Is this the bottom for the server industry? Or are we only at the beginning of a long-term decline as data center productivity gains shift from hardware to software?
Those are the key questions centered around the latest quarterly reports showing dismal results for the server market.
IDC pegs second-quarter server revenue at $9.8 billion, nearly a third less than the same period a year ago -- the fourth consecutive quarter of declining sales. Sales dropped across the board, with x64 machines leading the way at a 28.1 percent decline. Volume system, mid-range devices and high-end machines all posted revenue declines in the 30 percent range.
Gartner's numbers are similar: a 29.4 percent drop in revenues and a 28 percent drop in shipments, although it reported a stunning 40.6 percent drop in shipments of high-end RISC/Itanium UNIX machines, countering the opinion of many that the high-end data center industry has been largely shielded from the economic downturn.
Both organizations contend that these number represent the trough of the downturn and that they can only get better from here, although no one is expecting a return to the glory days of the mid-2000s any time soon.
And yet, it would be a mistake to think that things could not get even worse simply because market conditions have already deteriorated so badly. The widely held belief is that the overall economy will start to recover within the next few quarters, and data centers, having put off hardware upgrades due to falling revenues, will be eager to beef up their infrastructures once business activity returns to normal.
But what's troubling me is the definition of "normal." I find it hard to believe that anyone expects the return of "normal" market conditions as they existed until 2007 or so. Much of that activity was fueled by easy credit tied to rising real estate values. And even if property values are making a comeback, it could be a good long while before the money spigot is wide open again. At the same time, we have still-too-high unemployment that will likely depress consumer spending for some time. And let's not even get started on the increasing government debt.
And even within that data center economy itself, the simple fact is that virtualization represents a permanent shift in hardware demands. Improved virtual platforms coupled with high-speed networking and virtual I/O technology could push virtual server ratios to 20:1 soon. Heck, the way some people are talking, there's no reason to think we won't soon see several hundred machines on one physical box.
So will the server industry be able to climb out of its current hole? Perhaps, if the economy recovers enough to fuel a modicum of business activity -- but that is still a big if, and there is increasing speculation that we could be headed for a double-dip recession.
But putting aside short-term fluctuations for a moment, will the server market ever be the same? No way. Not by a long shot.