IBM widened its lead in a drastically shrinking server market during the second quarter, gaining against once-feared Sun Microsystems and the possible duo of Hewlett-Packard and Compaq. IBM server revenue increased from $3bn to $3.2bn, a 5.3 percent rise from the second quarter of 2000. Big Blue now controls more than a quarter of the total market, according to market researcher IDC. The growth is evidence of the success of its efforts begun in 1999 to recover from Sun's gains. In Sun's core turf -- the $5.7bn market for Unix servers -- IBM's market share increased 4.1 percent to 21.2 percent, while Sun lost 3.8 percent to drop to 35 percent. IBM still isn't larger than a potentially combined HP and Compaq, but it has narrowed the lead dramatically over the past year -- a worrisome trend for HP given its hope that its proposed acquisition of Compaq will create a company "strong enough, bold enough and talented enough to take [IBM] head-on in the enterprise space." In the second quarter last year, HP and Compaq combined had $4.5bn server revenue -- $1.5bn ahead of IBM. But this year, the combined $3.6bn is only about $400m ahead of IBM's $3.2bn. IBM's gains come as a slowdown in tech spending has hammered the market for servers, the networked computers that handle mammoth tasks such as recording credit card transactions for Visa or more modest jobs such as hosting a family's Web site. The overall market shrank 16.2 percent in the second quarter, from $14.4bn to $12.1bn, IDC said. It was the second consecutive loss, but the second-quarter drop was quadruple the first quarter's 4 percent loss. "This is the biggest decline that the server market has experienced over the past five years," Vernon Turner, IDC's vice president of global enterprise server solutions, said in a statement. "Even though we knew that the server market would be affected by the economic situation, we did not expect a decline of this magnitude." Unit shipments also declined 3 percent in the second quarter to 1.04 million, IDC said. IDC has been scaling back its forecasts for months. In September 2000, the company projected a 7 percent growth in revenue from 2000 to 2001. By August, IDC had reduced its forecast to 5 percent growth, with expectations that the figure could still be at least 1 percent too high. Dell Computer, the smallest of the top five server sellers, was the only company besides IBM to increase its revenue, but the growth was only 0.2 percent from $842m to $844m, IDC said. And that sliver of revenue growth also highlights shrinking profit margins: Dell's unit shipments increased 31 percent from the year-ago quarter. In the overall market, revenue from No. 2 seller Sun dropped 24.2 percent from $2.6bn to $2bn. No. 3 Compaq dropped 23.1 percent from $2.5bn to $1.9bn, and No. 4 HP dropped 18.9 percent from $2bn to $1.6bn, IDC said. In the Linux server market, Compaq is the leader, with $119m in sales for the quarter -- a 14.4 percent decrease from the $139m in the year-ago quarter. No. 2 Dell increased 33.9 percent from $59m to $79m, while No. 3 IBM increased the most, 39.5 percent from $43m to $60m, IDC said. IBM has embarked on a major campaign to boost Linux across its four major server lines. The Windows server market, with $2.9bn in sales for the quarter, remains larger than the Linux market's $415m. Compaq was the top Windows server seller, with $863m in sales, a 24 percent drop from the year-ago quarter. Second-place Dell grew 3.7 percent to $618m, while third-place IBM grew 4.2 percent to $372m. Fourth-place HP had the deepest loss, 24.5 percent to $294m. Server sales shrank in all regions, but the United States was hit worst with a 25 percent loss, IDC said. Japan's server market shrank 20 percent, while Western Europe's shrank 8 percent. Despite the drops, one area of the server market grew: the models designed to be bolted into racks, sometimes by the dozen. Rack-optimised server unit shipments grew 46 percent while revenue grew 13 percent. Revenue for the rest of the server market dropped 23 percent. See techTrader for the latest financial news in the high-tech sector. See the Business News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the techTrader forum Let the editors know what you think in the Mailroom. And read other letters.