* Merill Lynch’s Server Monitor report
Merrill Lynch released a Server Monitor report last week that says the server market is not going to grow as quickly as might have been expected.
The company says two factors are slowing server growth: most companies have relatively young servers (after upgrading between 2002 and 2004) and no killer applications are being introduced that would spur the replacement or installation of new servers. In the report, Merrill Lynch equity analyst Steve Milunovich writes, “In the absence of compelling new applications, servers are increasingly a replacement market.”
Merrill Lynch’s research indicates that IBM led fourth-quarter market share with 33.3%, followed by HP with 26.6%, Sun with 10.5% and Dell with 9.5%.
The market for Unix machines increased in the fourth quarter to $5.2 million, up 3% from the same period a year ago, and is split almost evenly among Sun, IBM and HP. Revenue for Windows servers grew 16% year-over-year to $4.6 billion. Surprisingly, growth in Linux server revenue year to year slowed from 43% in the third quarter of 2004 to 36% in the fourth quarter. Revenue in the fourth quarter stood at $1.3 billion.
The decline in growth in Linux revenue can be ascribed to two factors: users are shifting to higher-processor configurations and there is no high-margin operating system for vendors to discount. According to IDC, midrange servers account for 6.5% of Linux revenue, while high-end servers represent 3.5%. Ninety percent of Linux revenue still comes from servers priced at under $25,000.
The company also expects that server revenue growth will slow from 6% in 2004 to nearly zero. In 2005 to 2006, Merrill Lynch expects that low-end, sub-$25,000 servers will continue to take over from $500,000 high-end and mid-range servers. About 25% of server revenue currently comes from servers costing more than $50,000.
Mainframes declined by 9% due to the decline in the T-Rex, an IBM mainframe.
Microsoft’s software is increasing as a percentage of server cost, Milunovich says. Windows systems are scaling high. Ninety percent of the low-end server market consists of Windows systems. High-end Windows systems, priced above $500,000 account for less than 0.5% of the market.
