TBR's Computing Business Quarterly Research Highlights and Outlook

transcript

TECHNOLOGY BUSINESS RESEARCH, INC.

TBR’s Computing Business QuarterlySM

Research Highlights and OutlookTechnology Business Research (TBR) Quarterly Webinar Series

Nov. 13, 2013

Christian Perry, Senior Analyst, Data Centers

Twitter: @ITwriterEmail: christian.perry@tbri.com

Computing Business Quarterly Research Highlights and 2013 Outlook: Webinar Presenter

Coverage and focus areas:• Data center ecosystems• Servers: x86, proprietary (UNIX/mainframe),

microservers• Storage: SAN, NAS, flash, object• Converged infrastructure/integrated systems• Private/hybrid cloud• High-performance computing/hyperscale

Krista Macomber, Analyst

Twitter: @klmacomberEmail: krista.macomber@tbri.com

• Data Center Landscape Overviewo Server consumption behaviors,

hyperscale, commoditization

• Data Center Benchmarko Customers are approaching workloads

from a tiered perspective, impacting vendor portfolio decisions.

o Storage vendors are working to exploit opportunities in the midmarket.

o SDN will be a critical piece of the network landscape.

CBQ 2Q13 Research Highlights and Outlook: Agenda

TBR Data Center Benchmark Vendors:

BrocadeBullCiscoDellEMCFujitsuHDSHPHuaweiIBMJuniperNECNetAppOracleQuantumUnisys

Data center customers are changing their consumption habits ashardware technologies evolve

Data Center Trends

Server vendors that accommodate the evolving workload tiers are well positioned for success

Server

Inexpensive, open x86 platforms

Traditional x86 servers

MainframesScale-up /Converged

Scale-out /Hyperscale

UNIX servers

Microservers

Processor utilization and memory-intensive workloads

(ERP, transaction processing, etc.)

High-volume workloads requiring low but scalable

compute performance (Web hosting, Hadoop queries, etc.)

Server vendors are creating portfolio hierarchies to meet customer demand for workload optimization

Data Center Trends

Hyperscale Server Growth

2012$2 billion

640,000 units

13% Revenue CAGR

15% Unit CAGR

2015$3 billion

970,000 units

DATA SOURCE: TBR ESTIMATES

Demand for cloud, simplicity and flexibility will feed scale-out opportunities and disrupt the traditional x86 market

Data Center Trends

SOURCE: TBR ESTIMATESSOURCE: TBR ESTIMATES

)The nascent hyperscale market sparks marketwide implications as ODMs seal large deals and OEMs vie for remaining share

CBQ 2Q13 Research Highlights and 2013 Outlook

Data Center Vendor Trends for 2013

Vendors are focusing on the midmarket, where customers are increasingly adopting enterprise-class technologies designed for smaller environments.

The data center industry faces commoditization as system functionality continues to shift from hardware to software, which is working to dampen margins.

Customers are changing their approaches to infrastructure due to new cloud opportunities. Vendors are responding by shifting to solutions-based portfolios.

Data center revenue will continue to grow slowly, as hyperscale buildouts generate sales opportunities but dampen ASPs

CBQ 2Q13 Research Highlights and 2013 Outlook: The Data Center Landscape

• Data center revenue, including servers, storage and networking, declined 3.3% year-to-year and increased 1.6% sequentially. Storage was the only product segment to decline sequentially, dipping 5.8% (-4.3% year-to-year) due to weak enterprise demand and aggressive midmarket competition. • Data center gross margin of 43.4% declined 70 basis points sequentially and 110 basis points

year-to-year, driven by commoditized and industry-standard hardware.

Hardware profitability declined year-to-year in the data center industry due to pricing pressures and increased commoditization

Microservers represent a growing opportunity for server vendors, as they will have the ability to bring viable new offerings to the marketplace that are honed to customers’ specific workload requirements.

CBQ 2Q13 Research Highlights and 2013 Outlook: x86 Server

x86 Server Vendor Trends for 2013

The traditional x86 server market will remain in flux through 2015, as customers evaluate their compute requirements on a hierarchical basis.

The x86 server hardware market has become highly competitive, particularly when factoring increasing customer migration of workloads to public cloud alternatives, such as Amazon EC2.

Expanding up and downstream, x86 architecture allows OEMs to compete more aggressively around innovation and value

CBQ 2Q13 Research Highlights and 2013 Outlook: x86 Server

*Revenue base includes only the vendors in the above graph.

