INDUSTRY

IDC's preliminary analysis indicates the high-performance and technical computing (HPTC) market grew about 23% in 2005 to reach a record $9.1 billion in revenue. This is the third consecutive year of 20%-plus growth in this market. IDC's analysis is based on actual revenue for the first three quarters of 2005 and preliminary revenue estimates for the fourth quarter. The 2005 preliminary results revealed several significant market trends: - The technical server market grew by 50% for the two-year period 2002-2004 and grew by 33% from 2003 to 2004 alone. - Market growth in 2005 was driven by capacity computing segments, which include systems with average selling prices from less than $50,000 to $1 million. The high-end capability and enterprise segments showed slight declines. - Cluster market share continued to show explosive growth and represented close to 50% of the HPTC market by the third quarter of 2005. "HPTC systems vendors and their partners should consider their 2005 progress in light of the overall market growth, and they should continue to evaluate what role clustering will play in their current and future solutions," according to Dr. Earl Joseph, IDC's research vice president for High Performance Systems. SITUATION OVERVIEW IDC said the HPTC technical server market continues to see strong growth as scientists and engineers continue to expand their requirements for technical servers, especially standards-based clustered servers. Growth is driven by both purchases by traditional user sites and by new users able to make use if this technology as improvements in both absolute performance and price/performance bring the new capabilities within their reach. According to Dr. Chris Willard, IDC research vice president for High Performance Systems, "Although two quarters of data do not make a trend, the resumption of strong year-over-year growth rates in Q2 and Q3 of 2005, combined with expectations for continued strength in Q4, drive our assumption for continued year-over-year revenue increases. We see the last several quarters of market data as pointing to a strong underlying growth pattern even if it natural market variability favors individual quarters," Willard said. "Short-term drivers may include such economic/geo-political factors as strengthening economies, world demand for petroleum, increased competitive requirements for product design, and increasing requirements in national security segments. At a more basic level, we believe that computational tools are continually growing in importance as vehicles for scientific discovery and engineering design. "Cluster revenue through the first three quarters of 2005 exceeded the total for the previous full year. Year-over-year quarterly growth for clusters has been in the high 60% to low 90% range since the first quarter of 2004. The third quarter of 2005 saw the lowest year-over-year growth rate since Q302: "only" 67.3%. IDC believes that technical users are looking to clusters as the underlying technology for acquiring and managing their base computational resources. Although non-clustered solutions are still expected to account for about half the market in 2005, cluster based systems clearly are driving growth and are expected to dominate the market within the next few years," according to Willard. The capability segment is expected to capture just under $900 million in 2005, and like the enterprise segment it is projected to show a slight decline for the full year. The lower-priced capacity segments continued to generate all the growth. The capacity segments include the divisional segment (systems priced $250,000 to $1 million servers), the departmental segment (systems priced $50,000 to $250,000), and the workgroup segment (servers under $50,000). Essential Guidance IDC urges vendors of HPTC systems and solutions to consider their own results for calendar year 2005 in the context of overall market growth. The growth rate in 2005 exceeds that which could still be attributed to "catch-up" or "bounce-back" from the technical recession years in 2001 and 2002, and reflects a real increase in demand for HPTC solutions. IDC believes that the growth has been fueled by lower entry price points for HPTC systems with significant levels of performance. This has both broadened the user base and increased usage within existing accounts. To capitalize on this growth, vendors must ensure that their product lines keep up with the price/performance expectations of the user base. More critical to vendors, however, is the notion of maintaining differentiation in a market that is increasingly trending toward commoditization. Increased revenues do not always result in increased profitability, and IDC expects there to be ongoing price pressure in the market, especially with younger entrants in the clustering space now gaining a firm toehold. Although IDC expects the HPTC market will remain strong, double-digit growth rates will not likely continue over the long term, and as growth slackens, competition over existing installations will increase, further stressing the price/performance competition. Vendors should focus on two points. First, they must strive to differentiate their products in order to capture added value in the sale. This differentiation should relate directly to end-user productivity whenever possible, and vendors should particularly be on the lookout for new technologies that will enhance user capabilities. Second, vendors must strive to lower their cost structures internally, which would provide extraordinary competitive advantage. HPTC users should expect their options to increase in terms of the number of vendors offering solutions; however, they must consider whether they are interested only in driving down price. Many vendors will offer optimizations at premiums, and when feasible, users should strive to adopt technologies that will not only improve their own productivity but also advance the state of the industry.