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Cloud Native/NFV

Dell, HPE, white boxes dominate cloud server market

LONDON — After a strong close to 2019, the server market continued to rebound in the first quarter of 2020, riding a COVID-19 demand wave, as enterprises and consumers increased their reliance on cloud services to cope with the global lockdown, according to Omdia.

Driven by a surge in demand from hyperscale cloud service providers, global server shipments surged by 27 percent during the final quarter of 2019 compared to the third quarter of 2019 and the final quarter of 2018. A total of 11.9 million servers shipped for the entire year of 2019, up from 11.4 million in 2018.

Server shipments during the first quarter of 2020 totaled more than 3.3 million, almost 1 million more than the first quarter of 2019, according to Omdia’s assessment of current data. Vendors achieved record shipments in March, driving a strong close to the first quarter of 2020. Over the month of May, Omdia will collect data from server vendor to conclusively report the numbers of servers shipped in the first week of June.

“Multiple data points from vendors and end-users indicate that during the first quarter of 2020 cloud service providers continued to expand their server installed base to accommodate a ramp-up of consumer and enterprise demand,” said Vlad Galabov, principal analyst for data center IT, at Omdia. “Enterprises increased their investment in servers as these organizations prepare employees and business processes for remote working. Meanwhile, telecommunications network providers ramped up server deployments to cope with increased demand on wireless and wired networks. As a result, the server market attained a quarter of year-over-year growth exceeding 30 percent.”

From a revenue perspective, the server market reached $22.7 billion in the fourth quarter of 2019, up 17 percent from $19.4 billion in the third quarter of 2019. For the entire year of 2019, server revenue declined 6 percent, to $78 billion, due to a decline in server prices. Prices declined as vendors passed down lower component prices to their customers, mainly in the memory market, as reported by the Omdia Data Center Server Equipment Market Tracker.

“Cloud service providers remain the growth engine of the server market as enterprises continue to shift workloads and physical servers to off-premises data center that are run by cloud-service providers,” Galabov said. “Omdia believes that a new equilibrium will be established between enterprise- and service provider-operated data centers as many enterprises will want to keep certain workloads or data on premises. We estimate that about one in four servers in 2024 will be owned and operated by an enterprise.”

The 2020 outlook

In the wake of the COVID-19 outbreak, Omdia lowered its 2020 server market forecast by 700,000 units to 12.2 million, in line with deteriorating macroeconomic forecasts and global supply chain disruption. Server vendors stated they encountered significant supply chain disruptions in 1Q 2020 and lowered production output due to reduced workforce numbers in February and the beginning of March. However, final data points indicate that the vendors resolved these issues and achieved record shipments in March.

Omdia is set to raise its forecast for 2020 by at least 500,000 units to over 12.7 million servers and will monitor the situation to accurately project the longer-term effect of the COVID-19 lockdown and resulting economic impact on the server market.

“We now have multiple indicators that the start to 2020—and likely the entire first half of the year—will see the server market grow double digits over 2019,” Galabov said. “However, it’s important to avoid underestimating how much the server market could be impacted by the looming global recession. Many enterprises and governments are likely to postpone investing in new servers in the second half of 2020. Additionally, despite vendors and distributors successfully managing the supply chain challenges in the first quarter of the year, Omdia continues to receive reports of strain and shortages in components globally.”

“The outcome of the second quarter of 2020 will be key in understanding the impact of the global lockdown on the server market. In one scenario we’re exploring, a decrease in enterprise investment is more than offset by a surge in service providers expansion in response to strong demand for cloud and telecommunication services. The COVID-19 pandemic could accelerate global digitization and business models transitions, permanently accelerating demand for data center compute.”

White Box Vendors improve their market position

Looking at vendor market share, the group of White Box Vendors, including Wiwynn, QCT (Quanta), Tyan (MiTAC), and Ingrasys (Foxconn), garnered 19 percent of server revenue after cumulatively shipping servers worth $4.2 billion in the fourth quarter of 2019. White Box Vendors have established themselves as preferred server vendors to cloud service providers and have the most to gain from the cloud data center expansion in 2020.

Dell EMC captured 17 percent of the server market and remained the single largest OEM in the final quarter of 2019. The company indicated it experienced a surge in demand for its tower and branded rack servers and was aided by tailwinds from the Windows 10 refresh cycle. Dell EMC continued to face strong headwinds in the North American market while the company staged a recovery in Asia Pacific and EMEA.

HPE garnered a 15 percent share in the fourth quarter of 2019. The company’s revenue growth was boosted by the acquisition of high-performance computing vendor, Cray. HPE also indicated it is experiencing good demand for servers used for software-defined storage and hyper-converged infrastructure.

IBM and Inspur shared the No.-4 position in our market share ranking for the fourth quarter of 2019. Demand for IBM’s z15 mainframe significantly improved the company’s server revenue despite weak demand for the company’s Power Server line. Inspur reported mixed results, with competitive pressure from Huawei and H3C in China, but good sequential growth in EMEA and North America. Inspur continued to benefit from strong demand for servers configured with programmable parallel compute coprocessors.

Omdia

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