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Virtual facts and figures

Global research organisations are stuck in a tug-of-war on server sales figures and future market trends. The server market might be commoditised, but commentators predict that not all is gloom-and-doom for vendors. Colin Edwards reports.

IDC's recent report on virtualisation -(the maximising of server resources by making a single device act like multiple systems - claims that the X86-based server market will take a heavy hit as this technology grows in popularity.

The research group's report, entitled ‘Virtualization and Multicore Innovations Disrupt the Worldwide Server Market,' says that customers will spend US$2.4 billion less on x86 servers between 2006 and 2010.

Shipments could be down 4.5 million in the same period and overall shipments will only increase by some 40% by 2010.

Another research company, Garter, says the effects on the server market are already beginning to occur, as it partly attributes the server market's sluggish performance at the end of last year to the effects of increasing virtualisation.

Jon Hardcastle, a Gartner analyst specialising in server research who was in the Middle East recently, says the slow in server sales in Q4 2006 has not come as a surprise.

"We have been expecting it to slow down somewhat," Hardcastle said. "We have been seeing a steady rise of virtualisation. It is bound to have a dampening effect on the server sales."

Hardcastle believes server sales will continue their upward trend once people have deployed virtualisation, though says that step adjustment could take a few years to work through. Currently though, the trend is server consolidation, as it has been found that server utilisation is as low as 8%.

"Virtualisation will continue, but once you have worked through virtualisation and virtualised everything that can be virtualised, then you are back to a steady ramp up in the servers being sold," he adds.

Although in the cash-rich countries of the Middle East, the cost savings that virtualisation offers through maximising server performance might not be thought to have as much relevance, Hardcastle thinks this is not the case. While many users in the region can afford excess servers, those that have looked at virtualisation like the flexibility benefit it provides.

It is also costing less to deploy since VM Ware has come under serious competition from the likes of Microsoft and Xen. Hardcastle points out that the price of VM Ware has now plummeted.

"The set-up costs are much lower too. And when you look at the cost benefit and the compromises you have to make, it is a relatively low cost option to maximising your server resources," Hardcastle states.

However another research company that has been tracking server markets, Forrester, disagrees with the findings of the IDC and Gartner.

It recorded a healthy EMEA server market last quarter with sales of x86 boxes continuing to drive HP's lead at the top of the pile in Q4 2006.

In the US, Forrester is reported to disagree with IDC's findings, saying that the impact of virtualisation could be less than half of what IDC predicts it will be.

While servers at the x86 level are becoming commoditised, there is a danger with all these different research findings: the rising element of prices.

Vendors are bound to factor in dropping sales in the next five-year plan. In a commodity market price, not value-add, is king.

This means they have to get the pricing right. Too aggressive a price shaving could result in weaker players dropping out of the market, which sends a ‘buyers beware' message to all IT managers and enterprises.

Building in too much fat to soak up a falling market is equally disastrous for buyers; as the last thing you want to do is be over-spending on servers.

Commentators however say it is not all gloom and doom for the vendors, because apart from a steady increase in the number of processors shipped, virtualisation demands more richly configured systems in terms of memory, disks, and I/O capabilities.

Despite the decline in server revenues and the number of shipments, what vendors lose on the swings they will gain on the roundabouts, but it's much better not to be in the middle of a war between different research gurus.

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