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Server Revenues Continue to Decline Per Gartner and IDC
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The year 2016 was certainly not a good one for worldwide server vendors. According to recently released data for fourth-quarter 2016 by two independent research firms – Gartner Inc. (IT - Free Report) and International Data Corporation (“IDC”) – global server market revenues witnessed a year-over-year decline.
Notably, this was the fourth consecutive quarter of decline for the industry. Prior to that, it had witnessed seven straight quarters of year-over-year growth.
What the Report Says
According to preliminary data released by Gartner, worldwide server revenues decreased 1.9% year over year to $14.838 billion in the fourth quarter while overall shipment inched down 0.6% to 2.939 million. For full-year 2016, server revenues declined 2.7% despite a 0.1% increase in shipments.
IDC’s views were also more or less similar to Gartner. IDC reported a 4.6% decline in server revenues with fourth-quarter revenues coming in at $14.613 billion. Shipments increased 3.5% to 2.55 million units.
The reasons highlighted by the two research firms for this dismal performance were also more or less similar. According to IDC, sluggish investment in hyperscale data center, declining high-end server sales and tough year-over-year comparisons due to the end of the robust enterprise refresh cycle were the main reasons behind the dismal performance.
Jeffrey Hewitt, research vice president at Gartner highlighted some distinct aspects of 2016. He revealed that “Enterprises grew at a lower rate as they continued to leverage server applications through virtualization and in some cases, service providers in the cloud." However, he added that "Hyperscale data centers (e.g., Facebook, Google) grew and, at the same time, drove some significant server replacements.”
With respect to individual server manufacturers, both the firms have a similar view on the top three vendors. With respect to revenues, according to Gartner and IDC, Hewlett Packard Enterprise (HPE - Free Report) retained its leading position, followed by Dell and International Business Machines (IBM - Free Report) .
The research firms had different views when it came to the fourth and fifth positions. As per Gartner, Huawei and Lenovo were at the fourth and fifth position, respectively. On the other hand, according to IDC, the fourth place was a tie between Lenovo and Cisco (CSCO - Free Report) . Furthermore, IDC did not mention the vendor’s name occupying the fifth position, Instead, for the first time, it provided revenue and shipment data for ODM Direct group of vendors.
As per Gartner, it was Dell and Huawei that registered year-over-year growth in revenues as well as shipments. Dell witnessed an increase of 1.8% and 6.5% in revenues and shipments, respectively, while Huawei witnessed 88.4% rise in revenues and 64% growth in shipments.
Moreover, according to Gartner, in terms of the number of units shipped, Dell moved to the number one spot with a market share of 19.1%, pushing Hewlett Packard Enterprise to the second spot with 17.2% share.
Region-wise, Gartner revealed that except for the Asia-Pacific, every other region witnessed a fall in either revenues or shipment. IDC also agreed to this and said that Asia/Pacific (excluding Japan) (APeJ) and Japan were the only regions, which registered year-over-year growth in revenues. Per IDC, server revenues in APeJ and Japan grew 8.1% and 3.3%, respectively.
Coming to x86 servers, the two research firms had different opinions. Per Gartner, x86 servers revenues increased 1.1% year over year mainly driven by demand from large-scale data center build-outs and growth in integrated systems.
On the other hand, per IDC, revenues of x86 servers declined 1.9% year over year to $12.2 billion while shipments dropped 3.3% to 2.53 million units. Despite a fall of 13% in x86 servers revenues, Hewlett Packard Enterprise retained its leading position while Dell remained at the second spot.
Bottom Line
Although there are differences in the two research firms’ figures, they hinted that 2017 will be a tough year as well for server vendors. Gartner predicts modest growth this year, primarily driven by service provider build-outs, which will be partially offset by a decline in unit purchase by enterprises.
Kuba Stolarski, research director, Computing Platforms at IDC, has a somewhat similar view. According to him "Some public cloud datacenter deployments are being delayed and there are indications that overall levels of deployment and refresh may slow down even through the long term as hyperscalers continue to evaluate their hardware provisioning criteria.”
He further added “On the enterprise side, we are seeing ongoing weakness as companies struggle to decide whether to deploy workloads on premises or off, and continue to consolidate existing workloads on fewer servers."
Although there is huge growth opportunity in the hyperscale server infrastructure space with more and more companies shifting to cloud-based storage, we believe that the sluggish tech spending environment could continue to hurt the overall server market in the near term.
Looking at the two firms’ cautious outlook for server shipments, we believe that the overall performance of vendors will remain weak in the next few quarters. Therefore, it is advisable that investors stay away from investing in this space.
Currently, International Business Machines and Cisco carry a Zacks Rank #3 (Hold), while Hewlett Packard Enterprise has a Zacks Rank #4 (Sell).
