Worldwide data center server capex spending shrugged off a flat 2018, posting strong growth last year and hopes for more in 2020, according to new reports from Synergy Research Group and Dell'Oro Group. However, the ongoing coronavirus outbreak could complicate matters.  

According to SRG, worldwide spend on data center hardware and software reached $152 billion in 2019, up 2% from 2018. Public cloud data center demand accounted for much of that figure, with spending in the sector having grown from 25% in 2015, to 37% of the total in 2019. Spending on public cloud data center hardware and software grew 7% last year, while spending on traditional data center and private cloud fell by 1%.

Last year saw revenue growth in cloud services (39%), enterprise software-as-a-service (SaaS) (26%), search and social networking (20%), and e-commerce revenues (24%), all of which, according to SRG Chief Analyst John Dinsdale, aided in driving revenue growth on public cloud infrastructure.

The report included total data center infrastructure spending data, which included cloud and non-cloud, service provider and enterprise data center, hardware and software; and product data such as servers, operating systems, storage, networking, virtualization software, network security, and management software.  

It is interesting to note that following the global server market slow down – a result of reaching consumption capacity – in 2018, SRG found that servers accounted for 46% of hardware and software spending in 2019. The firm's most recent fourth quarter 2019 rankings showed Dell, Microsoft, Hewlett Packard Enterprise (HPE), and Cisco as market share leaders. They were followed by Huawei, IBM, VMware, Inspur, and Lenovo. 

Dell'Oro's latest report found that Amazon Web Services (AWS), Google, and Microsoft hit server consumption capacity last year, however the research firm expects those tier-one cloud service providers to reposition from capacity consumption to data center expansion in 2020.

“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. 

The research firm projects spending on servers to compose 47% of data center capex in 2020, as cloud providers will have to invest in more servers and networking equipment.

In total, the top 10 cloud service providers spent $66 billion in aggregate on data centers in 2019, according to Dell’Oro Group, which was up 3% from 2018. 

Both firms’ market reports echo similar findings of vendors spending billions to build or expand data centers to offer more cloud infrastructure services.

Network infrastructure is a dynamic and highly competitive market that necessitates a strong supply chain, economic growth, and a generally positive outlook for what’s to come. However, those factors are up in the air as every indication suggests the market will face headwinds tied to the ongoing COVID-19 virus outbreak.  

“We project a steep decline in enterprise IT spending due to severe near-term supply and demand disruptions from COVID-19,” Fung said. 

As enterprises are facing a stress test of their ability to cope with the situation, Fung believes they will turn to the cloud to conserve capital and deliver on near-term demand for digital services. “We expect that the cloud service providers will need to expand their infrastructure at a measured pace to capture this incremental demand,” he added.