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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.

About the 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.

About Dell’Oro Group

Dell’Oro Group is a market research firm that specializes in strategic competitive analysis in the telecommunications, networks, and data center IT markets. Our firm provides in-depth quantitative data and qualitative analysis to facilitate critical, fact-based business decisions. For more information, contact Dell’Oro Group at +1.650.622.9400 or visit www.delloro.com.

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