FT : Server Resurgence

Thursday, April 8, 2010

The global computer-server industry is witnessing a once-in-decade sweet spot of sales growth, boosted by a rare alignment of economic recovery, big technological advances and soaring data-handling needs.  Servers, the heart of computer networks, are seldom regarded as at the racy end of the information technology sector.  But after a difficult 2009, server manufacturers are suddenly seeing strong growth with customers reinvesting in ageing IT infrastructures as recessionary conditions recede.  JPMorgan analysts recently more than doubled their estimates for server revenue growth in 2010 from 6.2% to 14.3% – “a unique phenomenon in IT hardware”.  IBM, Hewlett-Packard, Dell and Oracle, as well as processor makers Intel and AMD, have all rushed to bring out a range of server products.

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Part of the turnround is being driven by pent-up demand after a 2009 in which worldwide server revenue declined 18.9% to $43.2bn, according to research firm IDC.  Businesses had deferred purchases of servers during the economic down times to save costs, extending the replacement cycle for products that tend to have a working lifespan of about five years.  But analysts also point to financial incentives to upgrade, saying the newest generation of servers can pay for themselves in a few months amid reduced costs of power and cooling.  This is in spite of higher price tags for many of the new products.  One example is the development of processors for servers, which have advanced in recent years from a single core or “brain” doing the work to multiple cores being squeezed on to chips.  High-end eight-core processors introduced by Intel last week can be deployed in a single server that replaces 20 older single-core servers and achieves the same performance.  Intel claims this reduces energy costs by more than 90%.  AMD, Intel’s smaller rival, also introduced eight- and 12-core processors last week.  In addition, server upgrades are being driven by more data-intensive applications and an explosion in cloud computing where services and data are stored and served from remote data centres.  “This next wave is the biggest one of all, and highly disruptive,” says Howard Elias, head of cloud services at EMC, the data storage equipment company.  “We’re talking about a change in the way IT infrastructure is operated, produced and consumed.”  Matt Eastwood of IDC’s enterprise server group said there could be a shake-out in the industry.  “Optimal conditions for market inflection occur only once a decade and IDC believes that market shares could shift dramatically as the winners and losers of this new market cycle are determined,” he said.

Reference : http://www.ft.com/cms/s/03855d1a-42a5-11df-91d6-00144feabdc0

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