Inventory glut is choking US server growth, causing a weak first quarter that the rest of the year will fail to put right.
Over-estimated demand by PC server vendors during the fourth quarter led to bloated channels and an 11 per cent decline in shipments in the first quarter of 1998, compared to Q4, according to Amir Ahari, senior research analyst at IDC. He said that both Compaq and IBM lost market share in the first quarter, forcing them to cut prices to stimulate demand.
Ahari, author of IDC's '1Q98 PC Server Results', said: "We believe these price cuts have a far reaching impact beyond simply clearing inventory and will inevitably lead to a shake-out of weaker players who are not diversified or efficient enough to weather out the current situation."
Worldwide, the weak first quarter translated into an annual shipment growth rate of 28 per cent, the weakest growth for three years, amounting to only 491,000 PC server shipments. Ahari added that the Asia/Pacific market, slow European sales, and first quarter seasonality all played a role in the decline.
Despite the weak first quarter, IDC anticipates strong worldwide PC server demand for the second half of 1998 - but not enough to rescue the vendors from growth decline for the year as a whole. Shipment growth is expected to be around 22 per cent up on 1997, way down on last year's 41 per cent increase.
The inventory glut led to first quarter US PC server shipments of 176,675, down from 198,620, and vendors reacted by cutting PC server prices, transferring excess inventory into other regions and reviving aggressive channel assembled PC server programes. IDC believes these new channel assembly programs will offer end users better configuration options rather than better inventory accountability.
Only Japan bucked the worldwide trend, posting 14 per cent sequential quarterly shipment growth rate, and IDC says the main factors were good NT adoption levels and a strong US currency. Average system values fell by 10 per cent, and both Compaq and IBM felt the pressure.
IDC calculates that Compaq's first quarter worldwide market share declined to 29.7 per cent from 31.5 per cent last quarter. It still holds a 15.3 point lead over HP and a 19 point lead over IBM, which was hit badly with sequential quarterly shipments declining by 35 per cent.
Ahari commented that the top three players are better positioned than smaller or less diversified vendors, but he still expects a radical shake-up of the sector.
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