Server market begins to shrink; growth in 2008 put at 3.7%

Server market begins to shrink; growth in 2008 put at 3.7%

Bangalore: The $760 million (Rs3,600 crore) Indian server market is in a flux. After years of high growth, the domestic server market has been shrinking in recent months though many expect a quick revival.

India’s overall server market grew by just 3.7% in 2008, a sharp slowing from the 25.6% growth in 2007, according to research and forecasting firm IDC India Ltd, but the numbers hide more than they reveal.

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The enterprise server market contracted by 28% in the December quarter, the latest period for which data is available. But this quarter also saw International Business Machines Corp., or IBM, displace Hewlett-Packard Co., or HP, as the market leader in the overall server market, and the entry of Cisco Systems Inc. into the server market. Servers run computer networks and websites.

A reinvigorated Sun Microsystems Inc., now part of Oracle Corp., is also expected to mount a battle to regain its declining market share. Besides, Lenovo Group Ltd entered the Indian server market a few quarters ago, even as local vendors such as HCL Technologies Ltd and Wipro Ltd try to increase their market share.

The Indian server market is broadly categorized into three different segments. The entry-level, volume-based server market constitutes the largest chunk and is worth around $420 million, according to IDC. The mid-range offering, better known as the Unix server market, is estimated at $300 million and the top-end market, comprising power systems and mainframe, is estimated at $40 million.

“Yes, after enjoying years of double-digit growth, the degrowth happening in the server market is a cause for concern for all players and not just us," said Mukul Mathur, director, systems and technology, India and South Asia, IBM. “(But the) Indian market holds plenty of potential and is still nascent."

Rajesh Dhar, director, sales, industry standard servers, HP India, too admits the contraction in the server market is a worry but says the situation will likely rectify over the next couple of quarters.

While sectors such as manufacturing and retail have been severely hurt in their server investments, telecom, government, utilities and the banking, financial services and insurance (BFSI) segments are expected to continue to grow.

Naveen Mishra, senior research analyst at technology research firm Gartner India says the contraction in the server market is a concern for vendors only if looked at in absolute terms. “From a relative perspective, (the) Indian market is still doing better than several other mature markets, and provides reasonable growth opportunities."

The entry of Cisco into the market is expected to inject new competition and shake up the market. The US firm, which primarily sells networking equipment, has firmly cast its eyes on dominating the entire data centre space with its unified computing systems. This combines computing, storage, virtualization and networking in a single package for customers.

Gartner’s Mishra says Cisco has started challenging the established players with its offering, though “Cisco’s entry is unlikely to have any direct impact in the short term. But if they aggressively do product-positioning, they may gain some market share in the medium term."

As for Sun Microsystems, the company has been the biggest loser the past year with its overall server market share declining to 11.7% from 14.5% previously. Even in its traditionally strong suite of Unix-based servers, it ceded the number two position to HP. However, with Oracle acquiring Sun recently, the company is expected to mount a fresh challenge to regain some of the market share it has lost.

“We are very strong specially in the non-x86 (non-entry level) segment of the server market. We might have lost a few deals but Sun has a very strong installed base in sectors like telecom and BFSI," said K.P. Unnikrishnan, marketing director at Sun Microsystems India. “I am sure that whatever fluctuation in the market shares will be eventually regained."

Besides, the acquisition by Oracle is expected to set at rest any customer apprehension on Sun’s technology roadmap and financial strength. “Let me make it clear we haven’t lost a single deal because of finance-related issues. Customers are comfortable with what Sun has been doing," Unnikrishnan said. He refused to comment on the impact of the acquisition.

With souped up personal computers performing several of the tasks that earlier only a server could do, the pricing at the entry level x86 market as well as competition has intensified. “The competition is most intense in this segment as customers realize that what earlier only a mid-range server could do, today with improved computing abilities an entry level server could do as well," said S. Rajendran, chief marketing officer of Acer India Pvt. Ltd.

Lenovo, too, entered the Indian server market recently, but Gartner’s Mishra doesn’t see much competition from the company. “Lenovo is still a smaller player in the market. Given the barriers to entry are quite high in the segment they are trying to penetrate, (but) we don’t see Lenovo having any significant footprint."

Indian vendors such as HCL and Wipro, too, have been aggressive in this space. Wipro, which has improved its market share significantly, says that being one of the largest system integrators in the Indian market has helped the firm.

Ashok Tripathy, general manager and head, Wipro personal computing division, says, “What sets Wipro apart is our deep understanding of the Indian market."

Graphics by Ahmed Raza Khan / Mint

Lison Joseph contributed to this story.

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