Server Sales Follow PC Sales Down The Toilet (HPQ) (DELL) (MSFT) (INTC)

It would make sense that as businesses cut back on spending for PCs they would also cut back on the purchase of servers.

One of the things computers and servers have in common is that the chips made by Intel (INTC) two years ago are powerful enough to handle most of the processing done on machines today. That makes it easier to defer buying new machines.

What server companies must have imagined was the next piece of bad news has come true. According to research firm IDC, server sales dropped 13% in the last quarter of 2008. Reuters reports that “IDC said it was the steepest decline since the dot-com bust nearly seven years ago.”

Those hurt by the fall-off where the usual suspects: Dell (DELL), IBM (IBM), HP (HPQ), and Sun (JAVA). Of course, Microsoft (MSFT), which supplies a large number of servers with their operating software, also is a casualty.

What may be just beneath the surface of the news is that the recession may not be the only reason the server sales are dropping. Virtualization software from companies including VMWare (VMW) and Microsoft are allowing fewer servers to do more work. If that is true, even with an economic recovery, the server market will never be as robust as it once was.

Douglas A. McIntyre