Server revenue witnessed a sharp 14 percent year-over-year decline to US$13.5 billion for the fourth quarter of 2008, IDC said in a statement. The drop was partly driven by a drop in server shipments, which fell by around 12 percent during the quarter to 1.9 million units.

"The server market experienced its sharpest decline since the middle of the dot-com slowdown nearly seven years ago. All server vendors, geographies, and technology segments were impacted significantly as the global recession gained momentum and market conditions weakened as the quarter progressed," said Matthew Eastwood, group vice president of IDC's Enterprise Platforms Group in a statement.

Worldwide server revenue for 2008 was $53.3 billion, a 3.3 percent increase compared to 2007. For the full year, worldwide unit shipments totaled 8.1 million units, a 2 percent year-over-year increase.

The slowdown will "worsen before any improvement is seen in late 2009 or early 2010," Eastwood said. Until the recession ends, customers will focus on virtualization and workload consolidation to reduce server operating costs, Eastwood said.

Users will also continue to invest in blade servers to cut energy and system costs, IDC said. Revenue from blade servers for the quarter was $1.4 billion, a 16.1 percent growth compared to the fourth quarter of 2007. In contrast, low-end, mid-range and high-end servers saw large revenue declines during the quarter.