Study reflects weak server spending this year

TheInfoPro says that despite proclamations of budgets opening up, server spending in 2010 remains weak

Overall server spending in enterprises remains weak in 2010 as companies continue to look for ways to save money following the economic downturn, research firm TheInfoPro said in a study released on Monday.

According to the survey, which gathered data from 252 decision makers at Fortune 1000 companies, 38 percent plan to reduce server budgets this year compared to 2009, while 25 percent plan to spend more.

Though demand for server hardware has picked up, spending has flattened due to growing trends like virtualization, which helps manage a larger number of tasks on fewer servers, said Bob Gill, managing director of servers.

"Server virtualization has permanently dampened hardware unit demand as virtualization's footprint grows within enterprises," the survey said.

Server budgets remain weak despite predictions of having reached an inflection point, Gill said. Companies are getting a better understanding of how to virtualize IT environments, and there is also a big move toward consolidation, which has reduced the need for a large number of servers.

Server software spending is growing this year, but may slow down in 2011, according to the survey. Companies like Microsoft, VMware and Red Hat are benefiting from the trend, but spending could slow next year as hardware consolidates.

"While server hardware spending growth does exist ... we see fairly similar percentages of enterprises citing declines, which implies 'flatness,' not overall growth," Gill said. "We do not see the refresh that everyone's talking about."

Gill could not specify how much of the weakness in hardware spending is explicitly tied to software. But the survey said that Dell could see a larger number of customers opening up server hardware budgets.

Spending by Dell customers on servers was weak in 2009, so there are significant refresh opportunities this year, Gill said. According to the survey, about 20 percent of Dell customers plan to spend less money on servers, while 30 percent plan to spend more.

By comparison, 26 percent of Hewlett-Packard customers plan to spend less, while 31 percent plan to spend more. For IBM, 25 percent anticipate spending less money, while 27 percent expect to spend more.

The survey also said that Oracle is the most vulnerable of all server vendors because of discontented customers. The survey said 26 percent of Oracle's customers are considering leaving for a competitor and 21 percent already plan to leave.

However, some companies reported big year-over-year rises in server hardware revenue earlier this year. Dell reported a 61 percent increase in server revenue for the first fiscal quarter ending on April 30.

HP reported that revenue from its Industry Standard servers, which includes x86 servers, increased 54 percent, while revenue for its Business Critical Systems, which includes Itanium servers, declined 17 percent for the second fiscal quarter ending on April 30.

IBM in July reported that revenue from its Systems and Technology Group, which includes servers, increased only 3 percent for the second fiscal quarter.

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