Data centre hardware market revenues fell 1% from the year-ago quarter as customer demand shifted from hardware to software.
According to US-based TBR's 4Q15 Data Centre Benchmark, vendors' average revenue and gross profit slipped year-to-year as demand for legacy hardware implementations declined.
However, benchmarked vendors still achieved $23bn in revenue and avoided more severe declines by adjusting their go-to-market portfolios and selling models to capture emerging opportunities.
"Industry standard server (ISS) has a growing impact on the global data centre hardware market," said TBR Data centre Senior Analyst Krista Macomber. "TBR estimates average ISS unit shipments increased 1.8% year-to-year, indicating the growing impact of hardware commoditisation and the low pricing strategies used by vendors such as Lenovo and Huawei."
Commoditisation of high-end storage hardware and competitive pricing across the storage market drove down benchmarked vendors' proprietary server and storage revenues 0.4% and 7.7% year-to-year respectively.
TBR believes vendors will increase investments in emerging areas such as flash, object storage and hyperconverged. However, as the number of customers transitioning to public cloud solutions is growing, the value proposition of storage solutions will shift from hardware to software.
Networking hardware revenue continued to record the highest growth of benchmarked segments in 4Q15, with market leaders Dell, Hewlett Packard Enterprise (HPE), Huawei and Juniper achieving year-to-year revenue growth in this segment.
"As the networking hardware market has not been as heavily impacted by commoditisation as the server and storage markets, the proliferation of software-defined networking (SDN) will have an increasing impact on vendors' growth strategies. To adapt, vendors must evolve their R&D, alliance and acquisition strategies to enhance their SDN and cloud capabilities," said TBR Data centre Research Analyst Kathleen Kilbourn.