Virtualization Continues to See Strong Growth in Second Quarter

According to IDC’s Worldwide Quarterly Server Virtualization Tracker, worldwide virtualization license shipments in the second quarter of 2008 (2Q08) increased 53% year over year, compared to a 72% year-over-year increase the previous quarter. The x86 server market led the way with 60% year-over-year growth followed by the EPIC server market with 18% growth. Worldwide CISC and RISC server virtualization licenses declined 15% and 7% year over year, respectively.

“Quarterly totals of x86 server virtualization licenses continue to experience healthy growth, although the growth rates have slowed over the last four quarters. The modest decline in growth rates indicates that the market is showing early signs of maturation,” said Brett Waldman, research analyst for System Software at IDC. “Based on our conversations with end users, IDC believes that the high-volume consolidation opportunities – the low hanging fruit in the x86 server virtualization market – is starting to dry up. This is, in turn, resulting in smaller deals overall.”

“The virtualization platform providers are going to have to adapt their go-to-market strategies to this ever-changing dynamic, as new growth opportunities open up around new deployment of virtualized servers not specifically targeted at consolidation, and at new customer segments such as midsized companies,” Waldman added.

Worldwide new server shipments virtualized increased 52% year over year in the second quarter, compared to 70% growth in 1Q08.
Worldwide virtualization software revenue grew 15% year over year in 2Q08, compared to 32% growth in the first quarter of 2008. The growth in virtualization software revenue primarily came from the x86 server market, which grew 39% year over year. EPIC virtualization software revenue also increased year over year, albeit at a slower pace of 9%.

Overall New Server Shipments Virtualized Market Standings, by Vendor

Hewlett-Packard held onto its number 1 spot for worldwide new server shipments virtualized with 34% market share and 52% year-over-year growth. This growth was driven by a solid performance in sales of Intel-based processors. Dell solidified its position as the number 2 vendor with its market share growing from 25% in 1Q08 to 29% in the second quarter, powered by 110% year-over-year growth. Dell’s strong performance was driven by solid growth of Intel-based processors and a very strong performance from AMD-based sales. IBM remained in the third position with 16% market share. IBM achieved 32% year-over-year growth driven by a solid performance from its Power Systems servers. This was the first quarter in the last year in which IBM saw positive growth in its new RISC-based server shipments virtualized.

x86 Virtualization License Market Standings, by Virtualization Platform

VMware grew its x86 server virtualization software business 27% year over year and maintained the number 1 position in the market with 78% revenue share in 2Q08. When looking at new x86 virtualization licenses, VMware continues to hold on to its strong position in the x86 market with a combined market share of VMware ESX and VMware Server at 44%. However, in its first quarter of general availability Microsoft Hyper-V delivered a strong showing, and when combined with Virtual Server 2005, Microsoft’s market share is 23% of new shipments.

IDC’s Server Virtualization Taxonomy

Virtualization licenses represents the amount of virtualization platform shipments for a given vendor in a given quarter. New server shipments virtualized maps the amount of virtualization platforms shipments that are sold directly by the hardware vendors. Virtualized server revenue represents the hardware revenue of new server shipments virtualized. Virtualization software revenue represents the software revenue associated with virtualization platform sales.