Server market reports a record first quarter

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New market research from Omdia suggests that the server market continued to grow strongly in the first quarter of 2020, riding a COVID-19 demand wave, as enterprises and consumers increased their reliance on cloud services to cope with the global lockdown.

Driven by a surge in demand from hyperscale cloud service providers, global server shipments surged by 27 percent during the final quarter of 2019 compared to the third quarter of 2019 and the final quarter of 2018. A total of 11.9 million servers shipped for the entire year of 2019, up from 11.4 million in 2018.

Server shipments during the first quarter of 2020 were more than 3.3 million, almost 1 million more than the first quarter of 2019, according to Omdia’s assessment of current data. Vendors achieved record shipments in March, driving a strong close to the first quarter of 2020.

“Multiple data points from vendors and end-users indicate that during the first quarter of 2020 cloud service providers continued to expand their server installed base to accommodate a ramp-up of consumer and enterprise demand,” said Vlad Galabov, principal analyst for data centre IT, at Omdia. “Enterprises increased their investment in servers as these organisations prepare employees and business processes for remote working. Meanwhile, telecommunications network providers ramped up server deployments to cope with increased demand on wireless and wired networks. As a result, the server market attained a quarter of year-over-year growth exceeding 30 percent.”

From a revenue perspective, the server market reached $22.7 billion in the fourth quarter of 2019, up 17 percent from $19.4 billion in the third quarter of 2019. For the entire year of 2019, server revenue declined 6 percent, to $78 billion, due to a decline in server prices.

“Cloud service providers remain the growth engine of the server market as enterprises continue to shift workloads and physical servers to off-premises data centre that are run by cloud-service providers,” Galabov said.

According to Omdia, in the wake of the COVID-19 outbreak, it has lowered its 2020 server market forecast by 700,000 units to 12.2 million, in line with deteriorating macroeconomic forecasts and global supply chain disruption. Server vendors stated they encountered significant supply chain disruptions in 1Q 2020 and lowered production output due to reduced workforce numbers in February and the beginning of March. However, final data points indicate that the vendors resolved these issues and achieved record shipments in March.

Omdia is set to raise its forecast for 2020 by at least 500,000 units to over 12.7 million servers and will monitor the situation to accurately project the longer-term effect of the COVID-19 lockdown and resulting economic impact on the server market.

“We now have multiple indicators that the start to 2020 will see the server market grow double digits over 2019,” Galabov said. “However, it’s important to avoid underestimating how much the server market could be impacted by the looming global recession and despite vendors and distributors successfully managing the supply chain challenges in the first quarter of the year, Omdia continues to receive reports of strain and shortages in components globally.”

“The outcome of the second quarter of 2020 will be key in understanding the impact of the global lockdown on the server market. In one scenario we’re exploring, a decrease in enterprise investment is more than offset by a surge in service providers expansion in response to strong demand for cloud and telecommunication services. The COVID-19 pandemic could accelerate global digitization and business models transitions, permanently accelerating demand for data centre compute.”