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We just finished our first Data Center Capex July 2020 5-year Forecast Report. Below are some highlights from the report. If you need to access the full report, please contact us at dgsales@delloro.com.

Data center capex, which includes capex for servers and other data center infrastructure equipment, is forecasted to grow at a 6% CAGR to just over $200 B over the next five years. Growth is forecasted to be mixed depending on the customer segment. The Cloud, which already accounts for more than 60% of the worldwide data center capex, will continue to gain momentum over Enterprise/On-premise data center deployments. Edge data centers deployed over Telco networks could emerge in the longer-term horizon.

Capex on servers, which generally accounts for nearly half of the data center capex, may be influenced by the following factors:

    • Change in server unit demand from Cloud capacity and digestion cycles.
    • Market volatility of commodity pricing of components such as memory.
    • Server refresh cycles, which could prompt the replacement of aged servers and drive new deployments, could impact server architecture and pricing.

Servers also drive the demand for auxiliary data center infrastructure equipment such as networking switches, storage systems, and facilities.

The COVID-19 pandemic is expected to profoundly disrupt global demand for data center infrastructure equipment in 2020. Impacted vertical industries, especially brick-and-mortar retail, travel, hospitality, and small and medium enterprises, have seen a pull-back in IT spending as they wait for the business climate to stabilize. As enterprises seek to conserve capital, Public Cloud, which offers a flexible and consumption-based infrastructure, could help meet the growing demands of 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.

Market and Technology Trends to Watch Out For

  • The Top 4 U.S. Cloud service providers—Amazon, Facebook, Google, and Microsoft—are 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.
  • The Top 4 U.S. Cloud service providers have been prolonging the useful life of servers in an effort to lower server depreciation expense while maintaining high efficiencies and reliability of their server fleet.
  • 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.
  • Various open-source organizations have come together to share and standardize best practices in the design of efficient, scalable, and sustainable data center infrastructure. 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.

To learn more about the COVID-19 impact on Data Center Infrastructure and Server spending, please click here to watch my latest video.

About the Data Center Capex 5 Year Forecast Report

Dell’Oro Group’s Data Center Capex 5-Year Forecast Report details the data center infrastructure capital expenditures of each of the ten largest Cloud service providers, as well as the Rest-of-Cloud, Telco, and Enterprise customer segments. Allocation of the data center infrastructure capex for servers, storage systems, and other auxiliary data center equipment is provided. The report also discusses the market and technology trends that can shape the forecast. Highlights from the Server and Storage System Report (now discontinued) was transitioned to this report. Click here to learn more about the report or contact us (dgsales@delloro.com) for the full report.

 

Related video about Data Center Capex:

Sign up to Dell’Oro Analyst Talk channel at BrightTalk to watch the full video

Analyst Talk - COVID-10 Impact on Data Center Infrastructure Capex
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As we enter a new decade, I would like to share my view on the key trends that will shape the server market at both the cloud and edge. While various use cases of enterprises running workloads in data centers on premise will persist, investments will continue to pour into the major public cloud data service providers (SPs). Workloads will continue to consolidate to the cloud, as cloud data centers scale, gain efficiencies, and deliver transformative services. In the longer-term, we forecast compute nodes could shift from centralized cloud data centers to the distributed edge as new use cases arise that demands lower latency. The following are five technology and market trends in the areas of compute, storage, and network to watch:

  1. Evolution of Server Architecture

Servers continue to densify and increase in complexity and price point. Higher-end processors, novel cooling techniques, accelerated chips, higher-speed interfaces, deeper memory, flash storage implementation, and software-defined architectures are expected to increase the price point of servers. Data centers continue to strive to run more workloads with fewer servers in order to minimize power consumption and footprint. Storage will continue to shift toward server-based software-defined architecture, thus dampening demand for specialized external storage systems.

  1. Software-defined Data Centers

Data centers will continue to become increasingly virtualized. Software-defined architectures, such as hyperconverged and composable infrastructure, will be employed to drive higher degrees of virtualization. Disaggregation of various compute nodes, such as GPU, storage, and compute, will continue to rise, enabling enhanced resource pooling and, hence, driving higher utilization. IT vendors will continue to introduce hybrid/multi-cloud solutions and increase their consumption-based offerings, emulating a cloud-like experience in order to remain relevant.

  1. Cloud Consolidation

The major public cloud SPs – AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud (in Asia Pacific) – will continue to gain share as the majority of small-medium enterprises and certain large enterprises embrace the cloud. Smaller cloud providers and other enterprises will inevitably migrate their IT infrastructure to the public cloud due to its increased flexibility and feature set, improving security, and strong value proposition. The major public cloud SPs continue to scale and drive towards higher efficiencies. On the longer-term, growth among the large cloud SPs are projected to moderate, due to on-going efficiency improvements from the server rack to data center, and consolidation of the cloud data centers.

  1. Emergence of Edge Computing

Centralized cloud data centers will continue to drive the market within the forecast period of 2019 to 2024. At the end of this time frame and beyond, edge computing could be more impactful in driving IT investments because, as new use cases emerge, it has the potential to shift the balance of power from cloud SPs to telecom SPs and equipment vendors. We anticipate that cloud SPs will respond by developing edge capabilities internally and externally, through partnerships or acquisitions, in order to extend their own infrastructure to the edge of the network.

  1. Advances in Server Network Connectivity

From a server network connectivity standpoint, 25 Gbps is expected to dominate the majority of the market and to replace 10 Gbps for a wide range of applications. The large cloud SPs will strive to increase throughput, driving the SerDes technology roadmap, and enabling Ethernet connectivity to 100 Gbps and 200 Gbps. New network architectures, such as Smart NICs and multi-host NICs have the opportunity to drive higher efficiencies and streamline the network for scale-out architectures, provided that the price and power premiums over standard solutions are justified.

This is an exciting time, as increasing demand in cloud computing is driving the latest advances in digital interfaces, AI chip development, and software-defined data centers. Some vendors came out ahead and some were left behind with the transition from the enterprise to the cloud. We will watch closely to see how vendors and service providers will capitalize on the transition to the edge.

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The infrastructure of the cloud—data centers and the computer and networking systems resources housed within—is expanding rapidly as the demand for cloud services spreads globally. The traffic between data centers, as well as traffic into and out of the cloud, is expected to grow strongly, placing pressure on the data center interconnect (DCI) networks used to connect the data centers.