Worldwide Server Market Woes Continue

Analysts said uncertain market conditions are preventing companies from purchasing high-end servers, changing to new platforms and singing big contracts.

"For the time being, customers are focusing on deployments that can yield quick return on investment by purchasing less expensive systems or upgrading their established systems, if necessary," said Gartner Dataquest (NYSE: IT) senior analyst Shahin Naftchi.

Silver Lining?

But while worldwide shipments have been stymied by economic factors, the U.S. market offers server makers some hope.

The U.S. server market showed nearly a 10 percent increase in the second quarter, according to Gartner, with unit shipments totaling 482,647.

The numbers are sweetest for Hewlett-Packard (NYSE: HPQ) . The computing giant's acquisition of Compaq led the new HP into the first-place position in worldwide rankings, with 30.5 percent of the market.

But the market trends are bittersweet for Dell (Nasdaq: DELL) . Despite Dell Computer having gained 18 percent market share worldwide, the company fell to second place.

Meanwhile, the HP-Compaq merger also shook up U.S. vendor rankings. The new HP assumed the top spot, with 26.8 percent of the market. Dell was forced into second place with a 24 percent market share, followed by rivals IBM (NYSE: IBM) and Sun.

Looking Ahead

This is the second quarter of positive growth for the U.S. market, prompting analyst speculation that the region might be signaling the end of the market turndown.

Still, the market has yet to show signs of consistent revenue growth, making it unclear whether many companies would have enough confidence to invest heavily in new server equipment.

The market shows lots of server consolidation, as older one- and two-way servers are consolidated into newer, faster, one- to eight-way servers, according to Aberdeen Group analyst Peter Kastner.

"We had lots of low-end Internet edge servers purchased in the dot-com bubble and in anticipation of Y2K," Kastner told the E-Commerce Times. "Those servers that are apt to be replaced next year [will be replaced] with blade servers costing only a couple of thousand dollars, which have five to 10 times the processing capacity [of older servers]."

That is an indicator that the server market will not return to prerecession health. Kastner noted that, while server unit shipments might be increasing modestly, revenues are still declining.

HP's Play

Will the new HP maintain its lead in the worldwide and U.S. markets amid the current uncertainty? Mirroring their advice regarding the server market itself, analysts said the answer is, "Wait and see."

"Since the merger of HP and Compaq is still in its early stage, HP is still faced with the challenges of transitioning its product lines and integrating the two corporate cultures," said Jeffrey Hewitt, principal analyst for Gartner Dataquest's Servers Worldwide program.

"On the other hand, the post-merger challenges facing HP may benefit customers if the company decides to offer better prices and attractive contracts to protect its installed customer base."