Spending on infrastructure hardware and software by public cloud providers grew 32 percent from the first quarter of 2017, according to new first quarter 2018 data from Synergy Research Group. This is the highest growth figure seen in nine quarters, during which growth has typically been in the 10 percent to 20 percent range.
The ongoing growth of hyperscale cloud operators bodes well for hardware and software vendors. And original design manufacturers (ODMs), in particular ODM hardware vendors, are aggressively increasing their share of the pie.
ODMs have been growing their share of this market by an average of 5 percentage points a year and now account for almost 30 percent of the market revenues. Examples of these ODMs include Quanta Cloud Technology (QCT), Wistron, Inventec, Sanmina, and Flextronics.
This is squeezing the growth opportunity for traditional vendors. ODMs are followed by Dell EMC, Cisco, and Hewlett Packard Enterprise (HPE), each with a 5 percent to 10 percent market share, according to Synergy Research. The next highest ranked vendors in the first quarter were Microsoft, Huawei, and VMware.
“Hyperscale operators are increasingly designing their own hardware rather than sourcing it from traditional tech vendors,” according to an email from John Dinsdale, chief analyst and managing director of Synergy Research Group. “By doing that they can strip the hardware design down to the very precise requirements that the operator has, saving cost and increasing control and flexibility over hardware implementation and the supply chain. They then go out to ODMs to have their own-designed hardware manufactured in great volumes. Hyperscale operators are working at a scale that makes this approach feasible so they are sourcing more and more of their hardware through that process.”
Cloud Infrastructure Revenues
The first quarter usually sees a sharp drop off after a seasonally strong fourth quarter. But first quarter 2018 spending was down just 2 percent from Q4 2017.
Total public cloud infrastructure revenues, including hardware and software, have passed the $11 billion per quarter milestone. Servers, operating system, storage, networking, and virtualization software combined accounted for 95 percent of the first quarter public cloud infrastructure market, with the balance comprising cloud security and cloud management.
By segment, ODMs dominate server and storage hardware shipments, followed at a distance by Dell EMC, HPE, and Cisco. Cisco has a clear lead in networking, despite the continued strong growth of Arista. Microsoft and VMware are leaders in the infrastructure software segments.
“The hyperscale operators are on a spending spree and continue to crank up their investment in data centers, with much of this spending flowing through to the vendors of data center hardware and software,” said John Dinsdale, a chief analyst and research director at Synergy Research Group, in a statement. “Our forecasts show that IaaS, PaaS, SaaS and public cloud workloads generally are all going to continue to grow rapidly over the next five years, which will continue to drive ever-increasing levels of spending on data center infrastructure.”