Changing trends in the MEA server market
Victoria Mendes, Research Analyst at IDC MEA, on why blades will overtake tower servers over the next five years in the region
The dynamics of the server market has been going through some major changes over the last couple of years in the Middle East and Africa (MEA) region.
To paint a clearer picture, it is important to understand that servers are classified into different types based on their instruction sets – x86 and non-x86. The former of these are further broken down into four product categories: rack-optimized, tower, blade, and density-optimized servers. And while rack and tower servers – the traditional leaders of the pack – remain the most popular form factors, blades and density-optimized servers are both gaining ground.
Located towards the lower end of the pricing spectrum, rack servers are more likely to be adopted for projects within the government and education verticals, where price typically plays an important role in determining purchases. As such, they will continue to be the mainstays of the MEA market. Tower servers are beginning to decline in popularity, but they still hold a good share of the market, primarily due to the fact that this form factor is the cheapest.
Blades have recently become very popular in MEA, and IDC predicts that their share of the region's market will overtake that of tower servers over the next five years. Density-optimized servers have also begun to pick up traction in the region, and IDC is expecting to see a couple of major projects in this space in Turkey and Qatar before the end of the year.
What's interesting to note is that there has been a slowdown of server shipments to the region over the last couple of years. The major reason behind this slowdown is the growing uptake of virtualization technologies, which require less server units than was previously the case. This means that a growing number of organizations are now actively optimizing their existing installed base of servers rather than increasing their physical server capacity. And the figures back this up, with the region's virtualization rate already standing at more than 35%.
Over on the other side of the market, non-x86 servers have been steadily declining over the last couple of years as new workloads are predominantly added on the x86 side. Typically, we are seeing a trend where organizations would rather purchase cheaper servers and virtualize them than purchase very expensive RISC, CISC, or EPIC servers.
While the MEA server market did see a slowdown in shipments during 2014, the decline of just 1% year on year compares favourably to the overall global trend, with HP and Dell respectively occupying the market's first and second spots. This relatively strong performance was made possible by a number of significant deals that took place towards the end of the year. This includes the region's biggest ever high-performance computing (HPC), awarded to Cray Inc. by Saudi Arabia's King Abdullah University of Science and Technology (KAUST) to accelerate its supercomputing capabilities in both its laboratory and learning environments.
Unsurprisingly, average selling prices (ASPs) increased last year as vendors strived to hit their revenue targets at a time when volumes are falling. However, IDC is seeing a decline in ASPs this year as Lenovo and Huawei are offering prices that are 40% lower than their A-ranked rivals. To quantify this, the drop in ASP from Q4 2014 to Q1 2015 alone was 13% for all vendors combined. All that said, the MEA region continues to have a number of brand-loyal customers that prefer the more expensive options served up by HP and Dell.
While the region has seen a slowdown in server shipments over the last two years, the MEA market is expected to pick up again over the coming forecast period due to a number of reasons. Chief among these is Microsoft's decision to end support for Windows Server 2003. Indeed, IDC expects the migration rate to pick up speed as there are still many organizations that have not yet made the switch due to the complexity of the process and the sheer number of servers that need to be rehabilitated.
The slowdown that has been seen in the purchase of servers has also driven vendors to become more innovative with their offerings, enabling them to handle different workloads and incorporate additional components like storage and networking as well. For example, Cisco's UCS servers are sold alongside networking components. Such innovative developments will also play a considerable role in accelerating growth in the region over the coming years.
This return to growth in the MEA server market will be driven by demand for rack and blade units due to the growing requirement for Big Data computing capacity and converged systems. However, it is also worth pointing out that economic slowdowns, currency fluctuations, and government procurement issues will prevent the rate of growth from reaching its full potential in the MEA region, particularly in Africa.
The server space will doubtless continue to evolve over the next couple of years as new innovations emerge and customer demands become ever more complex. How will the major market players adapt to this change and who will emerge on top? Only time will tell, but you can be sure that it's going to be an exciting ride finding out.