Reports from Synergy Research, IDC point to increased demand for cloud services, slowdown in cloud hardware sales
Organizations are ramping up their purchases of cloud services, but the market for cloud IT infrastructure may be softening a bit due in part to the whims of the top public cloud providers, according to recent reports from analysts with IDC and Synergy Research Group.
The Lowdown: Revenue in the first half of the year for cloud services and infrastructure was more than $150 billion worldwide, a 24% jump over the first half of 2018, according to Synergy Research. The analysts noted that spending on cloud services now far surpasses spending on data center infrastructure. That comes as IDC said vendor revenue for cloud IT infrastructure – servers, storage systems, and Ethernet switches – fell 10.2% year-over-year in the second quarter, to $14.1 billion.
The Details: Synergy found strong demand for cloud services, with Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) seeing 44% growth, followed by enterprise Software-as-a-Service (SaaS) at 27% and Unified Communications-as-a-Service (UCaaS) and hosted private cloud infrastructure services at 23%. Spending on hardware and software increased more than 10%.
The market research firm also noted that spending on co-location and data center leasing jumped 17%, an indication that fast-growing public cloud providers are looking at data center leasing and co-location services as places to put infrastructure rather than building new facilities. That dovetails with Synergy’s findings that in the first half of the year, 52 data center deals closed, an 18% increase over the period last year, another proof point in the demand for more cloud infrastructure space that’s expected to continue over the next five years.
IDC’s own numbers showing a slowing of spending on cloud infrastructure convinced the firm to drop its projection for the year from growth to a 4.9% drop. The spending on hardware for public clouds fell the most year-over-year, by 15.1%, with a handful of hyperscale service providers continuing to have significant impacts on the market. When their spending slows, revenue in the space drops accordingly. However, IDC analysts said spending on private cloud IT infrastructure has remained stable, growing 1.5% in the second quarter and expected to jump 8.4% for the year.
The Impact: A lot of cloud providers, hardware vendors, and their partners are sure to feel any deviation in spending in a cloud market that’s expanding so quickly. Synergy noted a broad range of players in its report, including cloud providers like Amazon Web Services, Microsoft, Google, and Rackspace; OEMs like Cisco, Hewlett-Packard Enterprise (HPE), and Dell EMC; software makers such as Adobe, Salesforce, and VMware; and data center companies including Digital Realty and Equinix.
IDC said Dell EMC still had 16.7% of the cloud hardware market, though its revenue fell 8.2%, followed by HPE, Cisco, and Inspur. Lenovo also saw a 17.5% decline, and revenue for original design manufacturers (ODMs) – who had seen a boost in the early years of the cloud – fell 24.1%.
The Buzz: “Cloud-associated markets are growing at rates ranging from 10% to well over 40%, and annual spending on cloud will double in under four years. Cloud is increasingly dominating the IT landscape,” said John Dinsdale, a chief analyst at Synergy Research. “Cloud has opened up a range of opportunities for new market entrants and for disruptive technologies and business models. Amazon and Microsoft have led the charge in terms of driving changes and aggressively growing cloud revenue streams, but many other tech companies are also benefitting. The flip side is that some traditional IT players are having a hard time balancing protection of legacy businesses with the need to fully embrace cloud.”
“Overall, the IT infrastructure industry is at a crossing point in terms of product sales to cloud vs. traditional IT environments,” said IDC analysts in their report. “In 3Q18, vendor revenues from cloud IT environments climbed over the 50% mark for the first time but fell below this important tipping point since then. In 2Q19, cloud IT environments accounted for 48.4% of vendor revenues. For the full year 2019, spending on cloud IT infrastructure will remain just below the 50% mark at 49%. Longer-term, however, IDC expects that spending on cloud IT infrastructure will grow steadily and will sustainably exceed the level of spending on traditional IT infrastructure in 2020 and beyond.”