Report: Despite Covid-19 disruption in 2020, data center capex poised to hit more than $200B over next five years

Report: Despite Covid-19 disruption in 2020, data center capex poised to hit more than $200B over next five years

While the Covid-19 pandemic is expected to disrupt the demand for data center equipment this year, data center capex will grow at a 6% CAGR to reach just over $200 billion over the next five years.A report by Dell’Oro Group said data center capex, which includes capex for servers and other data center infrastructure equipment, growth will be a mixed bag depending on the customer segment. The cloud, which accounts for more than 60% of the worldwide data center capex, will continue to flourish when compared to enterprise/on-premise data center deployments.
Telco edge data centers could emerge over the long-term as telcos build their edge compute services and applications.

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The coronavirus pandemic has hit several industry verticals hard over the past five months, including brick-and-mortar retail, travel, hospitality and small-to-medium sized business, which led to them reining in their IT spending this year.
On the flip side, Covid-19 has led to some organizations accelerating their digital transformations, which includes putting data, workloads and applications in the cloud. Dell’Oro’s report said that as enterprises look to conserve capital spending, the public cloud, which has a flexible and consumption-based infrastructure, could help meet the growing demand for remote work and distance learning.
“The Covid-19 pandemic and the ensuing recession may have the long-lasting effect of accelerating the permanent migration of certain industries and workloads to the cloud,” according to Dell’Oro.
While Microsoft reported its earnings on Wednesday, the other major cloud providers, including Amazon Web Services and Google Cloud Project, will be conducting their earnings calls over the coming weeks. Microsoft Azure’s revenue growth was 47% in the fourth quarter compared to 59% in the third quarter.
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Dell’Oro said the top-four U.S. cloud service providers—Amazon, Facebook, Google, and Microsoft—were well positioned to continue their momentum of expansion over the next five years.
“Servers will continue to be consolidated in fewer mega cloud data centers that could potentially provide greater capacity than the same number of servers spread out across thousands of enterprise data centers,” according to Dell’Oro Group.
Those top four U.S. cloud service providers have been prolonging the life of their servers to lower server depreciation expenses while maintaining the reliability of their server fleets. Last year, Arista Networks saw an impact on its fourth quarter earnings due to declining switch revenue from an unnamed cloud provider.
Also on the trend front, Dell’Oro Group said the Intel server processor refresh cycles have historically influenced IT spending.
“While the major cloud service providers typically ramp server capacity outside of the processor refresh cycle, the upcoming Intel 10 nm Whitley server platform refresh due later this year could generate an uplift on server spending. Viable alternatives to Intel processors, AMD EPYC and ARM, for server and storage system applications are starting to materialize in certain markets,” according to Dell’Oro Group.
Dell’Oro Group also cited open source groups coming together to share and standardize best practices in the design of sustainable data center infrastructure as a factor going forward.
“The Open Compute Project (OCP), in particular, has introduced various technological innovations in the areas of server and server connectivity, rack architecture, and networking switches, which could shape the future development of data center infrastructure,” Dell’Oro Group said.
Facebook launched OCP nine years ago as an open-source hardware initiative to drive the deployment of web-scale operations and services. OCP has thousands of engineers from close to 200 member organizations working on more energy-efficient hardware equipment for the likes of hyperscale data centers and large service providers.

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