"There were some distinct factors that produced the final results for 2016," said Jeffrey Hewitt, research vice president at Gartner. "Hyperscale data centres (e.g., Facebook, Google) grew and, at the same time, drove some significant server replacements. Enterprises grew at a lower rate as they continued to leverage server applications through virtualisation and in some cases, service providers in the cloud."
From a regional perspective, Asia/Pacific was the only region to exhibit positive growth in both shipments and revenue in the fourth quarter of 2016. All other regions declined, with Latin America experiencing the largest decline in shipments (12.2 per cent, while the Middle East and Africa declined 14.7 per cent in terms of revenue.
Hewlett Packard Enterprise (HPE) led the worldwide server market based on revenue in the fourth quarter of 2016. The company ended the year with $3.4 billion in revenue for the fourth quarter of 2016 for a total share of 22.9 per cent worldwide. However, revenue was down 11 per cent compared with the same quarter in 2015.
Of the top five global vendors, only Dell and Huawei exhibited growth for the quarter, increasing 1.8 per cent and 88.4 per cent, respectively.
Dell grew 6.5 per cent and moved into the No. 1 position in worldwide server shipments in the fourth quarter of 2016, with 19.1 per cent of the market. HPE experienced a decline of 19.4 per cent and fell to the second spot with 17.2 per cent market share. Huawei experienced the strongest shipment growth in the fourth quarter of 2016, increasing 64 per cent over the same period last year.
Europe, the Middle East and Africa (EMEA)
Server revenue in EMEA totalled $3.4 billion, a decline of 11.4 per cent from the fourth quarter of 2015.
“The fourth quarter did not end the year on a high note, with declines in the second half being larger than those seen in the first half. Full year volumes for 2016 in EMEA fell by 4.2 per cent and revenues fell by 8 per cent compared to 2015" said Adrian O'Connell, research director at Gartner. "The big picture is that demand from a wide range of buyer types has been weak across the entire region."
In revenue terms, all of the top five vendors saw declines in the fourth quarter of 2016. HPE maintained the No. 1 position but it suffered a double-digit revenue decrease of 10.6 per cent, broadly in line with the market’s drop of 11.4 per cent. Dell and Fujitsu's server revenues fell less sharply than the overall market.
The decline in IBM’s revenue accelerated in the fourth quarter of 2016. Its server revenue fell from a 20 per cent year-over-year decline in the third quarter of 2016 to a 34.7 per cent decline in the fourth quarter of 2016. IBM’s x86 divestiture leaves it far more exposed to swings in demand for high-end servers, which are already suffering from cyclical weakness.
“Market incumbents face increasing challenges, while original design manufacturers and China-based suppliers are making increasing headway due to investments for long term growth and their presence in adjacent technology markets,” said Mr O’Connell.
Server shipments in EMEA totalled 594 thousand units in the fourth quarter of 2016, a decline of 3.6 per cent year over year.
In shipment terms, Dell stood out among the global top five server vendors with an 11.4 per cent growth in the fourth quarter of 2016. This solid performance helped Dell increase its market share by 3.5 percentage points year over year, and this was largely achieved at the expense of the market leader HPE. HPE’s server shipments declined 16.3 per cent year over year, which saw HPE lose 5.1 percentage points in market share in the fourth quarter of 2016.
Huawei was, however, the clear shipment winner of the fourth quarter of 2016 and could be of most concern for the established global server vendors. The very strong unit shipment growth of 54.6 per cent in the fourth quarter of 2016 was due to its ability to leverage its strength in both adjacent technology markets and geographies.
"2016 was a challenging year for server vendors in EMEA, and the weakness does not show any signs of changing direction at this moment in time,” said Mr O'Connell. "Levels of political and economic uncertainty in EMEA are not going to decrease in the short term and this — combined with a very challenging competitive environment — will make things increasingly tough for the market incumbents. Server vendors must excel on execution, and increasingly take risks to return to growth in EMEA.”
Full Year 2016 Server Market Results
In 2016, worldwide server shipments increased 0.1 per cent, while revenue declined 2.7 per cent.
"x86 servers continue to be the predominant platform used for large-scale data centre build-outs across the globe, and the growth of integrated systems (including hyperconverged integrated systems), while still relatively small as an overall percentage of the hardware infrastructure market, also provided a boost to the x86 server space for the year," said Mr Hewitt. "The outlook for 2017 suggests that modest growth will occur being driven primarily by service provider build-outs while the enterprise will show a slight decline in unit purchases with only slight growth in revenue."
