Server sales plummet in Q2, finds IDC

Oracle's forthcoming acquisition of Sun Microsystems is taking a heavy toll on Sun's hardware business, after analyst house IDC recorded a heavy drop in the vendor's server revenues during the second quarter.

The overall worldwide server revenue in the second quarter witnessed a staggering decline of 30 percent from the same period a year ago, or from just over $14 billion (£8.6 billion) to $9.8 billion (£6 billion), according to a report released today by market research firm IDC. This second quarter decline - the largest ever year-over-year quarter decline - follow a 26.5 percent decline in the first quarter.

Gartner has also released its server numbers, which showed a similar decline in sales. Gartner estimated that worldwide second quarter server revenue declined by 29.4 percent.

According to the IDC report, Sun's second quarter server revenue declined 37 percent to $981 million, the largest percentage drop of any major vendor during the period. It was helped by a number of things. Sun gets most of its hardware revenue from its Unix-based Sparc platforms, and Unix-based systems didn't fare as well as x86-based systems in the period, said IDC. Worldwide, x86-based server revenue fell about 28 percent, while Unix-based system revenue declined by about 32 percent.

Sun was probably also hurt by the time it is taking to consummate its $7.4 billion deal to be acquired by Oracle. Oracle is restrained from detailing the future of Sun and its hardware until the acquisition is completed, creating customer unease about support and product roadmaps.

Meanwhile, major rivals, namely IBM and Hewlett-Packard, have been unrestrained in going after Sun customers with migration incentives and other deals.

"I think [Sun is] seeing negative effects from HP and IBM attack programs," said Daniel Harrington, an analyst at IDC. IBM and HP are offering migration help to users and are going "aggressively after that customer base," he said.

Analysts say that Oracle could take its new Sun hardware and move in number of directions, including the sale of Sun's hardware to another computer maker - possibly Fujitsu, which makes Sparc-based servers and has a close relationship with Sun. Oracle could further split off Sun's x86 systems to a different vendor, such as HP. It's also possible that Oracle will retain the hardware business and build new products, possibly appliances that include the Oracle database.

But nothing can happen until the deal is approved by European regulatory authorities. US regulators have already given the deal a green light, but the European Commission, which faces a deadline for making a decision tomorrow, may seek an extension due to concerns about the fate of Sun's open source MySQL database, according to a report from the Reuters news agency.

Overall, there was little good news in the IDC report for any of the server vendors. IBM, the largest server vendor saw a 26 percent revenue decline this quarter to $3.38 billion but a market share increase from 32.7 percent to 34.5 percent year-to-year. The second largest, HP, at $2.8 billion kept its market share steady at 28.5 percent while seeing a revenue decline of about 30 percent.

IDC believes that users are now beginning to replace their aging equipment.