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Server Market Sizzles in Q1, Better Prospects Ahead in 2018
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Recovery in the server market, which began last year, has continued into 2018 as well, re-infusing optimism among server vendors. Per International Data Corporation (“IDC”), worldwide server revenues and shipment marked the fourth consecutive quarter of year-over-year growth, after five straight disappointing quarters of decline.
According to the data compiled by the research firm, worldwide server revenues jumped a whopping 38.6% year over year to $18.8 billion in first-quarter 2018, while overall shipment grew 20.7% to approximately 2.7 million units.
IDC noticed growth in every segment, with revenues of volume servers rising 41.3% year over year to $15.9 billion, while the mid-range server registered growth of 31% to $1.7 billion. Also, high-end system revenues reached $1.2 billion, indicating a rise of 20.1%.
Also, x86 servers retained the growth momentum during the quarter. IDC figured out a 41% year-over-year rise in x86 server revenues, reaching $17.4 billion, while revenues from non-x86 servers witnessed an increase of 15.5% to $1.4 billion.
Demand From Various Segments, Increased ASP Drive Growth
The research firm found that strong deployment by cloud-service providers, increased use of servers for software-defined infrastructure builds out and market-wide enterprise refresh cycle, drove the overall growth for the server market.
This apart, availability of the latest CPUs such as Intel's (INTC - Free Report) Purley processors, and Advanced Micro Devices’ (AMD - Free Report) EPYC processors also spurred demand for servers. It should be noted that hyperscale data-center service providers have waited a long time for these processors.
Additionally, increased average selling prices (ASP), as a result of passing on some elevated component costs and richer configuration, bolstered server revenue growth.
With respect to individual server manufacturers, on the revenue market-share front, Dell and Hewlett Packard Enterprise (HPE - Free Report) jointly secured the first spot. However, if we look at the actual revenues, then Dell has outpaced HPE to hold the first position, with 19.1% market share. HPE ended the quarter with 18.6% market share. Notably, IDC calls it a statistical tie when the difference among vendors is 1% or less.
Over the past four quarters, Dell has continuously registered year-over-year growth in server revenues and managed to drastically narrow down the market-share difference with HPE. In fact, it beat HPE in the last quarter. The reason behind this stellar market-share growth is that the company has been able to strategically capitalize on expanded opportunities from the EMC acquisition.
Moreover, HPE is now focusing on the enterprise market and moving away from the firm’s hyperscaler business, which has been denting its short-term revenues. Nonetheless, its loss helped Dell grab market share in the hyperscale segment.
The third position is a tie among Lenovo, International Business Machines (IBM - Free Report) and Cisco (CSCO - Free Report) . If we look at the actual revenues, then Lenovo holds the third position with 5.8% market share, followed by IBM in the fourth spot, with 5.3% share, while Cisco comes fifth, with 5.2%.
Furthermore, IDC provided revenues and shipment data for the ODM Direct group of vendors. These vendors continue to record huge year-over-year growth in revenues and market share, as large datacenters find it attractive to custom build their server designs at potential volume prices.
In addition to the above, in terms of volume, Dell secured the top position, with a market share of 20.6%, while HPE holds the second spot with market share of 16%. Inspur, Lenovo and Super Micro occupied the third position, ending the quarter with market shares of 6.5%, 6% and 5.8%, respectively.
Growth Across All Regions
Region wise, IDC noted server revenue growth across every region. Asia/Pacific (excluding Japan) witnessed the fastest growth, with a 51.7% increase. This was followed by Latin America, recording 41.1%, the United States 40.6%, Europe, the Middle East and Africa (EMEA) 35%, Canada 28.3% and Japan reporting 2.9% increase. China recorded year-over-year revenue growth of 67.4% in the quarter.
Better Prospects Ahead
We believe the global server market will continue to grow in the quarters ahead, mainly due to the further push of hyperscale server deployments by cloud-service providers. In our opinion, there is a huge growth opportunity in the hyperscale server-infrastructure space, with more and more companies shifting to cloud-based storage.
Also, Gartner’s latest forecast for IT spending (a 6.2% increase in 2018) depicts a favorable tech spending environment, which, we believe, will positively influence the overall server market in the near term.
Looking at the improving IT spending and server deployment push by data-center service providers across different geographies, we expect that the overall performance of vendors will continue improving over the next few quarters.
