Server sales continue to plummet in the first quarter after server shipments ground to a halt as the recession hit home for big iron vendors.

So says IDC, which found that worldwide server unit shipments declined 26.5 per cent year-over-year in the first quarter to around 1.49 million units, the largest unit shipment decline in five years. Worldwide factory server revenue was down 24.5 per cent to $9.9 billion (£6.2 billion) in the first quarter.

Server shipments and revenue fell as customers tightened IT budgets and held back on refreshing server hardware, IDC said in its survey. Shipments of x86 servers were around 1.42 million, while shipments of other types of servers - including those with processors from the IBM Power and Sun Sparc families - were around 64,450.

Factory revenue refers to revenue resulting from servers shipped directly out of the factory to distributors.

One reason for the drop in server revenue was virtualisation, said Daniel Harrington, a research analyst with IDC. As an alternative to buying new servers, larger enterprises are turning to virtualisation, consolidating more workloads per physical server. Most server purchases in the first quarter were made out of necessity, especially by small and medium-sized businesses that needed more server capacity, Harrington said.

The revenue decline has trickled into the second quarter of this year as well, Harrington said. The recession has created an uncertain environment that makes it hard to predict a turnaround in server revenue, he said. However, revenue could grow slightly year-over-year during the fourth quarter of 2009, driven partly by IT budgets opening up, according to Harrington.

Revenue fell more steeply for x86 servers than for Unix servers, IDC said. Systems with Unix OSes typically run mission-critical workloads, which makes it hard to reduce spending, Harrington said. Unix-based servers typically require very high levels of availability and are used by financial institutions such as stock markets and banks.

On the other hand, x86 servers typically run applications that are not as critical - such as email and print servers - and are also easier to spread across virtual machines.

"It's easier to freeze purchases on x86 [servers], which are a commodity at this point," Harrington said.

Revenue for x86 servers declined by 28.8 percent in the first quarter to reach $5.1 billion. Revenue for non-x86 servers - including Unix systems - fell by 19.4 per cent to reach $4.8 billion.

IDC also saw a drop in blade system revenue, with towers gaining a larger share of the revenue mix. Blades can be expensive to set up, as they require a chassis as well as individual servers, Harrington said. Companies are not putting up the capital to buy blade systems, instead opting for the cheaper tower servers, Harrington said.

All major server vendors recorded revenue declines during the first quarter. Hewlett-Packard, the top vendor, recorded a 26.2 per cent revenue drop to reach $2.91 billion, a 29.3 percent market share. IBM came in a close second, with revenue at $2.9 billion, a decline of 19.9 per cent. It also had 29.3 per cent of the market.

Dell and Sun were in a statistical tie for third place, according to IDC, with Dell at 11 per cent and Sun at 10.3 per cent of the market. Dell recorded the largest revenue decline of any major vendor, 31.2 per cent, to reach $1.09 billion. Sun, which was recently acquired by Oracle, had revenue of $1.02 billion, a decline of 25.5 per cent. Fujitsu was in fifth place.