Recovery in the server market, which began last year, has continued into 2018 as well, re-infusing optimism among server vendors.
Per International Data Corporation ("IDC"), worldwide server revenues marked the fifth consecutive quarter of double-digit year-over-year growth. Moreover, it also recorded highest total revenues in a single quarter ever, adds the firm.
According to the data compiled by the research firm, worldwide server revenues jumped a whopping 37.7% year over year to $23.4 billion in third-quarter 2018, while overall shipment grew 18.3% to approximately 3.2 million units.
IDC noticed growth in every segment, with revenues of volume servers rising 40.2% year over year to $20 billion, while the mid-range server registered growth of 39.4% to $2 billion. Also, high-end system revenues reached $1.3 billion, indicating a rise of 6.9%.
Also, x86 servers retained the growth momentum during the quarter. IDC noted a 41% year-over-year rise in x86 server revenues, which reached $21.8 billion, while revenues from non-x86 servers witnessed an increase of 3.9% to $1.6 billion.
The research firm found that strong deployment by cloud-service providers and market-wide enterprise refresh cycle drove overall growth of the server market.
Additionally, increased average selling prices (ASP), as a result of richer configuration, bolstered server revenue growth. Moreover, upgrade and expansion of datacenter capabilities of hyperscalers is a key driver.
Dell Outpaces HPE Yet Again
With respect to individual server manufacturers, Dell maintained the top spot in the September quarter as well, with 17.5% market share and 33.3% growth. HPE grabbed the second spot with 16.3% market share and growth of 14.8%.
Over the last few quarters, Dell has continuously registered year-over-year growth in server revenues and managed to drastically narrow down the market-share difference with Hewlett Packard Enterprise HPE .
In fact, it achieved the number one position for the first time in the last quarter. The reason behind this stellar market-share growth is that the company has been able to strategically capitalize on expanded opportunities from the EMC acquisition.
Moreover, HPE is now focusing on the enterprise market and moving away from the firm's hyperscaler business, which has been denting its short-term revenues. Nonetheless, its loss helped Dell grab market share in the hyperscale segment.
However, Dell and HPE's share dropped from 18.1% and 19.5% recorded in the year-ago quarter, respectively, due to increase in market share of Inspur, Lenovo, and Huawei.
Inspur/Inspur Power Systems held the third position with 7.3% market share, followed by Lenovo with 6.2% share. International Business Machines IBM came fifth with 5.1%. For the sixth spot, there was a tie between Huawei and Cisco CSCO with 4.5% market share each.
Furthermore, IDC provided revenues and shipment data for the ODM Direct group of vendors. These vendors continue to record huge year-over-year growth in revenues and market share, as large datacenters find it attractive to custom build their server designs at potential volume prices.
In terms of volume, Dell secured the top position, with a market share of 17.6%, while HPE occupied the second spot with market share of 14.4%. Inspura and Lenovo occupied the third and fourth positions with market share of 9% and 6.1%, respectively. Huawei and Super Micro held the fifth position with 5.9% and 5.4% share, respectively.
Growth Across All Regions
Region wise, IDC noted server revenue growth across every region. Asia/Pacific (excluding Japan) witnessed the fastest growth, with a 46.5% increase. This was followed by the United States recording 43.7%, Europe, the Middle East and Africa (EMEA) 24.5%, Canada 20%, Japan 14% and Latin America reporting 7.7% increase. China recorded year-over-year revenue growth of 67.1% in the quarter.
Better Prospects Ahead
We believe the global server market will continue to grow in the quarters ahead, mainly due to hyperscale server deployments by cloud-service providers. In our opinion, there is a huge growth opportunity in the hyperscale server-infrastructure space, with more and more companies shifting to cloud-based storage.
Also, Gartner's latest forecast for IT spending (a 3.2% increase in 2018) depicts a favorable tech spending environment, which, we believe, will positively influence the overall server market in the near term.
Looking at the improving IT spending and server deployment push by data-center service providers across different geographies, we expect that the overall performance of vendors will continue to improve over the next few quarters.
Currently, HPE, IBM and Cisco all carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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