Server Market Numbers and Sun
Here is something interesting.
From 1994-2002, the median and average of the server market is $60B and $57.6B respectively. The market in 2002 was $44B that means the standard deviation is $7.8B. Which means that the market in 2002 is 2 standard deviations from the mean. This can't last forever unless we are entering a new twilight zone. Things have a tendency to return to mean.
To return to mean, the industry has to spend $13B billion/year in servers. It is unlikely that this money will be spent only on the low-end of the server market. The ASPs there are too low and if this much was spent on low-end, we would have a server on every desktop. This is good for Sun as it can amortize its R&D at the high-end.
Further, it is unlikely the market would revert to the mean in 1 year as the max YoY growth has been around $7B.
Looks like it would take 2-3 years for the market to revert to mean from the day the recovery officially begins. This again is good for Sun as its current products lag a bit on the performance curve and 2-3 years is just the time they need to fix this issue.
At the other end of this recession tunnel, the winner in the server market I would think is the vendor that gets the max profitable market share of this $15B of spending. It can't be IBM because they are rapidly turning into a EDS. It can't be HP because their product focus is too diverse. Looks like Dell and Sun are the only pure plays left. From a stock perspective however, Sun has far higher appreciation potential than dell.
All the data is from the article below.
It's Still a Buyer's Market in Server Land
by Timothy Prickett Morgan
It's still a buyer's market out there in server land, according to the most recent statistics from researchers at IDC and Gartner. Both organizations get buckets of money from the IT vendor community directly, and they do not want to spook the IT consumers with doom and gloom, because that would hurt them, too. But their numbers show further contraction in server sales worldwide in 2002. Them's the facts, and spin don't change them.
I happen to know the people who generate the server numbers at IDC and Gartner, and they are hard-working, conscientious, tenacious people who try to figure out what the server market is doing. But there is a tremendous amount of pressure on all of us to keep our chins up in the IT business, to put the best face forward on the facts. But the server market, which is the bellwether of what is going on in the IT industry, has contracted once again on a worldwide basis. Both IDC and Gartner agree on that. IDC tracks factory revenues garnered by all the server markers, while Gartner's Dataquest unit tracks retail sales by vendor brand name. These are not exactly the same thing, which is why IDC's and Gartner's numbers don't exactly come out the same. But they sure point in the same direction, and this has important ramifications for all IT organizations.
Here are Gartner's rankings for 2002, based on total worldwide sales across all platforms:
IBM, $13.39 billion, down 1.6 percent
Hewlett-Packard (including Compaq), $10.85 billion, down 13.5 percent
Sun Microsystems, $6.53 billion, down 9.9 percent
Dell, $3.22 billion, up 6.3 percent
All others, $9.11 billion, down 13.7 percent
In the fourth quarter of 2002, only IBM, Dell, and Unisys actually grew server revenues worldwide. IBM's sales were up 4.2 percent, while sales at Unisys were up 19.5 percent and at Dell were up a whopping 26.1 percent. Even with these growth figures pulling up the class average, the entire server market still contracted by 2.53 percent, to $11.78 billion, in the fourth quarter.
This contraction is something that no one is particularly happy about, not even Dell. In 2000, the worldwide server market, according to Gartner, came to $55.6 billion. IBM was pushing $13.9 billion in iron, Sun was pushing an incredible $9.7 billion after 50 percent growth from 1999, the combined HP-Compaq accounted for $15.37 billion in sales, Dell had $3.52 billion in sales, and other vendors got $13.1 billion in sales. Everybody was still holding steady, more or less, even though the economy was hitting rough waters. Then, in 2001, server sales contracted to $47 billion, with Sun dropping $2.5 billion in sales from 2000 levels and HP-Compaq dropping $2.8 billion, Dell dropping $3 billion, and the other dropping another $2.5 billion. IBM treaded water, only losing a few hundred million dollars in sales, thanks to gains in the Unix and Intel market. The analysts at Gartner, as we report elsewhere in this issue, are optimistic for a turnaround in IT spending in 2004, but that implies that 2003 will see more contraction. That means we are still in a buyer's market for the rest of 2003 and probably through the first half of 2004, if Gartner is right. (I happen to think Gartner is wrong and that we will see further contraction in 2004 because of the move to smaller, cheaper machines across all server types and geographies.)
The IDC numbers show much the same trends over time and in 2002 specifically. Worldwide server sales were $57.5 billion in 1995, they grew to $60 billion in 1996, peaked at $65 billion in 1997, declined to $63 billion in 1998, and declined further in 1999, because of the ERP-Y2K slowdowns, to around $61.5 billion. Sales jumped to an incredible $67.5 billion in 2000 because of the dot-com and telecom booms, and then crashed by 20 percent back down to under $50.1 billion in 2001--about the same sales levels as 1994. And in 2002, IDC reckons that the server market contracted by another 11.6 percent to $44.3 billion. And while IDC tried to be optimistic in its press release announcing the fourth quarter 2002 server sales figures by pointing out that the sequential growth from third quarter to the fourth quarter of 2002 indicated that the server market might be returning to some sort of normalcy, the fact remains that it is not all that impressive to beat the anemic sales levels that IT vendors saw in the wake of the September 2001 terrorist attacks.
Here's how IDC ranked the top four vendors and others:
IBM, $13.02 billion, down 8.5 percent
HP, $12.30 billion, down 17.5 percent
Sun, $6.04 billion, down 11.8 percent
Dell, $3.65 billion, up 6.1 percent
All others, $7.73 billion, down 12.8 percent
Both IDC and Gartner agree that entry machines, which now have as much performance and many of the same reliability features as midrange and mainframe gear from five or 10 years ago, is where the action is. IDC said that the worldwide Linux market grew by 41 percent in the fourth quarter of 2002 to $607 million. IDC reckoned that the worldwide server market contracted by 5.2 percent in the fourth quarter to $12.23 billion, with IBM's sales essentially flat, Dell's up by 16.1 percent, HP's off by 17.6 percent, and Sun's down by 3.9 percent.
No one is sure how to call the first quarter of 2003, but even when results are available from Gartner and IDC, there will be considerable chatter about what these numbers auger for the remainder of the year and how this forecasts IT spending in general. I think it is safe to assume further contraction in the magnitude that we have seen in the past two years, dampening that contraction since the economy is stabilizing some, even as it shrinks. If we saw about 20 percent shrinkage from 2000 to 2001, and 12 percent or so from 2001 to 2002, it is probably reasonable to assume a 5 to 7 percent shrinkage from 2002 to 2003, provided that the political and economic situations in the world do not worsen. But it is still going to be a buyer's market in 2003, and that means you get to set the terms to the IT vendors of your choice. |
