India Server Market Revives in FY 15

After a bad FY14, the x86 server market grew in FY15 as per the findings of DQ Top 20 survey of the key IT industry segments.

Servers are the key component of enterprise computing infrastructure. If we look at the last two years, the market was impacted by recessionary trends. But in FY15, the growth is back. An audit of the year went by reveals that  the x86 servers saw aggressive growth while non x86,  as expected, further went south.

The x86 Market 

As we decode the x86 server market for the year went by, and for the year ended March 2015 it signed out with a growth of 8% (we have revised FY14 x86 server numbers here) and chipped in revenues of `3,509 crore, as per Dataquest estimates. This clearly demonstrated that the market revived during FY15.

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What has pumped up the x86 market? An observation from IDC says:“Much of the x86 market growth is attributed to the third platform adoption and acceptability in organizations that is pushing the compute needs to new paradigms. Expansion plans from new age eCommerce and start-ups in different verticals also played their part in 2014 and contributed to the incremental growth.Expansion and refresh amongst the Indian organizations is moving fast and is likely to continue as one of the main reasons for x86 server market growth in CY 2015. SMBs are also expected to further contribute to this positive revival of the market in CY 2015.”

As we look at Q1, 2015 (that’s Q4 of FY15), according to IDC it says in its APeJ Server Tracker; the x86 server market in India grew by 7.5% in terms of units, while in terms of revenue the market witnessed a double-digit year-on-year growth in Q1 2015. A key highlight of this quarter was the increased uptake of higher priced density and rack optimized servers that led to an increase in the ASP of the servers in Q1 2015 and in turn resulted in a higher growth percentage in terms of revenue rather than units. Professional Services, communications and media, banking, and manufacturing verticals continued to be the major contributors in Q1 2015.

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Moreover, analysts like IDC say that the white-box players are gaining traction among eCommerce and cloud providers and starting to figure in the consideration set of some of the traditional customers as well.According to Gaurav Sharma, Research Manager, Enterprise Computing, IDC India, “Digitization, refresh and upgrade opportunities, government-backed eGovernance and other state level initiatives and new implementations are collectively driving the growth for the server market in India. There is a visible shift in purchase patterns for Indian organizations where strategic initiatives and involvement from LoBs (in purchase decisions) are increasingly becoming the deciding factors against the earlier transactional approach.”

Moreover, analysts like IDC say that the white-box players are gaining traction among eCommerce and cloud providers and starting to figure in the consideration set of some of the traditional customers as well.

The primary reason for this is cost and increased control over their infrastructure. Traditional vendors need to revisit their mitigation plans to nullify the impact from white-box players.

Hybrid cloud is fast becoming the need of the hour and this in turn is increasing the penetration of software defined solutions. Software defined solutions are expected to help organizations access applications from different cloud providers seamlessly and simplify management while migrating some of the on-premise applications to various cloud platforms.

As we look at the x86 vendors in the fray, HP continues its strong hold in this segment with an impressive 38% market share. According to sources in HP India, it says that HP has a consistent track record of redefining the server market to meet the next wave of computing requirements. Verticals like telecom, public sector, education and research, and IT/ITeS are driving server growth for HP India. Big purchases by cloud computing providers are also changing the server market. Based on industry standards for hyper scale computing environments, HP ProLiant servers are costeffective and can scale to meet the most demanding workloads. HP offers cloud computing providers with extreme power requirements, servers that are optimized for performance and serviceability.

Although, there has been a lot of change in the industry, according to Gartner, HP’s worldwide server revenue grew 10.4% in the first quarter of 2015, enabling HP to maintain the top spot in the rankings with 23.8% market share. HP also maintained its leadership in server shipments with 20% market share.

Clearly, the Indian market has worked well for HP in the APAC region and HP’s traction in the large to mid-end enterprise space is clearly evident from its server numbers in this part of the world.

Dell’s role in the server stage is also getting more entrenched as its clout here is increasing by the day. Dell is also aggressively tapping on to the eCommerce vertical and these emerging verticals are powering Dell to ramp up both its value and unit share in the server industry.

Lenovo at # 3 is riding on the competencies it got form acquiring IBM’s x86 portfolio. IBM’s x86 server portfolio is called System X and Lenovo which was nowhere in the server space during FY14 morphed into a leading player in servers post the IBM x86 server acquisition.

As part of the deal that happened in September 2014, Lenovo acquired from IBM the System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software,

blade networking and maintenance operations. IBM will retain its System z mainframes, power systems, storage systems, power-based Flex servers, PureApplication, and PureData appliances.

According to sources in Lenovo, the agreement builds upon a strong history of collaboration that began in 2005 when Lenovo acquired IBM’s PC business, including the Think-Pad line of PCs. Lenovo’s pending acquisition of Motorola Mobility from Google will make it the world’s thirdlargest smartphone maker, while further strengthening its position as one of the top three makers of smart connected devices—PCs, tablets, and smartphones.

The non-x86 Market

The situation here in the non-x86 market is not that rosy as both volume and value continue to degrow. HP’s Itanium servers and IBM’s System P are major players here. HP continues to place its bets on its Business Critical Computing (BCS) portfolio and it is to be seen for how long it will keep its Itanium systems market. However, HP has significantly innovated in the server market. In the last few years, its Moonshot servers running Intel Atom have created new premise in small power servers and its Project Odyssey that has helped to balance out x86 and UNIX mandates more seamlessly with each having separate focus, at the same time having strong interplay between them.

However, IBM continued to see demand for its high-end servers and saw good traction for its z13 offerings. Global Trends According to IDC’s Worldwide Quarterly Server Tracker, factory revenue in the worldwide server market increased 17.2% year-over-year to $12.8 bn in the first quarter of 2015 (1Q15), the fourth consecutive quarter of year-over-year growth. This quarter revenue grew in all form factors, including rack-optimized blade, density-optimized, and tower.

Worldwide server shipments totalled 2.3 mn units in 1Q15, an increase of8.4% when compared with the first quarter of 2014. On a year-over-year basis, volume system revenue increased by 13.6% and mid-range system demand increased by 7.2% in 1Q15 to $9.7 bn and $1.0 bn, respectively.

The volume segment was aided by continued expansion of x86-based hyper-scale server infrastructures while midrange systems were helped by enterprise investment in scalable systems for virtualization and consolidation.

Meanwhile, 1Q15 demand for high-end systems experienced a year-over-year revenue increase of 44.7% to $2.1 bn, bolstered by IBM’s z13 refresh.

“We continue to see a market profile that is increasingly driven by new compute deployment scenarios, often in hyperscale datacenters. These customers tend to buy in large contracts, creating considerable variability within any given quarter, with this variability usually associated with density-optimized server products.

The density-optimized servers tend to land in a given region in a given quarter, and either in a different region, or not at all, in the subsequent quarter. This leads to a relatively unpredictable profile. This was true in the first quarter of 2015, where we saw density-optimized server shipment growth of 26.1% and revenue growth of 51.6%. This growth follows the previous quarter where density optimized shipments and revenues were both in significant decline on a  year-over-year basis. More traditional form factors typically have far more stable growth profiles,” says Al Gillen, Program Vice President, Servers and System Software at IDC.

Outlook

According to analysts like IDC, the huge demand for compute from etailing and cloud providers supported by the traditional spending is expected to take the market to a new high in 2015. Technology refresh and upgradation deals from banking and telecom verticals are expected in the next few quarters. In addition to this, recent government initiatives are also expected to add to the demand in CY 2016.

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