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Server virtualization demand and deployments are strong and will remain so for the remainder of 2009 and through 2010, despite the ongoing economic downturn.

The results of the new, independent ITIC 2009 Global Server Virtualization Survey, which polled more than 700 corporations worldwide during May/June and August, reveal that server virtualization deployments have remained strong throughout the ongoing 2009 economic downturn. It also shows that the three market leaders Citrix, Microsoft and VMware, are consolidating their positions even as the virtualization arena itself consolidates through mergers, acquisitions and partnerships.

Microsoft in particular has made big year-over-year gains in deployments and market share. Thanks to the summer release of the new Hyper-V 2.0 with live migration capabilities  the Redmond, Washington software firm has substantially closed the feature/performance gap between itself and VMware’s ESX Server.  The technical advances of Hyper-V combined with the excellent conditions of Microsoft’s licensing program, make the company’s virtualization products very competitive and alluring. Three out of five — 59% of the survey respondents — indicated their intent to deploy Hyper-V 2.0 within the next 12 to 18 months.

Survey responses also show a groundswell of support for application and desktop virtualization deployments. These two market segments constitute a much smaller niche of deployments and installations compared to virtualized server environments. The survey results show that application virtualization (where Microsoft is the market leader) and desktop virtualization (in which Citrix is the market leader), are both poised for significant growth in the 2010 timeframe.

Another key survey revelation was that 40% of respondents, especially businesses with 500 or more end users, said they either have or plan to install virtualization products from multiple vendors. This will place more emphasis and importance on integration, interoperability, management and third-party add-on tools to support these more complex, heterogeneous virtualization environments.

Among the other key survey highlights:

  • The “Big Three,” Citrix, Microsoft and VMware, are bolstering their positions with a slew of new offerings and a plethora of partnerships due out in the 2009 summer and fall.
  • Partnerships and Alliances: The alliance between Citrix and Microsoft remains robust as these two firms believe that there’s strength in numbers, as they mount a challenge to server virtualization leader VMware’s continuing dominance.
  • Microsoft Hyper-V Closes the Gap: Microsoft made big year-over-year market share gains from 2008 to 2009. The survey data shows current Hyper-V usage at 32%; but 59% plan to adopt in next 12 to 18 months.
  • VMware remains the market leader in server virtualization with approximately 50% share among enterprise users; Microsoft follows with 26% share.
  • Microsoft is the current market leader in application virtualization with a 15% share; followed by Citrix with 11% and VMware with 7%. However, nearly two-thirds of businesses have not yet deployed application virtualization.
  • Citrix is the market leader in desktop virtualization with a 19% market share followed by Microsoft with 15% and VMware with 8%. But again, over 60% of corporations have not yet begun to virtualize their desktop environments.
  • Mergers and Acquisitions Raise Questions: There is confusion among the legacy Sun and Virtual Iron users as to what will happen to both the product lines and technical support in the wake of both firms’ acquisition by Oracle.
  • Apple Mac is a popular virtualization platform; nearly 30% of respondents said they use Mac hardware in conjunction with Windows operating systems to virtualize their server and desktop environments.
  • Parallels and VMware Fusion are the two leading Mac virtualization vendors with a near 50/50 split market share.
  • Time to Bargain: Despite budget cuts and reduced resources only a very small percentage of companies — 7% — have attempted to renegotiate their virtualization licensing contracts to get lower prices and better deals.
  • Server Virtualization Lowers TCO: Almost 50% of survey respondents reported that server virtualization lets them lower their total cost of ownership (TCO) and achieve faster return on investment (ROI); however, only 25% of businesses could quantify the actual monetary cost savings
  • Users Prefer Terra Firma Virtualization to Cloud: Users are moving slowly with respect to public cloud computing migrations, which are heavily dependent on virtualization technology. To date, only 14% of survey respondents said they will move their data to a virtualized public cloud within the next six-to-12 months.

This survey identifies the trends that propel or impede server, application and desktop virtualization deployments and to elucidate the timeframes in which corporations plan to virtualize their environments. ITIC advises all businesses, irrespective of size or vertical market to conduct due diligence to determine which virtualization solution or combination of products best meets their technical and business needs in advance of any migration. And in light of the ongoing economic downturn, businesses are well advised to negotiate hard with their vendors for the best deals and to ensure that the appropriate IT managers receive the necessary training and certification to ensure a smooth, trouble-free virtualization upgrade. This will enable the business to lower TCO, accelerate ROI and minimize and mitigate risk to an acceptable level.

The high technology earnings reports from the major vendors over the last several weeks have been decidedly mixed. Some companies notably beat expectations while other bellwether firms’ financials exhibited significant weaknesses.

Apple, IBM and Intel earnings were all in positive territory, beating Wall Street forecasts. On the opposite end of the spectrum, Advanced Micro Devices, Microsoft, Sun Microsystems (recently acquired by Oracle) and Yahoo all posted disappointing – albeit not totally unexpected – declining numbers.

Overall, the latest financial reports provide an interesting perspective on trends in the high technology sector for the remainder of 2009 and into 2010. The consumer sector led by Apple appears robust, while PC sales and the business software sector as evidenced by the contraction and sluggishness in Microsoft’s Windows and Office are weak. That softness will likely persist for the remainder of calendar 2009.

