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The enterprise has not abandoned the server! Data and truth

  

Enterprise spending on infrastructure hardware and software still exceeds cloud service spending by about 1 or 2 percentage points - but the gap is rapidly narrowing.

Server manufacturers will not immediately ignore enterprise IT consumers. According to the latest data from several analysis institutions and server market share data, enterprises still occupy most of the infrastructure purchasing power, even when cloud computing increases spending.

The entire data center infrastructure market is worth $120 billion, and is growing at an annual rate of 3%. The main drivers are virtualization software, blade servers and security, said John Dinsdale, chief analyst and general manager of Synergy Research Group.

The single product rack server, the largest in the data center infrastructure market, occupies 34% of the market share.

The enterprise hardware market is about 80 billion dollars, and the market share of Hewlett Packard Enterprise (HPE) in the third quarter was 24%, according to Synergy's report.

Cisco has one third of the market share of enterprise data centers, and according to Synergy's tracking report, it controls six of the seven categories of devices: Ethernet switches, voice systems, wireless LANs, unified communications, routers, and remote presentation.

According to Synergy, HPE is the leader in server sales, followed by Dell. Cisco ranked fifth, while Lenovo and Cisco both enjoyed steady growth in market share. In the latest quarter, Cisco's server business revenue reached $8.59 million, a 24% increase over the same period last year, making it the company's fastest growing department.

Enterprise server market share and top supplier momentum are easy to understand, said Jeff Blessing, planning and analyst of State Farm Insurance Co.

Cloud service providers cannibalize the server market

The rise of original design manufacturers (ODMs) or so-called white box markets has begun to erode the server market that was once the exclusive domain of original equipment suppliers (OEMs).

The servers produced by ODM grow strongly. Dinsdale said that most of them are service providers, not enterprises.

Fortunately, whether the State Farm purchases ODM or Open Compute Project servers and whether proof of concept is required requires a verification process.

Even though enterprise expenditure still accounts for the largest share of the server market, the top four server market customers are all cloud service providers and have bought one fifth of all server shipments, according to research company IDC. IDC predicts that by 2019, the infrastructure procurement of service providers will reach 32.6 billion US dollars per year.

The revenue ratio of manufacturers in the global server market increased by 5.1%. According to reliable data in the recent period, from the third quarter of 2014 to the third quarter of 2015, a total of 13.4 billion US dollars were generated. According to IDC, this is the sixth quarter of continuous growth in revenue over the same period.

According to Christian Perry, chief analyst and practice manager of Technology Business Research (TBR), the x86 server market grew 5.6% in 2014 and 4.5% in 2015

"This market is facing more and more commercialization and the decline of unit price. Everything is standardized on the Intel platform, and it is increasingly difficult to maintain the high profit margin of this business," he said.

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Enterprise infrastructure market size and growth

The X86 server hardware is still meaningful. Perry said that there is about 40 billion dollars spent every year in the world. What keeps this market moving forward is that super large buyers - major service providers - accounted for 20% of the x86 market in 2015, an increase of 41% over the same period last year, Perry said. He predicted that the x86 market will increase by 25% in 2016, "and that the market size will increase by more than 30% in 2018."

TBR expects the year-on-year growth of last year to start the "downward mobility mode" in 2016, but it will continue to grow, because servers are core infrastructure and irreplaceable core infrastructure, Perry said.

"The way people choose servers is quite different from the type of servers, depending on the business scope of the organization," said Carl Crunch, an analyst at Gartner. These factors include the size of the business and whether the server is used for internal oriented applications or customer oriented purposes.

Internal use usually focuses on simplicity and product integration, which will increase the scale of fusion and super fusion systems.

Servers running external business applications, such as hosting companies, service providers and other enterprises, such as PayPal Holdings and Twitter, usually use rack mounted x86 servers.

Separating cloud and virtualization from hardware

Since the introduction of server virtualization, the buying habits of servers have changed. Virtualization technology was once bound to a single hardware, and "one set of virtualization software corresponds to one physical server". Now, the virtualization strategy is completely independent of the hardware strategy.

Microsoft's Windows Server licensing is another way to observe who is buying the server. For Microsoft, it pays more attention to cloud service providers, said Carl Brooks, an analyst at 451 Research.

"The sales growth opportunities of Windows Server are more from service providers," he said.

For example, the company's expenditure on local licensing decreased by 2% compared with the same period last year, while the licensing expenditure on Microsoft's cloud computing platform Azure increased by 7%. Looking at all cloud service providers, Microsoft has seen the "explosive growth" of Windows Server - up to 46%, Brooks said.

"Enterprises will not go directly to Microsoft and say, 'Give me 10 more licenses,'" Brooks said. On the contrary, when they move to cloud computing, they can pay a license fee of 2 or 3 cents per hour, rather than hundreds of thousands of dollars for a one size fits all local license.

In 2015, the expenditure on enterprise infrastructure construction increased by 2% on a year-on-year basis, Synergy said. Through the first three quarters of 2015, $60 billion was invested in infrastructure hardware and software, and cloud services including private clouds were built, accounting for more than half of the total. According to Synergy's data, the largest growth is mainly from public cloud procurement.

Hardware is the backbone of cloud services, and Cisco and HPE are the leaders of public cloud and private cloud infrastructure.

In addition to public cloud and hybrid cloud, cloud computing is still the main way to deploy cloud computing. The internal deployment of hybrid cloud means that enterprises still need to purchase and install hardware to build hybrid cloud.