Slower investment in servers by the likes of Facebook, Amazon, and Google is causing a big slowdown in the data center server market, according to a new report by International Data Corp. (IDC). Vendor revenue has dropped to $11.8 billion in the first quarter of this year, a decline of 4.6 percent year-over-year, according to IDC’s latest Worldwide Quarterly Server Tracker.
Much of that slowdown in investment is being driven by customers deciding to wait until Intel's new Skylake server processors start arriving in new server models sometime in the second half of the year, IDC said.
Cloudy, with a Chance of Shifting Deployment
However, the wait for new high-end chips is not the only trend dragging down server sales. The tech industry is also seeing a major shift from onsite data center deployments to cloud service companies selling infrastructure as a service. With more companies opting to use cloud services rather than building their own data centers, there may be less overall demand for new servers.
This shift in the way server resources are deployed is also causing much greater consolidation among server purchasers, with fewer companies now responsible for the lion's share of server sales.
In fact, according to IDC, a single customer bought more than 10 percent of all servers that were shipped in the first quarter, representing approximately a quarter of a million units. IDC said it suspected such a large investment by a single company indicated that the purchaser is is investing heavily in infrastructure to expand its capabilities as a cloud service provider.
But the move to the cloud is not the only factor having an impact on server sales. DRAM pricing issues have also had an effect on demand for high-end server systems, leading the drop in demand for the sector with a year-over-year decline in revenue of 29 percent, down to $1 billion.
No Change in the Forecast
Hewlett Packard Enterprise claimed the top spot by revenue among server makers, generating $2.86 billion in sales in the first quarter for a 24.2 percent share of the market, according to IDC. But that's down 15.8 percent from the same period last year.
Dell, which came in second in sales for the quarter with $2.37 billion, claimed 20.1 percent of the market. Dell was the only major server company to see revenue climb year-over-year, up 4.7 percent from last year.
Cisco, IBM, and Lenovo were all ranked in a statistical tie for third place. IBM suffered the worst drop in sales year-over-year, facing a decline of 34.7 percent to $745 million and its market share plummeted from 9.2 percent to 6.3 percent.
IDC said the results for the quarter were perfectly in line with its forecasts, and that it expects continued long-term declines in high-end system revenue for the foreseeable future.