused on Dell. So the Dell EMC growth is no surprise to me."

Hyper-scale data center businesses as a group made a significant deployment push in the second quarter, said Kuba Stolarski, research director for computing platforms at IDC, in a statement.

"As hyperscalers tend to lead the market on most architectural updates, we expect the rest of the market to catch up over the next several quarters. As the market cycles through this refresh, we are seeing changes in vendor portfolios with new modular system designs and a greater focus on accelerator technologies, as well as the continued evolution of the role of cloud services in corporate IT," Stolarski said.