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Server Market Data Release for Q4, Dell & HPE Lead the Way

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Recovery in the server market, which began in 2017, continued with the momentum last year as well, re-infusing optimism among server vendors. Per International Data Corporation (IDC), worldwide server revenues witnessed improvement, marking its fifth consecutive quarter of double-digit year-over-year growth. Moreover, total revenues hit an all-time high in a single quarter ever, adds the firm.

Referring to the data compiled by the research firm, worldwide server revenues increased 12.6% year over year to $23.6 billion in fourth-quarter 2018 while overall shipment grew 5% to nearly 3 million units.

IDC noticed revenues of volume servers expanding 17.8% year over year to $19 billion while the mid-range server registered a 30.3% surge to $2.5 billion. However, high-end system revenues declined 28.3% to $2.1 billion.

Also, IDC noted an 18.7% year-over-year rise in x86 server revenues, reaching a value of $21.1 billion, while revenues from non-x86 servers contracted 21.6% year over year to $2.5 billion.

IDC observed that decline in demand from hyperscale companies was an overhang on the company’s growth rate during the reported quarter. However, the research firm added that increased server sales to enterprise customers boosted results. Additionally, higher average selling prices (ASP), courtesy of enterprise’s demand for richly configured servers to support resource intensive workloads, bolstered server revenue growth.

However, we believe, deceleration in hyperscale spend will be temporary as demand for cloud services is consistently robust. The global server market will steadily grow in the quarters ahead, mainly owing to hyperscale server deployments by cloud-service providers.

Dell Levels Market-Share Score With HPE

With respect to individual server manufacturers, Hewlett Packard Enterprise HPE and Dell Technologies DELL jointly secured the top spot on the revenue market-share front. IDC calls it a statistical tie when the difference among vendors is 1% or less. Therefore, if we look at the actual revenues, then Dell holds the first position with 18.7% market share and 20.4% growth while HPE grabs the second slot with a market share of 17.8% and growth of 10.5%.

Over the last few quarters, Dell has continuously registered year-over-year growth in server revenues and managed to drastically taper the market-share difference with HPE.

In fact, the company achieved the number one position in the last two quarters. The reason for this stellar market-share growth is that the company has been able to strategically capitalize on expanded opportunities from the EMC acquisition.

Moreover, HPE is now focusing on the enterprise market and departing from the firm’s hyperscaler business, which has been denting its short-term revenues. Nonetheless, its loss helped Dell clinch a market share in the hyperscale segment.

Moving ahead, International Business Machines IBM has captured the third position with a market share of 8.3%. However, the company’s server revenues declined 27.6% as sales of Power Systems generated through the company’s partnership with Inspur Power Systems in China are excluded from it.

The fourth position is a draw between Inspur/Inspur Power Systems and Lenovo LNVGY. If we look at the actual revenues, then Inspur occupies the fourth position with 6.6% while Lenovo has the fifth place with 6.2%.

Furthermore, IDC provided revenues and shipment data for the ODM Direct group of vendors. These vendors ceaselessly record huge year-over-year growth in revenues and market share as large datacenters find it attractive to custom build their server designs at potential volume prices.

In terms of volume, Dell won the peak position with a market share of 19.4% while HPE seized the second spot with a market share of 15.8%. Meanwhile, Inspur held the third spot with 8.3% share. Huawei and Lenovo followed with the fourth stand, thereby ending the quarter with market shares of 7.1% and 6.4%, respectively.

Growth Across All Regions

Region wise, IDC viewed server revenue rise traversing most regions. Asia/Pacific (excluding Japan) witnessed fastest growth with a 25.5% increase, followed by Latin America recording 15.4%, Europe, the Middle East and Africa (EMEA) registering 15.2%, Japan 5.3% and the United States reporting a 5.1% increase. China recorded year-over-year vendor revenue growth of 30.7% in the reported quarter. Canada fell 5.7%.

Bottom Line

In our opinion, there is a huge growth opportunity in the hyperscale server-infrastructure space with more and more companies shifting to cloud-based services. Moreover, proliferation of technologies such as big data, artificial intelligence and machine learning are driving demand for hyperscale servers.

Also, Gartner’s latest forecast for IT spending (reflecting a 3.2% improvement in 2019) depicts a favorable tech expense environment, which we believe, will positively influence the overall server market in the near term.

These trends will benefit server providers like Lenovo and HPE, particularly. While Lenovo sports a Zacks Rank #1 (Strong Buy), HPE carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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