Virtualization adoption impact on server sales to increase

By James Bagley [Editor’s note: I asked James Bagley, senior analyst for Storage Strategies NOW to respond to Gartner’s research on server virtualization.] Gartner recently reported that only 16% of applications are running under a hypervisor, but predicted that this will rise to 50% of workloads on x86 servers by 2012. This is great news for VMware, Microsoft and Citrix, but probably does not bode well for server unit sales. As we discussed in an earlier blog, server unit sales have been struck by a perfect storm involving virtualization, massively powerful multi-core processors and the economic downturn that has driven unit volume to levels lower than any time in the dozen years since metrics were collected on server unit sales. Of the three factors, the economic downturn is the only one that is variable. If Gartner’s predictions are valid, virtualization will impact unit sales at in increasing rate, more than offsetting gains from an economic recovery. Processors are getting more powerful and cheaper, especially when the surrounding chipset costs, that are becoming integral to the processor chips, are brought into the equation. Server manufacturers, fighting for a share of pie that is increasingly looking like a zero-sum game, will be forced to reduce gross margins to stay competitive. This is all good news for consumers of enterprise-class and computing products, at least in the near-term. There has never been a more exciting time in terms of rapid advancement at the processor speed and price performance levels. New storage capabilities, including SSDs in hybrid storage arrays with high-speed and low cost connectivity fabric will help these servers chew through data at unsurpassed rates, while reducing the footprint of datacenters and power consumption. However, the long term prospects for the continued development of server technologies is dependent on viable product margins in order to justify heavy development investments in research and manufacturing and support. We are all dependent on a healthy server market to continue these advancements.