Strong US Dollar Impacts EMEA Server Market

European countries and the global economy will be bracing for some uncertainty with the strong U.S. dollar. This will be felt within IT purchases in Europe, and is expected to influence buyer behavior. Gartner claims that the current situation has reduced the spending power of CIOs in Western Europe. The amount of shipments and investment in server equipment is expected to change accordingly.

State of the Server Market

In anticipation of the price hikes and exchange rate inflation, CIOs are considering plans for investment into server equipment sooner rather than later. According to Gartner, there was an increase of 8 percent from Q1 to Q2 in 2014 in server shipments with revenue growth of 7.2 percent. Global server shipments show a decrease in year-on-year growth from Q1 to Q2. From 2013 to 2014, Risc/Unix shipments have fallen by 17 percent.

Spending habits are changing even though server growth is noted in server shipments in Q2. Jeffrey Hewitt, research vice-president at Gartner, stated:

“Currency exchange rates have started to show their impact by reducing relative spending power in regions like Western Europe…It is likely that, in anticipation of further currency rate shifts, some organisations utilized their budgets earlier in the year rather than waiting until the third or fourth quarters – when their purchasing power may be further reduced by these relative currency changes.”

In Q2, the Emea region has seen server shipments fall off by 5.6 percent and a 2.3 percent decline in revenue growth. Research director at Gartner, Adrian O’Connell said, “Ongoing economic pressures and currency-driven price increases from the strong U.S. dollar combined to offset the server replacement cycle in EMEA.”

Effect on Lenovo

The popular x86 systems are the primary reason considered for the growth in server shipments. IBM believes that the System z mainframe is the best value server platform, when appealing to cost; however, commodity x86 server hardware has a low purchase price point and IT departments are choosing to develop and run applications on x86 systems instead of selecting the System z mainframe. Head of IBM’s system division, Tom Rosamilla, said,

“You can’t look at the peaks and valley; you have to look at what the installed base is doing, because when they are refreshing, they are buying. But it does not mean they are de-installing mainframes when they are not buying; it just means they are happy with what they have.”

According to Rosamilla, people are waiting for the new mainframe to become available, on average every 10th quarter, and will refresh then. Though IBM may not be benefiting as much as they would like during the current period, with revenue down 26 percent for the System z mainframe server products, the x86 technology is frequently being integrated within server systems.

Lenovo has acquired IBMs x86 unit and has seen substantial positive growth. When acquired in 2014, Lenovo’s chairman and chief executive, Yang Yuanqing, released this statement:

“This acquisition demonstrates our willingness to invest in businesses that can help fuel profitable growth and extend our PC Plus strategy. With the right strategy, great execution, continued innovation, and a clear commitment to the x86 industry, we are confident that we can grow this business successfully for the long-term, just as we have done with our PC business.”

The $2.3 billion purchase appears to have been the right choice for Lenovo. Lenovo tallied up their revenue growth at 526.5 precent during Q2. Lenovo is doing particularly well in Europe, Middle East and Africa, according to Misco News. Lenovo now has 10 percent of the market. It helped that sales rose 12,000 percent annually after Lenovo’s purchase. HP maintains dominance with a 25.2 percent share of the global server market.

The server market is anticipating a slow-down with the strong U.S. dollar but CIOs appear to be buying early or possibly waiting for the next refresh cycle to make a new purchase. Among these IT department heads and CIOs, the x86 server line with Intel and AMD microprocessors seem to be a popular purchasing choice. However, the International Data Corporation warns of currency fluctuations and the impact on SMB. Stay tuned to see if forecasts and trends change in the next quarter.