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SA's server market forges ahead

Though virtualisation and cloud computing will threaten the South African server market in the long-run, the market enjoyed a purple patch in the second quarter of 2011, local vendors say.

Analyst firm Gartner last week revealed that during the second quarter, all regions showed yearly growth in server shipments and vendor revenue. However, the firm notes that the market is still below pre-downturn levels in both measures compared to the corresponding quarter of 2008.

HP SA reveals the local x86 server market in the second quarter saw a year-on-year revenue growth of 14.1%, which translates into a 24.5% count growth.

David McMurdo, HP industry standard server and storage business unit manager, attributes growth in the local market to significant increases of demand in the SME space and expected new server technology to address the SME market.

He adds that technology advances have lowered the average unit price for the same processing power year-on-year, making servers more affordable.

“The changes in the form factor of a server have seen a move from the traditional rack-mount server to the new blade server technology. The drive by Microsoft in releasing new application servers, for example Exchange 2010, which drives significant refresh cycles across the market, also resulted in a significant increase,” he says.

Disruptive times

Carrie Altieri, IBM Global Systems and Technology Group VP, who was visiting SA last week, says the company's local arm witnessed growth in server sales both locally and on a global scale.

“According to IDC, IBM is now a market leader in the server market,” she says. Last month, IDC stated that IBM's server revenue rose 24.5% in the second quarter, putting it neck-and-neck with HP for the top spot.

Altieri notes that the reason for IBM's growth is its investment in research and development. “IBM, on a yearly basis, invests $3 billion towards research and development.”

She adds that IBM has managed to “displace” its competitors, mainly HP, because of market disruptions and confusion from rival server vendors. She made reference to Oracle's announcement early this year that it will discontinue developing Itanium-based processors, which rival HP depends on for its servers.

According to Altieri, IBM's most popular server units are those powered by Unix, mainly because of their abilityto drive workload among SMEs and affordability.

IBM says it does not release its sales figures by region.

Cisco also says it is seeing growth in the local server market. Val Moodley, regional manager, data centre and virtualisation for Cisco SA, says local businesses are increasingly looking to simplify server connectivity, cabling, and the management of their data centre infrastructure as they prepare their move into the cloud.

“Businesses are leaning towards using blade servers instead of racks to address the explosive growth of data while maintaining a 'greener' data centre. Server consolidation will continue to be the catalyst as more and more businesses see the imperative to move into the cloud,” she says.

She notes the company only presents its sale figures on a global level.

Virtual change

According to Hannes Fourie, IDC senior analyst, systems and infrastructure solutions, virtualisation is unlikely to affect the server market in the short-term, as most virtualisation projects happen when businesses upgrade their infrastructure.

However, he notes that in the long-run, virtualisation is a threat to server hardware. “Due to continued consolidation, the total number of servers in the installed base is on the decrease. Through the use of hypervisor technology, one lowers the number of physical servers that host the applications. The trend, however, is one of customers investing in higher end machines in order to maximise consolidation efforts.

“So we are certainly seeing a trend towards dual or quad core technology as users see the benefits of faster and more powerful machines,” says Fourie.

He adds that cloud computing is fuelling the consolidation as well as virtualisation adoption and will change the way businesses procure IT infrastructure. “A public cloud customer will utilise infrastructure-as-a-service which should lower investment in server hardware as applications are hosted at the cloud provider.”

Growth drivers

Cisco sees four components driving growth in the server market - server consolidation, with a view to cloud; virtualisation; increased cost saving; and 'consumerisation' of IT.

“Customers are looking for a vendor with whom they can partner for the medium- to long-term; one which will help them into their journey to the cloud. Virtualisation contributes to growth as customers continue to build a platform to provide virtualised benefits to organisations. Obviously, over time the impact of virtualisation could result in fewer physical servers as virtual machines become the de facto standard,” Moodley notes.

She adds that customers are now demanding infrastructure that is scalable, flexible and operationally efficient while being green. Not all of the legacy server infrastructure can provide this, she explains.

“Lastly, the drivers for business and IT are changing. If businesses are going to be successful over the long-term, the services provided have to fulfil the consumerisation drivers - legacy services based on legacy infrastructure may be unable to deliver against all the requirements of a modern data centre.

Fourie sees both the private and public sector driving growth. “In the private sector, we see ongoing investment in replacement of legacy systems as well as expansion of operations; most investment is part of consolidation projects.”

From a public sector point of view, he adds, more investment will come from the sector than in the past two years as these organisations or departments strive to drive better service delivery in an effort to combat corruption.

Global outlook

Gartner notes that the second quarter produced solid growth in the server market on a yearly basis, as the global economic recovery that started in 2010 continues to eke out slow improvements. “All regions showed yearly growth in shipments and vendor revenue. However, the market is below the pre-downturn levels in both measures than in the corresponding quarter of 2008,” says Jeffrey Hewitt, research VP at Gartner.

The analyst firm points out that unit sales of x86 servers surged by 8.4% and their revenues increased by 17.7%. RISC/Itanium Unix servers declined by 8.5% in unit terms but exhibited a turnover hike of 4.3% in comparison with Q2-2010.

“The 'other' CPU category, which is primarily mainframes, showed a strong growth of 48.8%,” Hewitt says.

Gartner notes that HP emerged the leading server unit vendor in Q2 2011, posting a sales volume rise of 11.7% year-on-year. The vendor's global server market share was 30.8%.

The research firm says in Q2 2011, all of the top five vendors, excluding Dell, showed revenue hikes. IBM followed HP with a 30% growth year-on-year. Dell's growth was marred by slow uptake in the public sector, the analyst firm says.

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