cranks out more sales from Linux hardware than anybody else -- a prized claim to one of the few hot spots of a sluggish server market.
The big question going forward is whether that lead can hold up amid fierce ankle-biting from
, a powerhouse in commodity servers, and
, with its deep pockets and massive research investment in Linux.
It's a strategic question worth asking given Linux sales jumped 35% in the first quarter, while the overall server market slumped nearly 4%, according to IDC. Faced with tight budgets, more corporate hardware buyers are choosing Linux, the so-called open source operating system that typically runs on
-based hardware, over the conventional Unix systems running on proprietary hardware from IBM or H-P.
Though the latest results show H-P held the top spot in Linux revenues by a comfortable margin, it's seen its portion of the pie shrink over the last year -- mostly because after its merger with Compaq, it shuttered the H-P line of servers and kept only the Compaq line.
Meanwhile, both Dell and IBM upped their share of the Linux market.
To be sure, some analysts caution against reading too much into the latest share numbers. "I think it's too early to say H-P's squeezed by IBM and Dell," says Robert Cihra, an analyst at Fulcrum Global Partners.
Though H-P has been losing share to Dell, that partly reflects the fact that Compaq had a big chunk of the market to lose, having pretty much invented the Intel-based server over a decade ago, he says. "I think H-P has a good shot of really benefiting from Linux because H-P via Compaq is such a big name in Intel servers," Cihra concludes. Fulcrum does no banking.
More than 90% of unit shipments of Linux are based on Intel platforms, according to IDC.
While H-P currently enjoys a sizeable lead in the business, the move to Linux also has a significant disadvantage. Sales of cheap Linux boxes are gradually supplanting sales of H-P's proprietary Unix servers. The same holds true for IBM, which now offers Linux on all its servers, from low-end all the way to mainframes.
"With a company like an IBM or H-P, they can benefit from Linux by selling Intel servers, but they're losing, to a certain extent, that sale from their Unix business," explains Cihra. "So they're trading higher-priced, higher-margin servers for lower-priced, lower-margin servers rather than lose to Dell."
Dell -- always the exception to the rule in the hardware business -- is the only player that doesn't see any downside from the move to Linux since it doesn't sell any proprietary systems. That helps to explain why its market share in Linux revenue grew nearly 8% year on year in the first quarter.
But while Dell claims the most momentum in Linux, IBM gets more attention because it's such a vocal backer of the move to Linux. A few years ago, notes Bill Claybrook of the Aberdeen Group, IBM pledged to invest $1 billion in Linux, plumbing the potential of areas like clustering and grid computing.
Big Blue's Linux Bet
Big Blue has woven Linux across all four of its server lines, from Intel-based boxes all the way up to mainframes. "Having Linux on all types of servers allows them to bring in more Web functionality," explains Jean Bozman, research vice president in the server group at IDC. "Some
developers are writing to Linux, creating Linux applications. So if you support Linux on your servers, you're getting more applications for them."
But to a company like IBM, accustomed to gloating about its in-house tech advances, Linux imposes a wholly new, and unwelcome, burden. Essentially, it has to release any changes it wants to make in Linux code into the public domain. "The problem is getting all the development work done and through the open source community and having it accepted, and once you've done all that work, you give it away to everybody else out there," says Steve Josselyn, a research director in enterprise server fundamentals at IDC.
Still, IBM doesn't really have a choice but to give customers the cheaper servers they want. Though it's currently in third place measured solely on Linux hardware, its huge software and services business endow it with significant money-making potential in other areas.
"If you include not just hardware, but also middleware and services as being generated by Linux, then I think IBM over the long haul might be the winner," offers Claybrook. "Just because they are emphasizing Linux so much and middleware is fairly expensive in some cases, it's very conceivable that as it rolls out on the enterprise more, they will start catching up in terms of revenue."
Even as the fight among H-P, IBM and Dell gears up, it's worth noting that Linux remains a pipsqueak among operating system giants like Windows and Unix, accounting for a mere 5.5% of the server market in the first quarter.
Linux is forecast to grow to more than a $6 billion server market by 2007, compared to $2 billion today, according to IDC. "But the overall market by that time will be between $50 billion and $60 billion," points out Bozman. "So the point is, yes, it's rapidly growing, but it doesn't eclipse other operating systems. Unix and Windows systems will still be sold; mainframes will still be sold."
Still, with Linux bound to force down profit margins in servers, hardware jockeys will likely grow even more competitive in the existing market. As it becomes tougher to convincingly compete on technology -- given that no one owns Linux -- they'll have to compete on price and sales volume.
"I think in a couple of years you will see competition among H-P, IBM, Dell and
that is going to be so incredible, so much more than RISC Unix ever was," says Claybrook. "Everybody's going to be trying to make money with Linux and it will be that much harder to do because you're not locked into a hardware or operating system."