Server sales continue to disintegrate in the face of unstoppable cloud growth and the increasing popularity of virtualization. The global server market saw revenues decline while shipments rose only modestly, indicating that sales prices continue to slip.

Analyst firm Gartner Inc. said on Thursday that global server revenues declined by 2.3 percent in the first three months of 2016, even as shipments rose by 1.7 percent thanks to an increase in hyper-scale data center deployments. Out of the top five server vendors, only Hewlett-Packard Enterprise saw any significant revenue growth, up 3.3 percent.

Technology analysts once looked to server sales as a primary indicator of the general health of the IT market. The theory was that if enterprises are spending servers, it also meant they were investing in software and services to run on them as well. But the advent of virtualization, which lets companies squeeze much larger workloads onto the same physical hardware, combined with the low cost of cloud processing and storage, means that many companies are looking to move their data to platforms like Amazon Web Services and Microsoft Azure. Hence, the server market is no longer the indicator it once was.

“The real driver of global growth continues to be the hyper-scale data center segment. The enterprise and small or mid-size business segments remain relatively flat as end users in these segments accommodated their increased application requirements through virtualization and considered cloud alternatives,” Jeffrey Hewitt, research vice president at Gartner, said.

Asia the one bright spot

Shipments and revenues declined in every region except Asia, where China’s relatively strong market made the difference. That’s good news for Lenovo Group Ltd., of course, which is the most recent entrant to the server market having acquired IBM’s x86 server business just last year. Despite that sale, IBM still ranks third in global server revenues, trailing market leader HPE and Dell Inc. According to Gartner, HPE holds around a quarter of the worldwide server market, while Dell maintains a 17 percent share of the spoils.

The analyst firm said more than 2.7 million servers were shipped during Q1, 2016, which is slightly up on the same period one year ago. The number of servers shipped by HPE, Dell and Lenovo all declined on an annual basis, but China’s Huawei Technologies Co. Ltd., made up the shortfall with a massive 23 percent year-on-year increase in shipments. Gartner says Huawei’s success accounted for a large part of the 9.7 percent revenue increase and 8.4 percent rise in shipments across Asia.

Inspur Group Co.,Ltd., another Chinese server maker, also saw strong growth in Q1, Gartner said.

Chinese firms like Huawei, Lenovo and Inspur are becoming increasingly visible due to their expanding presence in open-source infrastructure projects designed to spur technology development and shape industry standards. These efforts often yield new tools which are made widely available, but firms like Huawei also believe these industry initiatives represent what Gartner said is a form of “enlightened self-interest.”

Elsewhere, Gartner said that weak server shipments to Europe and surrounding regions mean that vendors face “another challenging year”. Still, Gartner said shipments in the second quarter should be slightly better than in Q1.

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