Swelling demand for high-end systems in the fourth quarter pushed the global server industry to its highest annual revenue since the market peaked in 2000, as IBM and HP retained their top rankings.

The industry overcame yet another quarter of slumping unit shipments to notch a 5.2% rise in quarterly revenue compared to the same period last year, pushing annual industry revenue up 2% to $52.3 billion (£26.6bn) in 2006, according to an industry report published this week by IDC.

The revenue came from an unexpected sector. For the first time in 10 years, quarterly demand for midrange and high-end systems outstripped demand for volume servers. Compared to the same period last year, fourth quarter revenue for high-end systems rose 11.%, compared to rises of 5.4% for midrange servers and 2.1% for entry-level.

Despite the changing market, the players remained the same. IBM claimed the largest chunk of revenue with 32.8% market share, followed by HP at 27.2%. With 10.8% share, Sun has a slight lead over Dell (10.3%) for third place, but is growing much faster, IDC said. Fujitsu/Fujitsu Siemens was the only vendor whose server revenue dropped in 2006 as it held onto its position in a distant fifth place. Those numbers were nearly identical to a server industry report released last Thursday by Gartner.

Although the vendors may be pleased with their 2006 revenue, IDC warned they should be worried about slumping demand. The industry stumbled to its tenth consecutive quarter of slowing growth in units shipped, grinding to a halt with no growth in the fourth quarter of 2006. The main culprit is virtualisation, as corporate IT managers learn to save money by sharing a shrinking pool of hardware resources. That trend has hit the x86 segment the hardest, putting a dent in revenue for chipmakers such as Intel and AMD.