IBM, Dell Do Best In Q1 U.S. Server Sales

The server market grew by seven percent in the first quarter of 2004, a research firm said Tuesday, largely fueled by sales of low-cost systems under the $5,000 price point.

But not every server seller found the quarter sweet, said Mike McLaughlin, principal analyst with Gartner.

"IBM was up, HP was down, and Dell passed Sun for third place," said McLaughlin.

IBM and Dell both saw their server sales increase by more than 20 percent over the same quarter last year, according to Gartner's numbers. IBM posted a revenue gain of 21.8 percent and increased the number of servers it sold by 30.7 percent, said McLaughlin, while Dell boosted its revenues by 24.2 percent and its server volume by a whopping 42.5 percent.

But where there are winners, there are also losers. Hewlett-Packard and Sun got the short end of the stick in the first quarter, said McLaughlin. HP's server revenues fell by 13.2 percent even as the total number of servers it sold rose by 16.4 percent. Sun, meanwhile, dropped 16.7 percent in revenues as it too sold more systems -- 26.3 percent -- than a year ago."HP is still transitioning to Linux," said McLaughlin in explaining Hewlett-Packard's problems, "and Sun is still trying to find its direction."

In revenue rankings, IBM and HP came in first and second, posting estimated sales of $1.5 billion and $1.1 billion, respectively during the first quarter. Dell ranked third in the U.S. with $662 million in sales, and Sun took fourth with $520 million.

Overall, IBM owns 33.4 percent of the server market by revenue, an increase of nearly four percentage points over the first quarter in 2003. HP's share, however, dropped to 22.7 percent, a fall-off of 5.3 percent. Dell, meanwhile, boosted its share by just over two points, to 14.8 percent, and overtook Sun for third place. Sun's share now stands at 11.6 percent.

IBM's strong revenues were due in part because of major sales of its eServer zSeries, the top-of-the-line mainframe system the Armonk, N.Y.-based computer maker sells to major corporations. "IBM had a huge mainframe first quarter this year," said McLaughlin.

But the biggest growth wasn't on the high end. Sales of systems priced under $5,000, which account for 80 percent of all servers shipped and 25.7 percent of all revenues, grew by over 39 percent in systems sold and 40.4 percent in money made, the highest year-to-year increases of any price group.The small- and mid-sized business market for servers is hot, said McLaughlin, because "so many small businesses are finally seeing the benefit of integrating into a server environment." Dell in particular took advantage of the low-cost trend, "and made a ton of money off low-end Web servers" this quarter, said McLaughlin.

Dell also benefited from the rise in sales of Linux-based servers, which now make up 12.4 percent of all server revenues. The Round Rock, Texas-based direct seller saw its Linux sales figures jump nearly 50 percent. "Dell had a huge Linux push that showed in the numbers," said McLaughlin.

Total revenues from Linux server sales increased 38.7 percent over the same quarter last year, while sales of Windows-based servers -- still the leader with 36.8 percent of the market -- climbed just 21.6 percent.

Typically, server sales in the first quarter of a year dip compared to the previous quarter, which historically is the hottest three months of the year.

"Last year's Q4 was a huge quarter, and although we weren't expecting sales to be flat this quarter, they're up a bit more than we thought," said McLaughlin.0