Will virtualisation hurt hardware sales?

At the beginning of 2007, market analysts were predicting a significant slowdown in the growth of industry standard server sales. The argument was largely based on efficiencies - server consolidation has been one of the biggest trends of the year, with virtualisation greatly increasing the utilisation of hardware. It stood to reason that these trends would impact hardware sales but, to date, the results have been surprising.

HP ESS business development manager, Matthew McKenna, said it had seen robust growth in server sales despite market trends forecasting otherwise. While some of this was because it had gained share from rivals, the market had also been more buoyant than predicted thanks in no small part to a healthy local economy and increased reliance on technology.

"The blade business has accelerated more quickly than expected because virtualisation is driving a new cycle of upgrades. The strongest proof point is that customers who have dipped their toe in the water have come back and bought again," he said. "That suggests the value proposition stacks up but not all customers have followed that lead and one of HP's biggest targets is to move blades into storage and mid-range computing."

While blades are gradually increasing their share of overall server sales, a couple of round table attendees noted that the majority of smaller resellers were still selling traditional rack-mounted units in what was still a very buoyant market. And although virtualisation has been the biggest market noise of the year, only a small percentage of shipped servers are using it. But as virtualisation becomes more pervasive, will it eventually have a major impact on hardware sales? Ethan Group's strategic sales manager, Antony Flutey, thinks not.

"The Australian market is made up mostly of small organisations on the world stage and they are not going to buy blades or virtualise unless they are buying a service from a provider. Otherwise they will buy pizza boxes or towers because they really don't care," he said. "Users want access to file access, printing and applications but they don't care how they get it. It's just about making sure it works. The pizza box won't be diminished significantly in Australia by blades."