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Server Market Sizzles in Q1, Better Prospects Ahead in 2018
Recovery in the server market, which began last year, has continued into 2018 as well, re-infusing optimism among server vendors. Per International Data Corporation (“IDC”), worldwide server revenues and shipment marked the fourth consecutive quarter of year-over-year growth, after five straight disappointing quarters of decline.
According to the data compiled by the research firm, worldwide server revenues jumped a whopping 38.6% year over year to $18.8 billion in first-quarter 2018, while overall shipment grew 20.7% to approximately 2.7 million units.
IDC noticed growth in every segment, with revenues of volume servers rising 41.3% year over year to $15.9 billion, while the mid-range server registered growth of 31% to $1.7 billion. Also, high-end system revenues reached $1.2 billion, indicating a rise of 20.1%.
Also, x86 servers retained the growth momentum during the quarter. IDC figured out a 41% year-over-year rise in x86 server revenues, reaching $17.4 billion, while revenues from non-x86 servers witnessed an increase of 15.5% to $1.4 billion.
Demand From Various Segments, Increased ASP Drive Growth
The research firm found that strong deployment by cloud-service providers, increased use of servers for software-defined infrastructure builds out and market-wide enterprise refresh cycle, drove the overall growth for the server market.
This apart, availability of the latest CPUs such as Intel's (INTC - Free Report) Purley processors, and Advanced Micro Devices’ (AMD - Free Report) EPYC processors also spurred demand for servers. It should be noted that hyperscale data-center service providers have waited a long time for these processors.
Additionally, increased average selling prices (ASP), as a result of passing on some elevated component costs and richer configuration, bolstered server revenue growth.
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Dell Outpaces HPE in Market Share
With respect to individual server manufacturers, on the revenue market-share front, Dell and Hewlett Packard Enterprise (HPE - Free Report) jointly secured the first spot. However, if we look at the actual revenues, then Dell has outpaced HPE to hold the first position, with 19.1% market share. HPE ended the quarter with 18.6% market share. Notably, IDC calls it a statistical tie when the difference among vendors is 1% or less.
Over the past four quarters, Dell has continuously registered year-over-year growth in server revenues and managed to drastically narrow down the market-share difference with HPE. In fact, it beat HPE in the last quarter. The reason behind this stellar market-share growth is that the company has been able to strategically capitalize on expanded opportunities from the EMC acquisition.
Moreover, HPE is now focusing on the enterprise market and moving away from the firm’s hyperscaler business, which has been denting its short-term revenues. Nonetheless, its loss helped Dell grab market share in the hyperscale segment.
The third position is a tie among Lenovo, International Business Machines (IBM - Free Report) and Cisco (CSCO - Free Report) . If we look at the actual revenues, then Lenovo holds the third position with 5.8% market share, followed by IBM in the fourth spot, with 5.3% share, while Cisco comes fifth, with 5.2%.
Furthermore, IDC provided revenues and shipment data for the ODM Direct group of vendors. These vendors continue to record huge year-over-year growth in revenues and market share, as large datacenters find it attractive to custom build their server designs at potential volume prices.
In addition to the above, in terms of volume, Dell secured the top position, with a market share of 20.6%, while HPE holds the second spot with market share of 16%. Inspur, Lenovo and Super Micro occupied the third position, ending the quarter with market shares of 6.5%, 6% and 5.8%, respectively.
Growth Across All Regions
Region wise, IDC noted server revenue growth across every region. Asia/Pacific (excluding Japan) witnessed the fastest growth, with a 51.7% increase. This was followed by Latin America, recording 41.1%, the United States 40.6%, Europe, the Middle East and Africa (EMEA) 35%, Canada 28.3% and Japan reporting 2.9% increase. China recorded year-over-year revenue growth of 67.4% in the quarter.
Better Prospects Ahead
We believe the global server market will continue to grow in the quarters ahead, mainly due to the further push of hyperscale server deployments by cloud-service providers. In our opinion, there is a huge growth opportunity in the hyperscale server-infrastructure space, with more and more companies shifting to cloud-based storage.
Also, Gartner’s latest forecast for IT spending (a 6.2% increase in 2018) depicts a favorable tech spending environment, which, we believe, will positively influence the overall server market in the near term.
Looking at the improving IT spending and server deployment push by data-center service providers across different geographies, we expect that the overall performance of vendors will continue improving over the next few quarters.
Currently, HPE, IBM and Cisco all carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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