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>
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Server Revenues Continue to Decline Per Gartner and IDC
The year 2016 was certainly not a good one for worldwide server vendors. According to recently released data for fourth-quarter 2016 by two independent research firms – Gartner Inc. (IT - Free Report) and International Data Corporation (“IDC”) – global server market revenues witnessed a year-over-year decline.
Notably, this was the fourth consecutive quarter of decline for the industry. Prior to that, it had witnessed seven straight quarters of year-over-year growth.
What the Report Says
According to preliminary data released by Gartner, worldwide server revenues decreased 1.9% year over year to $14.838 billion in the fourth quarter while overall shipment inched down 0.6% to 2.939 million. For full-year 2016, server revenues declined 2.7% despite a 0.1% increase in shipments.
IDC’s views were also more or less similar to Gartner. IDC reported a 4.6% decline in server revenues with fourth-quarter revenues coming in at $14.613 billion. Shipments increased 3.5% to 2.55 million units.
The reasons highlighted by the two research firms for this dismal performance were also more or less similar. According to IDC, sluggish investment in hyperscale data center, declining high-end server sales and tough year-over-year comparisons due to the end of the robust enterprise refresh cycle were the main reasons behind the dismal performance.
Jeffrey Hewitt, research vice president at Gartner highlighted some distinct aspects of 2016. He revealed that “Enterprises grew at a lower rate as they continued to leverage server applications through virtualization and in some cases, service providers in the cloud." However, he added that "Hyperscale data centers (e.g., Facebook, Google) grew and, at the same time, drove some significant server replacements.”
With respect to individual server manufacturers, both the firms have a similar view on the top three vendors. With respect to revenues, according to Gartner and IDC, Hewlett Packard Enterprise (HPE - Free Report) retained its leading position, followed by Dell and International Business Machines (IBM - Free Report) .
The research firms had different views when it came to the fourth and fifth positions. As per Gartner, Huawei and Lenovo were at the fourth and fifth position, respectively. On the other hand, according to IDC, the fourth place was a tie between Lenovo and Cisco (CSCO - Free Report) . Furthermore, IDC did not mention the vendor’s name occupying the fifth position, Instead, for the first time, it provided revenue and shipment data for ODM Direct group of vendors.
As per Gartner, it was Dell and Huawei that registered year-over-year growth in revenues as well as shipments. Dell witnessed an increase of 1.8% and 6.5% in revenues and shipments, respectively, while Huawei witnessed 88.4% rise in revenues and 64% growth in shipments.
Moreover, according to Gartner, in terms of the number of units shipped, Dell moved to the number one spot with a market share of 19.1%, pushing Hewlett Packard Enterprise to the second spot with 17.2% share.
Region-wise, Gartner revealed that except for the Asia-Pacific, every other region witnessed a fall in either revenues or shipment. IDC also agreed to this and said that Asia/Pacific (excluding Japan) (APeJ) and Japan were the only regions, which registered year-over-year growth in revenues. Per IDC, server revenues in APeJ and Japan grew 8.1% and 3.3%, respectively.
Coming to x86 servers, the two research firms had different opinions. Per Gartner, x86 servers revenues increased 1.1% year over year mainly driven by demand from large-scale data center build-outs and growth in integrated systems.
On the other hand, per IDC, revenues of x86 servers declined 1.9% year over year to $12.2 billion while shipments dropped 3.3% to 2.53 million units. Despite a fall of 13% in x86 servers revenues, Hewlett Packard Enterprise retained its leading position while Dell remained at the second spot.
Bottom Line
Although there are differences in the two research firms’ figures, they hinted that 2017 will be a tough year as well for server vendors. Gartner predicts modest growth this year, primarily driven by service provider build-outs, which will be partially offset by a decline in unit purchase by enterprises.
Kuba Stolarski, research director, Computing Platforms at IDC, has a somewhat similar view. According to him "Some public cloud datacenter deployments are being delayed and there are indications that overall levels of deployment and refresh may slow down even through the long term as hyperscalers continue to evaluate their hardware provisioning criteria.”
He further added “On the enterprise side, we are seeing ongoing weakness as companies struggle to decide whether to deploy workloads on premises or off, and continue to consolidate existing workloads on fewer servers."
Although there is huge growth opportunity in the hyperscale server infrastructure space with more and more companies shifting to cloud-based storage, we believe that the sluggish tech spending environment could continue to hurt the overall server market in the near term.
Looking at the two firms’ cautious outlook for server shipments, we believe that the overall performance of vendors will remain weak in the next few quarters. Therefore, it is advisable that investors stay away from investing in this space.
Currently, International Business Machines and Cisco carry a Zacks Rank #3 (Hold), while Hewlett Packard Enterprise has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>