Apple was the biggest winner by far and the brightest star in the high technology firmament.

Apple financials beat all analysts’ expectations. For the 2009 third fiscal quarter ended June 30, Apple posted quarterly revenue of $8.34 billion and net profit of $1.23 billion; that’s a 12% year-over-year earnings increase and the strongest of any June quarter in Apple’s history, the company said. Apple’s strength was evident across the majority of its product segments. iPod sales remained brisk with 10.2 million sold in the just ended quarter, although that is an approximately eight percent decline from 11 million sold during the June 2008 third quarter. Apple and Wall Street analysts attributed the decrease to cannibalization by iPhone sales. However, iPod touch unit sales grew 130% from last year.

Apple sold 2.6 million Macs – a 4% unit increase from the year-ago quarter. Apple’s gross margin was 36.3%, up from 24.8% in the year-ago quarter. Apple also exhibited extremely good diversification, with international sales contributing to 44% of third quarter revenue.

IBM also posted earnings that surpassed Wall Street forecasts and that in turn, lifted Big Blue’s 2009 full-year profit forecast. IBM net earnings increased 12% to $3.1 billion, or $2.32 per share; that easily bested financial analysts’ per-share prediction of $2.02. IBM also got a boost from its ongoing cost cutting measures which helped to lift profits. However, IBM sales declined by 13% to $23.25 billion. In a published statement IBM said it expects to save $3.5 billion in cost cutting measures for 2009; that’s $500 million more this year than it had anticipated.

Intel’s third quarter financials offered a mixed picture. The world’s number one chipmaker had sales of $8.4 billion for the quarter even as it recorded a second-quarter net loss of $398 million, or 7 cents a share, compared to the $1.6 billion and 28 cents a share that Intel earned during the same period in 2008. This was Intel’s first quarterly loss since 1986. The red ink was attributable to charges associated with the $1.45 billion fine levied by the European Commission. In May the EC ruled that Intel abused its market position to cut its chief rival, AMD out of the European market. Intel said it will appeal, but meanwhile, the fines stand.

Intel’s better than expected sales figures buoyed analysts and industry observers because it occurred in spite of sluggish PC sales. One very encouraging note for Intel’s immediate and intermediate term is that its entry level Atom chip, which is used in the burgeoning Netbook minis, is not siphoning off Celeron processor revenues. The Celeron processors are used in the more inexpensive notebooks and there was some fear that the Atom chips would cannibalize a significant amount of Celeron revenue. Meanwhile, revenue from Atom processors and chipsets rose 65 percent from the 2009 first quarter to $362 million.

At the same time, the high tech sector suffered a blow when Microsoft announced the first annual sales loss in the company’s 34-year history. The news was not unexpected, still it cast a pall since Microsoft, the world’s number one software maker is an industry barometer.

For its fiscal fourth quarter ended June 30, Microsoft profits plunged 29 percent to $3.05 billion from the same quarter in 2008. Sales similarly declined by 17 percent during the fourth quarter to $13.10 billion. Microsoft said its poor fourth quarter numbers were attributable to the continuing weakness in the PC and server markets as well as the smaller software licensing fees it collects from the Netbooks.

Most worrisome was the fact that Microsoft experienced quarterly revenue declines in all five of its major business segments. Windows client revenue waned by 29 percent during the fourth quarter; that was $1 billion less than the client software group 2008 fourth quarter sales. And it provided yet another indicator that corporations stayed put on Windows XP, instead of migrating to Vista. quarter, representing a shortfall of more than $1 billion from the year-ago quarter. For the year, Client revenue was down 13 percent. In an earnings call, Microsoft chief financial officer Christopher Liddell attributed this to the overall malaise in the PC hardware market and the “substantial weakness” in the business PC market resulting from budget cuts and delayed hardware refresh cycles. And although Microsoft had indicated it would miss its numbers, the results were weaker than Wall Street estimates of $14.37 billion in sales. For fiscal year 2009 Microsoft had revenue of $58.44 billion, a three percent decline from 2008. One bright spot: Windows unit sales on Netbook minis increased for the first time since the September 2008 quarter.

Yahoo’s financial report was mixed. On a positive note, the struggling online search and advertising firm, beat Wall Street forecasts with its net earnings of $141 million and 10 cents per share. However, most of that was due to substantial cost cutting efforts and handing out over one thousand pink slips. On the downside, Yahoo revenue was $1.57 billion a decrease of 13 percent. And with Yahoo forecasting even greater losses for the current quarter, the industry continue to clamor for Yahoo to ink that long rumored search engine deal with Microsoft. Yahoo chief executive Carol Bartz remained mum on any impending deal.

AMD’s financial woes continued. The company was in the red for the 11th straight quarter; although the company said the rate of loss was slowing. For the second fiscal quarter, AMD posted a net loss of $330 million or 49 cents per share. Revenue for the quarter was $1.18 billion.

In the wake of the bruising financials, AMD’s stock is currently trading at $3.77; its profit margin is off by over 43 percent; operating margin is down nearly 17 percent and its return on equity to shareholders is down by a whopping 415 percent.