It isn’t going to be a good year for the server and external enterprise storage markets, according to a recent IDC report that warns the continued spread of COVID-19 will likely disrupt demand and suppress revenues.

“The impact of COVID-19 will certainly dampen overall spending on IT infrastructure as companies temporarily shut down and employees are laid off or furloughed," Kuba Stolarski, research director of IT infrastructure at IDC, wrote in the report.

IDC predicts server market revenues will decline 3.4% year over year to $88.6 billion during 2020. It is also forecasting external enterprise storage will fall by approximately 5.5%.

Revenues are expected to start to recover in the second half of the year as quarantines and travel bans begin to ease this summer. IDC anticipates the biggest declines will hit during the first quarter among China-based vendors while other regions are expected to see larger revenue declines in Q2 2020.

The decline in revenue will be driven by enterprise customers, including transportation, hospitality, and retail, which are bearing the brunt of the virus, according to the firm.

However, these losses are being heavily offset by an “unexpected wave of demand” for digital services like video streaming, web conferencing, and online retail.

During Broadcom’s Q1 earnings call earlier this Month, CEO Hock Tan predicted this phenomenon, arguing that demand for online services, as people hunker down or work from home, could bolster sales of Broadcom-based hardware, as hyperscalers and cloud providers attempt to keep up.

“This dynamic is impacting the server market most, resulting in a moderate decline for the overall market in 2020,” IDC wrote in the report. External storage systems, which are disproportionately bought by enterprise customers, will experience deeper declines, according to the firm.

IDC’s findings echo reports from Synergy Research Group and Dell’Oro Group, which expect server spending to surge in 2020.

According to Dell’Oro, all three of the leading cloud providers had reached server consumption capacity in 2019. “Despite recent market uncertainties, we anticipate the tier-one cloud service providers to increase data center capex as planned, primarily on servers, as the sector seeks to resume capacity expansion,” said Baron Fung, research director at Dell’Oro Group.

Meeting the demand for servers could, however, prove challenging as semiconductor vendors brace for disruptions to the supply chain.

The effect these shortages will have on the server market will vary from country to country, wrote Natalya Yezhkova, research VP of IT infrastructure at IDC, in an email to SDxCentral.

“China houses predominantly suppliers of components for consumer devices, so this part of the impact (which hit badly in Q1) is more relevant to consumer devices,” she wrote. “Component factories for enterprise systems are based mostly outside of mainland China, so we do expect issues with supply chain mostly impacting Q2/Q3 time frame.”

However, Yezhkova explains that supply chain interruptions are just one of many factors currently at play.

COVID-19's impact on the server and external storage markets will be considerable, but short lived, according to IDC, which predicts both markets will return to steady growth in 2021.

IDC anticipates the server market will continue to grow at a compound annual rate of 4.9% from 2019-2024 while the enterprise storage market will reach $32.4 billion in revenue by 2024.

"While the current crisis brings tensions and uncertainty to the market, it also will push organizations to expedite adoption of technologies and IT delivery models that help with optimization of IT infrastructure resources,” Stolarski wrote.