Surprise! Virtualization hurts server sales after all

Virtualization vendors would like you to believe that software that allows you to run more applications on one server actually helps server sales.

The argument, which I heard from a few analysts and VMware after I questioned that logic here and here, goes like this:

Virtualization means you'll upgrade servers. And these servers will have more bells and whistles with higher selling prices. Basically, server vendors would like you to believe they will sell fewer but pricier models. That's why server and virtualization companies are good partners. 

Maybe I'm a little thick headed (actually a lot of thick headed) but I still couldn't follow the logic even after a conference call with VMware about the topic. Sure server sales may go up initially, but after that spurt it's a downward spiral.

Luckily, IDC is giving me a little support on my theory. Stephen Shankland reports:

IDC on Tuesday lopped 4.5 million units off its forecast for the number of x86 servers to ship in the second half of the decade after concluding that virtualization and multicore processors are cutting into purchases.

That 4.5 million number is a major change--about 10 percent of the servers the market analysis firm had expected would be sold from 2006 to 2010. In addition, the firm trimmed its spending forecast by $2.4 billion. "Overall, x86 (server) shipments that were once projected to increase 61 percent by 2010 are now facing just 39 percent growth during that same period," IDC said.

The reason for the change is that customers are buying fewer, more powerful systems, IDC argued. 

Go figure. CIOs are actually using virtualization to cut their hardware spend.  Who knew?