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Hewlett-Packard Keeps Top Server Vendor Position in Q2

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Hewlett-Packard (HPQ) maintained its top position in the server market in the second quarter of 2014 as well, per IDC’s Worldwide Quarterly Server Tracker. As a matter of fact, H-P expanded its market share to 25.4% from 25% in the year-ago period and revenues increased 4% on a year-over-year basis.

Notably, in the second quarter, revenues from the server market increased 2.5% year over year to $12.6 billion. IDC expects demand for servers to be driven by public cloud deployments going forward.

Per IDC’s estimates, International Business Machines (IBM) and Dell, the other two top-three vendors, not only lost market share but also witnessed revenue declines during the period. IBM’s market share was down from 27% to 23.6%, while revenues declined 10.2% year over year primarily due to lower demand for its Power-based systems. Dell’s market share was down from 18.2% to 16.6% with revenues declining 6.5% due to the realignment of its selling strategy of its PowerEdge servers.  

Meanwhile, Cisco (CSCO) and Oracle (ORCL) witnessed an increase in market share as well as in revenues and together secured the fourth position. Cisco’s market share increased from 4.4% to 5.8% and revenues increased 35.4% year over year, due to strength in its UCS systems. Oracle’s revenues increased 3.9% from the year-ago quarter, while market share increased from 5.8% to 5.9%.

Now, coming back to H-P, the company’s server revenues were positively impacted by higher revenues from x86-based ProLiant servers which more than offset the continued decline in revenues from its Itanium-based Integrity server. H-P retained its leading position in x86 servers and Blade servers commanding 29.6% and 42.2% share of second-quarter 2014 revenues, respectively.

H-P is taking aggressive steps to increase its share in the x86 server segment yielded results, since IBM sold its x86 server business to Lenovo. H-P is also reported to be tapping into the current IBM customers. The company is utilizing this opportunity to strengthen its footing in the server market which could generate incremental revenues, going forward.

Moreover, H-P’s traction in the cloud, security and Big Data segments are expected to be the growth catalysts, going forward. We believe that the company’s strategic focus on the software business will help it to diversify beyond the PCs. Nonetheless, macroeconomic challenges and tepid IT spending remain the near-term concerns.

Currently, H-P has a Zacks Rank #3 (Hold).

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