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Intel Servers Show Vague Signs of Life: IDC

Intel Servers Show Vague Signs of Life: IDC

After we went to press last week, IDC took a backward glance with its misnamed Quarterly Server Forecast and said Intel server sales should have worth $5 billion in calendar Q3, the first time since the beginning of last year that the sector has shown any growth.

Lest that observation engender much euphoria, IDC cautioned that enterprise spending remains tentative and that any growth in the third quarter will “merely return the market to flat year-on-year growth.”

The researcher figures the US for 4.7% year-over-year growth last quarter (that would be up 8.6% sequentially) and credits low-end servers with showing some vital signs at least in July and August along with some renewed request activities in several unidentified vertical markets seeking quotes or proposals, leading it to think that conditions are “slowly improving” in the US market. However, all that means, it said, is that any gains in the second half will be diluted into a nasty 9% decline because of the stinking first half.

Just in case one missed its cautionary position, IDC had the Group VP of its global enterprise server operation Vernon Turner say, “We are not saying that the server market has broken free from the economic freeze. IT enterprises are buying only the minimum amount of incremental capacity to get the job done.” The only light it could see was in the US and emerging markets in Asia-Pacific. Latin America, Europe and Japan were still a mess.

IDC also said that this buying in smaller increments was creating a “very aggressive pricing and competitive environment in the mid-range and high-end segments.”

Getting out its crystal ball, IDC predicts that the server market will see a wimpy compound annual growth rate of 3% over the next five years, representing a $63.4 universe in 2006. It says the Linux market will triple to $6.5 billion by then, making it still a laggard compared to Microsoft at $19 billion, up $5 billion while RISC systems, beset by both of them, will still be out in front at $27.7 billion.

Meanwhile, Merrill Lynch has joined the throng of folks backing off their projections for PC sales this year and next. Having made its last adjustment at the beginning of July, it now figures unit growth will be minus 3%, not +2.5% (think 125 million boxes), implying a 9% decline in revenue since average unit prices are expected to be down roughly 6% year-over-year. It says Europe’s the worst market, off 10.8%, with Japan running a close second, off 8.3%. Merrill now puts next year’s growth at 10%, not 15% or roughly 137 million boxes.

Ah, yes, and then there’s the great myth of the corporate PC upgrade cycle. (Remember how Dell was ever so sure it was going to kick in this year?) Well, failing one materializing, Lehman Brothers says, “We believe a normal PC cycle has always been a four- to five-year cycle versus a three- to four-year cycle, as perceived beforehand.”

Placing its faith in the so-called “rubber band effect” – meaning it’s got to happen eventually – Lehman estimates that there are 150 million PCs out there that are more than three years old, half of them more than four years old, with an average processor speed of 200MHz-400MHz.

It also figures that 75% of the installed base of 500 million PCs doesn’t have the processing power to run Windows XP, leading it to conclude that XP adoption will eventually drive PC upgrades.

Of course it seems Lehman Brothers itself hasn’t upgraded to XP itself and doesn’t plan to start a “slow transition” to the thing until next year.

Lehman throws in one interesting statistic. It says white box shipments, defined as everything that ships that doesn’t come from one on the top 10 PC vendors, represented 38.2% of worldwide shipments in Q1 and 45.6% in Q2. The segment, it said, should be worth 60 million units this year.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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