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Server spending reflects new IT reality

Sales of low-end servers are on the rise, and Windows-based units are helping to lead the way. In separate research reports, Gartner and IDC offered explanations on who's buying and why.

Sales of Windows-based servers jumped in 2004, led by a strong fourth quarter, according to separate studies released recently. Analysts say the rise was due in part to an expected refresh cycle, although IT departments are being more cautious in their server spending than in the heady days of the dot-com boom.

The market for all servers grew 5.1%, to $14.4 billion, in the fourth quarter of 2004 compared to that of 2003, according International Data Corp., in Framingham, Mass. Revenue for 2004 was $49 billion, a rise of 6.2% over the previous year.

We've seen some sanity in server purchasing come back to the IT world.

Michael McLaughlin, principal analyst, Gartner

Unix-based servers now account for 36% of the market, but Windows servers narrowed the gap with a 15.5% increase in revenue 2003. As a result, Windows now holds 32% of the server market.

"I think what it's showing is how broadly Windows is used, and also that it's increasingly Windows enterprises and organizations," said Jean S. Bozman, research vice president in IDC's worldwide server group.

Gains for the volume-server market

Gartner Inc., Stamford, Conn., reported similar increases. It said fourth quarter revenue was up 5.7% over the same period in 2003. Gartner found revenue for the year up 7.2% over 2003, to $49.5 billion.

Despite overall revenue increases, the volume-server market -- machines costing less than $25,000 -- was the only segment to show

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64-bit Windows -- when and why to use it

 growth, according to IDC. Revenue from midrange enterprise servers, costing between $25,000 and $499,999, and high-end enterprise servers, costing $500,000 or more, declined.

Among server manufacturers, IBM had a strong finish in 2004. IBM, which got out of the desktop hardware business last year, led Dell Inc. and Hewlett-Packard Co. in Windows and Linux server revenue in the fourth quarter.

Sales of servers reflect the needs of IT organizations at the moment, according to one expert.

"Right now, it's pretty much a lot of hardware upgrades, and if they're upgrading software, it's typically that they're switching operating systems," said Michael McLaughlin, principal analyst at Gartner. "If they're buying new hardware and they've been running Windows and Unix, [now] they're buying new ones that are running Linux."

64-bit Windows will alter landscape

He said that as Microsoft releases its various 64-bit versions of Windows, the current buying trend will likely change. "You'll probably see more software upgrading than hardware," McLaughlin said.

And in the market for x86-based machines, "you'll see most of those people upgrade the OS, and you're still going to have refresh cycles when people need new equipment," he said.

Bozman identified server build-out as another reason to purchase new equipment, and said that strong fourth-quarter growth could be the result of IT departments looking to spend what's left in their budgets. Upgrades from Windows 2000 Server to Windows Server 2003 could also play a factor, she said.

McLaughlin agreed.

"We've seen some sanity in server purchasing come back to the IT world," he said. "Back in dot-com days, there wasn't a lot of long-term planning in terms of someone's data center. Corporations are realizing that you can't haphazardly spend in the IT world."

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