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Factory revenue in the worldwide server market decreased -3,7% year-over-year to $12,1-billion in the third quarter of 2013 (3Q13), according to the International Data Corporate (IDC) Worldwide Quarterly Server Tracker.

This was the third consecutive quarter of year-over-year revenue decline, as server market demand remained soft ahead of a forthcoming refresh cycle, which is expected to emerge in early 2014.

After increasing modestly in 2Q13, server unit shipments were flat year-over-year in 3Q13 with 2,3-million units shipped worldwide.

On a year-over-year basis, volume systems experienced 3,5% revenue growth. At the same time, demand for midrange and high-end systems experienced year-over-year revenue declines of -17,8% and -22,5% respectively in 3Q13.

The midrange and high-end segments were impacted by difficult year-over-year compares and continued weakness in Unix demand while volume demand was helped by solid x86 server demand.

“Worldwide server revenue declined in all major geographic regions including Americas, EMEA, and Asia/Pacific in the third quarter. The market was impacted by a steady transition from 2nd Platform to 3rd Platform workload demand coupled with particularly weak sales of Unix servers, which served to further dampen the market,” says Matt Eastwood, group VP and GM: Enterprise Platforms at IDC.

“2nd Platform workloads continue to represent a healthy consolidation opportunity across the market, driving solid demand for integrated systems. At the same time, 3rd Platform applications are shifting more and more server demand into cloud service provider data centres, which is opening up new market opportunity for both ODMs and Chinese OEMs.”

HP regained the number one position in the worldwide server market with 28,1% factory revenue share in 3Q13. HP experienced a 1,5% year-over-year increase in factory revenue and gained 1,5 points of revenue share on improved demand for x86-based ProLiant servers in the quarter.

IBM held the number two position in the market with 23,4% factory revenue share following a -19,4% year-over-year decline in factory revenue resulting in a loss of 4,5 points of factory revenue share in the quarter on soft demand for System x and Power Systems.

Dell maintained third place with 16,2% factory revenue market share in 3Q13. Dell’s factory revenue decreased -6% compared to 3Q12 losing 0,4 points of factory revenue share.

Cisco and Oracle ended the quarter in a statistical tie for the number four market position with 5% and 4,1% factory revenue share respectively.

IBM’s System s mainframe running s/OS experienced its fourth consecutive quarter of growth, increasing revenue 6,3% year-over-year to $827-million, representing 6,8% of all server revenue in 3Q13.

Linux server demand continued to be positively impacted by cloud infrastructure deployments, as hardware revenue increased at 5,6% year-over-year to $3,4-billion in 3Q13. Linux servers now represent 28% of all server revenue, up 2,5 points when compared with the third quarter of 2012.

Microsoft Windows server demand was down -1,3% year-over-year in 3Q13 with quarterly server hardware revenue totalling $6,1-billion representing 50,3% of overall quarterly factory revenue, up 1,2 points over the prior year’s quarter.

Unix servers experienced a revenue decline of -31,3% year-over-year to $1,3-billion representing 11,1% of quarterly server revenue for the quarter. This was the lowest quarterly Unix server revenue ever reported by IDC.

In response to evolving market demand within large scale, Web 2.0, and cloud hosting environments, Original Design Manufacturers (ODMs), such as Quanta Computer, Wistron Group/Wiwynn, Inventec, Compal Electronics and others, are selling both complete systems and partial sub systems — where final assembly is completed in the channel by integrators – into the market.

Complete ODM Direct systems were previously captured in the IDC Worldwide Quarterly Server Tracker as a component of “Others” while partial sub system assemblies, frequently referred to as “self-built” servers, were not counted in the Tracker at all. IDC is now aggregating these server shipments under a new vendor category called “ODM Direct” with restated market data going back to Q1 2008.

ODM Direct server demand grew 45,2% year-over-year in 3Q13 to $783-million as unit shipments increased 30,7% to 325 685 servers. ODM Direct servers now represent 6,5% of all server revenue and 14,4% of all server shipments. 79,6% of all ODM Direct server revenue was generated in the US in the quarter primarily through sales to Google, Amazon, Facebook and Rackspace.

“Each year, ODM Direct growth is accelerating as large, established hyperscale customers begin new expansion phases of their infrastructure footprints, and as the customer base for ODMs continues to broaden,” says Kuba Stolarski, research manager: Enterprise Servers at IDC. “Capturing a majority of hyperscale demand for homogeneous environments, ODMs are well positioned for continued 3rd Platform infrastructure growth.”

Demand for x86 servers continued to improve in 3Q13, with revenues growing 2,8% in the quarter to $9,5-billion worldwide with unit shipment growth flat at 2,2-million servers. HP led the market with 32,3% revenue share based on 7,8% revenue growth while gaining 1,5 points of share when compared to 3Q12.

Dell retained second place, securing 20,6% revenue share following a -6% year-over-year revenue decline while losing 1,9 points of share when compared with the third quarter of 2012. IBM rounded out the top three x86 server positions, holding 12,7% revenue share following a -17,6% year-over-year factory revenue decline.

There are two types of modular form factors, each with a distinct use case. Blade servers, which are highly leveraged in enterprise’s virtualised environments, grew 7,7% year-over-year to $2,3-billion. Blades now account for 18,7% of total server revenue. HP maintained the number one spot in the blade server market in 3Q13 with 43,6% revenue share; Cisco and IBM held the second and third position in the blade market with 20,4% and 18,3% revenue share, respectively.

Density Optimised servers, utilised by large heterogeneous data centres, also experienced solid demand in 3Q13. Revenue grew 13,1% year-over-year in 3Q13 to $853-million as unit shipments increased 0,6% to just over 260 000 servers.

Density Optimised servers now represent 7,1% of all server revenue and 11,9% of all server shipments. HP moved into the number one spot in the Density Optimised segment and Dell held the number two position in 3Q13 with 30,7% and 25% revenue share respectively.

“Blades continue to gain adoption with customers, as they are the foundation for many vendors’ integrated systems,” says Jed Scaramella, IDC research director: servers. “Integrated systems combine server, storage, and networking to enable IT organisations to simplify their IT environments and accelerate time to deploy new IT services. The journey to convergence and integrated systems begins with a bladed ecosystem.”