Cloud and virtualization dent the server market

By Sejuti Das Feb 13th 2017
Cloud and virtualization dent the server market

The shift to cloud and adoption of virtualization are slowing down the growth of the server market.

Newer technologies such as cloud, analytics, and virtualization that promise to change the dynamics of enterprise IT threaten most legacy infrastructure and technologies. Traditional servers are under the onslaught of new and smoother functionalities that are increasingly being demanded by the customers.

According to a recent Gartner report, in the third quarter of 2016, worldwide server revenue declined 5.8 percent YoY, and shipments declined 2.6 percent from the third quarter of 2015.

It also states that HPE, Dell, and Lenovo have experienced declines in both server revenue and shipments. A deeper look says that the market for Dell’s x86 servers has declined by 2.3 percent in shipments and 1.6 percent in revenue in the third quarter of 2016.

Jeffrey Hewitt, Research Vice President at Gartner states that due to the conservative spending plans by the IT leaders, the server market got impacted during the third quarter of 2016. He says, “This down drift was due to the increasing ability of customers to leverage additional virtual machines on existing servers, without new hardware, to meet their server application needs.”

He suggests that the server providers should reinvigorate and improve their value propositions to help businesses justify server hardware replacements and growth if they hope to drive the market back into a positive state.

According to IT leaders and partners, the major reason for this downward sloping demand curve is the adoption of cloud-based technologies and applications. While SMEs find the advantages of the cloud too tempting to refuse, this is still adding to the demand for large-scale deployment by cloud service providers. While the general market for servers is slowing down, according to reports, the demand for cloud-based users is far outpacing that market.

Despite a decline of 11.8 percent, HPE continued to lead in the worldwide server market, based on revenue, with 25.5 percent market share. Dell declined 7.9 percent but maintained the second spot in the market with 17.5 percent market share, and Lenovo secured the third spot with 7.8 percent of the market.

Lenovo Director Enterprise Business Group, Siddesh Naik mentioned in one of his recent interviews that the company is expecting to get about 20-25 percent of their revenues from the government initiated projects. The company has launched the ThinkServer brand in India with two models—ThinkServer TS140 and ThinkServer RD450.

He says, “We aim to add ThinkServer to our robust server portfolio, right from entry-level to high-end servers.”

The shadow of the cloud  is certainly hovering over the server market. And therefore big players like HPE have prepped their market strategy to match the changing demand.

Vikram K, Director, Servers at Hewlett-Packard Enterprise India said in a company release that businesses are demanding more services, innovation, speed and flexibility from servers and data centers, along with less energy consumption, infrastructure cost, and operations.

He says, “Our mission is to make IT simple for customers. We are providing a complete software ecosystem into our server portfolio that will allow customers to protect critical information and deliver new applications and services at a faster pace.”

Channel players are also seeing the wind blowing in a different direction. Manu Mehta, Director at Fore Solutions says that cloud is changing the direction of the server market.  He says, “Although the market isn’t dead it is definitely being impacted. With the increasing computing and virtualization power, and decreasing prices, three servers can now be replaced with a single virtual server.”

Mehta adds, “To survive in this revolutionary market, channels need to look for different ways to deal with the customers and change their business models according to requirements. An aggressive focus on storage and virtualization is required, which would help in compensating on what we were losing on servers.”

Mehta suggests OEMs put effort on arranging proper training sessions, certifications, workshops and awareness programs for channels.

Neel Shah, Chairman at INSIGHT Business Machines points out that the server market is not completely lost as there are still some core applications and critical data that need a proper old fashioned server to execute, and hence will not move away from the on-premise model.

He says, “In the trade-off, customers are planning to adopt hybrid mechanisms, where they have their own set of servers to store the critical info and data.” Shah believes that cloud is good for a short period, but for long term businesses require on-premise structures, because of the ease of manageability and ease of security.

Although people say that cloud is wiping out the on-premise infrastructure concept, in reality, it is going to take a long time for the entire market to switch to the cloud, points out Rajesh Mathkar, Director at Wysetek Systems Technologists.

“To gain the full value of cloud, businesses need on-premise hardware infrastructure,” says Mathkar. “Channels are taking help from their OEMs and technology partners for enablement in terms of sales, pre-sales and most importantly deployment training.”

“Although this will change the direction, it won’t make servers obsolete,” concludes Mathkar.

 

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