Cloud Data Center Spending To Surge After Server Capacity Reached

‘We anticipate that the top 10 cloud service providers will bring more than 40 new regions online over the next 12 months. Spending on new servers and networking equipment is expected to ramp and drive cloud data center Capex to higher growth in 2020,’ says Dell’Oro Group’s Baron Fung.

Cloud service providers such as Amazon Web Services, Google and Microsoft are currently consuming as much server capacity as possible with their sights set on significant data center expansion next year, according to a new report by market research firm Dell’Oro Group.

“Some of the major cloud service providers are reducing their data center Capex in 2019 as they continue to consume excess server capacity,” said Baron Fung, director at Dell’Oro Group.

But the research firm expects the biggest cloud data center Capex spenders in the world—Amazon, Facebook, Google and Microsoft—will revert from capacity consumption to data center expansion in 2020.

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“We anticipate that the top 10 cloud service providers will bring more than 40 new regions online over the next 12 months,” said Fung. “Spending on new servers and networking equipment is expected to ramp and drive cloud data center Capex to higher growth in 2020.”

According to Synergy Research Group, businesses worldwide spent more than $150 billion in the first half of 2019 on cloud services and infrastructure. To meet this high demand, vendors are spending billions each quarter on building or expanding data centers to provide more cloud infrastructure services, such as Platform as a Service and Infrastructure as a Service, as well as buying hardware and software for public, private and hybrid infrastructure.

As server consumption capacity dries up, Dell’Oro Group is expecting double-digit data center spending growth in 2020.

For the second quarter of 2019, the top 10 cloud service providers spent nearly $7 billion in aggregate on data centers, according to Dell’Oro Group, with Amazon, Facebook, Google and Microsoft combining to account for 80 percent share of the spending.

This week, Oracle made a huge splash in the data center market by unveiling plans to open a new data center region every 23 days on average over the next 15 months to create 20 additional facilities across the globe. The strategy will give the Redwood City, Calif.-based software and cloud giant a total of 36 regions available by the end of 2020.

Enterprises are shifting more workloads to the cloud or leveraging co-location facilities as businesses move away from traditional data centers. CIOs are reconsidering data center buildout and expansion projects in favor of cloud computing and hybrid infrastructure which is leading to massive services opportunities, according to Gartner.

The top Capex data center spenders are currently using all their server capacity possible, which is likely tied to the extremely strong server market growth witnessed in 2018. Last year, worldwide server revenue grew double digits in several quarters, leading to one of the strongest server sales years in history.

However, the global server market is slowing down in 2019, with second-quarter 2019 server revenue down 11.6 percent year over year. Dell’Oro Group expects that to change by next year as server capacity is consumed by cloud providers that will lead to new spending in servers and networking equipment.