FRAMINGHAM, MA – Vendor revenue in the worldwide server market declined 7% year-over-year to $12.5 billion in the third quarter of 2016, says the International Data Corp.
Overall server market growth had recently slowed in part due to a slowdown in hyperscale data center growth and continued drag from declining high-end server sales, says the firm. In addition, the robust enterprise refresh cycle of 2015 has created difficult comparisons in 2016 to the prior year's quarterly results. Worldwide server shipments decreased 4.6% to 2.38 million units in the third quarter compared to the same period last year.
On a year-over-year basis, volume and midrange system revenue decreased 4.9% and 4.1% in the third quarter to $10.3 billion and $1.1 billion, respectively. Server demand across enterprise portfolios was soft for the quarter. Meanwhile, demand for high-end systems experienced a year-over-year revenue decline of 25% to $1.1 billion. IDC expects continued long-term secular declines in high-end system revenue.
"The server market suffered a difficult quarter, as previously healthy volume server growth faltered, suggesting weakness in enterprise demand was more pronounced than expected," said Kuba Stolarski, research director, Computing Platforms at IDC. "While cloud data center buildouts by key hyperscalers helped in part to prop up the quarterly results, the overwhelming downward trend was difficult to overcome. It remains to be seen whether hyperscale can drive enough demand to keep the market positive going into the home stretch of 2016."
Hewlett Packard Enterprise (HPE) retained the number one spot in the worldwide server market, with 25.9% market share in vendor revenue for the third quarter, as revenue decreased 12.1% year-over-year to $3.2 billion. HPE's year-over-year growth rate was impacted by the start of the H3C partnership in China that began in May of 2016; as a result, a portion of HPE-designed servers were rebranded for the China market and do not count in HPE's market data from that point forward.
Dell Technologies maintained its number two position in the worldwide server market, with 17.8% of vendor revenue for the quarter, while revenue decreased 8.7% year-over-year to $2.2 billion.
Lenovo and Cisco both moved up into a three-way tie for the third market position with IBM, with 7.9%, 7.4%, and 6.9% revenue share, respectively. Lenovo's revenue declined 7.4% to $986 million, while Cisco grew its revenue 4.8% to $928 million. IBM's revenue decreased 32.9% year-over-year to $864 million.
"Other than Cisco, all major USA-based vendors experienced significant global revenue declines year-over-year, while many international and smaller suppliers were able to find areas of growth," said Lloyd Cohen, research director, Computing Platforms at IDC. "As large enterprise accounts slowed their demand for servers, small businesses and startups continued to grow their IT portfolios via non-traditional channels with innovative supply chain strategies. It will be interesting to see how this segment develops over time."
Regionally, Japan and Asia/Pacific (excluding Japan)(APeJ) experienced the only positive revenue growth with third quarter year-over-year increases of 1% and 0.3%, respectively. Within APeJ, China led the subdued market in growth with year-over-year revenue up 4.1% to $2.3 billion.
All other regions declined. Latin America and the US experienced relatively small declines at 6.1% and 7.9%, respectively. Of all regions, the US remains the largest regional market, with 39.9% of server vendor revenue. EMEA declined 14.5%, with all sub-regions in decline. (Central and Eastern Europe (CEE) declined 21.5%; Western Europe declined 13.7%, and Middle East and Africa (MEA) declined 13.5%.) Canada declined 24.5% year-over-year.
Demand for x86 servers weakened in the third quarter, with revenues decreasing 3.1% year-over-year to $11.2 billion worldwide, while unit shipments decreased 4.3% to 2.36 million servers. x86 average selling prices increased 1.3% year-over-year. HPE led the x86 server market with 27.2% revenue share based on a year-over-year decline of 12.9% in x86 revenue. Dell Technologies retained second place, securing 20% revenue share following an 8.7% year-over-year revenue decline.
Non-x86 servers experienced a revenue decline of 30.1% year-over-year to $1.3 billion, representing 10.8% of quarterly server revenue. IBM leads the segment with 64.3% revenue share, despite a 32.9% year-over-year revenue decline. IDC also continued to track minimal revenue from ARM-based server sales in the third quarter. ARM sales have yet to make an impact on the server market.