Businesses began a new upgrade cycle in the first quarter of 2010, and HP generated more revenue from the 23% increase over last year's first quarter sales than IBM, even though Big Blue shipped more units than it had in the previous quarter. At least some of the reason for HP's revenue increase is its new "Converged Infrastructure" push, which is driving sales of networking components along with its server offerings, a smart tactic that is timely given Gartner's advice that "IT leaders should be prepared to move from cost cutting to seeking productivity gains."
IBM recently announced its upgraded Power7 chip, and systems with the chip are listed on the IBM Web site now. Many IBM customers have surely waited for their own upgrades until the Power7 processor was available, so IBM may reclaim the top spot for server revenue once the second quarter numbers come out. IBM is the market leader in high-end mainframe systems, and the Power7 chip will increase the processing power of each chip by two to three times and maintain the same energy footprint.
While HP and IBM seem to be capitalizing on the increased server sales, the merger between Oracle and Sun seems to have severely underwhelmed the market. Oracle's hardware sales were almost 40% lower than Sun's sales in the same quarter in 2009. A lot of this was due to a dramatic drop in the UNIX market, which has seen a 27% revenue decline from last year. Sun is a dedicated UNIX shop, so weakness in the UNIX market will have a disproportionate impact on its sales. The market that is absolutely taking off is the x86 server market, where there was a 32% increase in server hardware revenue. Unfortunately for Oracle's Larry Ellison, Oracle executives basically claimed they want to pull back from the x86 market. Before the merger, Sun was focusing on x86 machines with open source operating systems, indicating that Ellison may have stumbled a bit on his Sun strategy.
From the appearance of the first quarter numbers, the server market looks like it will rebound in 2010 after lackluster performance in 2008 and 2009, even though Gartner claims that enterprise IT budgets will be flat in 2010. Many companies have been putting off upgrades and refresh plans (or rethinking it altogether) as a result of the economic turmoil, but the recent good news may be one indication that this market is turning a corner. (Some companies have been chasing the upgrade cycle, while others are rethinking it altogether.)
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