Average x86 server revenue growth improved in 2Q13 due to increased use of x86 servers for workloads that traditionally required higher-priced proprietary systems

Despite the ongoing migration of workloads from proprietary servers, average x86 revenue declined in 2Q13 due to intense competition

Customers’ highly complex legacy applications, which require leading reliability and performance, will enable mainframe vendors to avoid the exponential declines plaguing the UNIX market.

CBQ 2Q13 Research Highlights and 2013 Outlook: Proprietary Server

IBM is investing heavily in Linux-on-Power innovations to accommodate increasing customer adoption of Linux-based technologies. This move will help IBM stem double-digit declines to its Power business.

Proprietary Server Vendor Trends for 2013

Although in-memory database technologies are more expensive than traditional, both IBM and Oracle highlight them as necessary to speed important business insights.

Mainframe and UNIX server vendors work closely with customers on specific workload requirements to solidify their value propositions

CBQ 2Q13 Research Highlights and 2013 Outlook: Proprietary Server

TBR expects UNIX demand will continue to fall, while mainframe demand will remain approximately flat through 2015 due to mission-critical workloads requiring greater reliability and performance than x86 servers offer

The proprietary server market continues to decline and consolidate as customers migrate workloads from UNIX to x86 servers

Vendors are increasingly looking to the midmarket for growth opportunities. For example, EMC continues to invest in its VNX platform, using flash as a differentiator.

CBQ 2Q13 Research Highlights and 2013 Outlook: Storage

Storage Vendor Trends for 2013

Leveraging flash storage technologies to accelerate workload performance is an important area of focus within the data center market, as shown by Cisco’s planned acquisition of solid-state memory system vendor Whiptail, announced in September.

The software-defined data center trend is having a growing impact on the storage market, where vendors are working to provide customers with more options for managing their storage.

Flash continues to disrupt the storage market as customers look for more options to improve workload efficiency

CBQ 2Q13 Research Highlights and 2013 Outlook: Storage

Growing competition in the midmarket, limited enterprise budgets and the emergence of software-defined storage trends are pressuring the storage hardware market

Weak large enterprise spend and strong midmarket competition drove down storage hardware revenue year-to-year in 2Q13

The OpenDaylight Project aims to drive collaboration between leading vendors around SDN, but fierce competition remains due to robust long-term growth opportunities.

CBQ 2Q13 Research Highlights and 2013 Outlook: Data Center Networking

Data Center Networking Trends for 2013

The networking layer has become a bottleneck to availability and a barrier to continuous uptime, rendering the data center market ripe for introduction and adoption of software-defined networking technologies.

TBR considers SDN part of the post-cloud transition, the next step in IT evolution for customers that want the flexibility and efficiency of cloud but are unable to transition their workloads due to security or regulatory concerns.

Networking vendors compete for software and services presence to foster and protect long-term relationships with customers

CBQ 2Q13 Research Highlights and 2013 Outlook: Data Center Networking

Switching and routing revenue leaders Cisco, HP and Juniper will drive hardware demand by increasing focus on end-to-end networking capabilities

HPHuawei

Oracle

BrocadeJuniper

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Networking Revenue Year-to-Year Change

2Q13 NETWORKING REVENUE GROWTH VS. DATA CENTER GROSS MARGIN TBR

NOTE: SPHERE SIZE REFLECTS VOLUME OF REVENUE.SOURCE: TBR ESTIMATES AND COMPANY DATA

Networking was the only segment to record year-to-year growth due to vendors’ increased focus on end-to-end networking capabilities

Opportunities around public and private cloud deployments are becoming more specific.

Quarterly Topics

Vendors are battling for leadership as the nascent but disruptive converged infrastructure market takes shape and takes off.

CBQ 2Q13 Research Highlights and Outlook: Next Quarter Syndicated Topics

Data center ecosystems are morphing into workload-defined shapes that dictate customer purchase and deployment decisions

The software-defined data center continues to gain momentum in the market.

For additional information, please contact:

John Spooner James McIlroyDirector, Computing Practice Vice President of Salesjohn.spooner@tbri.com mcilroy@tbri.com

Technology Business Research, Inc.Hampton, N.H.Twitter: @TBRincSlideShare: www.slideshare.net/tbr_market_insightYouTube: www.youtube.com/user/TBRIChannelLinkedIn: www.linkedin.com/company/technology-business-research

CBQ 2Q13 Research Highlights and Outlook: Q & A

Questions?

Christian PerrySenior Analyst — Data Centers Computing Practice

Twitter: @ITwriterEmail: christian.perry@tbri.com

Krista MacomberAnalyst

Twitter: @klmacomberEmail: krista.macomber@tbri.com

Thank you, and see you next quarter!www.tbri.com

@TBRinc

TECHNOLOGY BUSINESS RESEARCH, INC.

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