IT hardware sales poised for small recovery after disastrous 2009

Server, data storage vendors seeing signs of life

Server and storage vendors suffered painful revenue declines throughout 2009, but the IT hardware markets are starting to show signs of life and are in position for a small rebound in 2010.

IDC's top 10 tech predictions: cloud and analytics

IDC predicts that spending in hardware, software and services sectors will all grow between 2% and 4% next year, but "hardware, which was pummeled in 2009, will show the slowest recovery."

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Server and storage vendors suffered painful revenue declines throughout 2009, but the IT hardware markets are starting to show signs of life and are in position for a small rebound in 2010.

IDC's top 10 tech predictions: cloud and analytics

IDC predicts that spending in hardware, software and services sectors will all grow between 2% and 4% next year, but "hardware, which was pummeled in 2009, will show the slowest recovery."

Even 4% growth would only recover a fraction of the revenue lost in '09. Worldwide server revenue dropped about 17% year-over-year in the third quarter, while external disk storage system revenue posted a 10% decline. Believe it or not, that was an improvement over the second quarter, when server revenue fell 30.1% and storage revenue dropped 18.3%.

The server market has suffered five straight quarters of year-over-year revenue decline, but analysts see the third quarter results as somewhat positive. Server revenue, for example, was $9.8 billion in the second quarter of 2009, and rose to $10.4 billion in the third quarter.

The server market should make a comeback in 2010, but it won't be dramatic, says Pund-IT analyst Charles King.

"There will be a bit of a rebound," King says. "I think most of the vendors and customers say they will add additional data center products next year, but it's going to be done in a controlled manner. Vendors are expecting a better year, but nothing to break out the champagne and Cuban cigars."

In the storage market, IDC expects a rebound in 2010 but it will mainly occur in the final six months of the year, says IDC analyst Benjamin Woo. "There's a general consensus and feeling about a rebound, but really it's back-end loaded," Woo says. "Some of our research is indicating the first half of 2010 is still going to be a very tough six months."

Many businesses are planning data center refreshes, but will think long and hard about the best technologies to use and will not rush into purchases, Woo says.

The economy, certainly, is the biggest factor that led to massive declines in server and storage revenue this year. But there are other long-term technological trends that will have both positive and negative impacts on the bottom line for hardware companies.

Virtualization, both for servers and storage, can reduce the amount of hardware IT shops need to run business applications. Most virtual servers are created with the goal of consolidating onto fewer machines, King notes.

High-volume consolidation onto x86 servers will accelerate with the introduction of machines based on Intel Nehalem processors, he says. Ultimately, then, virtualization could spur customers to purchase servers capable of more efficient use of hypervisors, but they won't need to buy as many as they did in the days when each physical server ran just one application.

In storage, technologies such as de-duplication and thin provisioning are helping customers make more efficient use of capacity, potentially allowing them to buy less. Automated tiering software, meanwhile, helps enterprises move rarely used data from expensive tiers of storage to less-expensive boxes. Cloud storage may also deliver new efficiencies.