Monday, July 17, 2017

Healthy growth continues for public cloud data centre infrastructure

The global market for IT infrastructure products continues to be reshaped by rapid buildouts of hyperscale data centres for public clouds. Ahead of a busy mid-summer week for data centre server announcements, several analyst studies have been released that shed light on how the market for server, storage and Ethernet switch products continues to evolve. Overall, this market grew 14.9% year over year in the first quarter of 2017 (1Q17), reaching $8 billion, according to IDC's Worldwide Quarterly Cloud IT Infrastructure Tracker. This two-digit annual growth figure compares quite favourably to the global market for telecom equipment, which has been trapped in the doldrums of low single digits for some time to the detriment of the big vendors focused on this segment.

In the case of Ericsson, the company has attempted to pivot toward the enterprise and data centre segments through a strategic partnership with Cisco. With the new management team at Ericsson, this push appears to be taking a backseat as the company focuses on its core mobile infrastructure market.

Here are the vendor market share highlights from IDC’s study:

Top 3 Vendor Group, Worldwide Cloud IT Infrastructure Vendor Revenue, Q1 2017 
(Revenues are in Millions, Excludes double counting of storage and servers)
Vendor Group
1Q17 Revenue (US$M)
1Q17 Market Share
1Q16 Revenue (US$M)
1Q16 Market Share
1Q17/1Q16 Revenue Growth
1. Dell Inc*
$1,289
16.20%
$1,292
18.60%
-0.20%
1. HPE/New H3C Group* **
$1,118
14.00%
$1,223
17.70%
-8.60%
3. Cisco
$902
11.30%
$830
12.00%
8.70%
ODM Direct
$1,976
24.80%
$1,204
17.40%
64.10%
Others
$2,678
33.60%
$2,379
34.30%
12.60%
Total
$7,963
100%
$6,928
100%
14.90%
IDC's Worldwide Quarterly Cloud IT Infrastructure Tracker, June 2017

* IDC declares a statistical tie in the worldwide cloud IT infrastructure market when there is a difference of one percent or less in the vendor revenue shares among two or more vendors.
** Due to the existing joint venture between HPE and the New H3C Group, IDC will be reporting external market share on a global level for HPE as "HPE/New H3C Group" starting from Q2 2016 and going forward.

In its study, IDC found that cloud IT infrastructure sales as a share of overall worldwide IT spending climbed to 39% in 1Q17, a significant increase from 33.9% a year ago. IDC also found that revenue from infrastructure sales to private cloud grew by 6.0% to $3.1 billion, and to public cloud by 21.7% to $4.8 billion.

What is interesting here is that the hyperscale cloud providers, including Amazon Web Services (AWS), Microsoft Azure and Alibaba Cloud, have each reported much higher growth rates, approaching or exceeding the triple digit threshold. This would be a healthy situation for the cloud operators, indicating that they are getting greater efficiency from their infrastructure.

The IDC study also confirms that enterprise spending continues to move to clouds, both public and private. IDC found that revenue in the traditional (non-cloud) IT infrastructure segment decreased 8.0% year over year in the first quarter of the year, but that spending for private cloud infrastructure is growing, especially Ethernet switching (up 15.5% year-over-year), storage (excluding double counting with servers at 10.0%) and server (up 2.1% year-over-year. Public cloud growth was led by storage, which after heavy declines in 1Q16 grew 49.5% year over year in 1Q17, followed by Ethernet switch at 22.7% and server at 8.7%. IDC further notes that for traditional IT deployments, sales of servers declined the most (9.3% year over year), with Ethernet switch and storage declining 4.4% and 6.1%, respectively.

Gartner finds standalone worldwide server market is declining, except hyperscale
A Gartner study that focused only on the sale of servers found that Q1 2017 revenue worldwide declined 4.5% year over year, while shipments fell 4.2% from the first quarter of 2016. Jeffrey Hewitt, research VP at Gartner, noted, "Although purchases in the hyperscale data centre segment have been increasing, the enterprise and SMB segments remain constrained as end users in these segments accommodate their increased application requirements through virtualisation and consider cloud alternatives".

Below are highlights of the Gartner study that were published in June 2017:

Worldwide Server Vendor Revenue Estimates -  1Q17 (US Dollars)
Company
1Q17
1Q17 Market Share (%)
1Q16
1Q16 Market Share (%)
1Q17-1Q6 Growth (%)
Revenue
Revenue
HPE
3,009,569,241
24.1
3,296,591,967
25.2
-8.7
Dell EMC
2,373,171,860
19
2,265,272,258
17.3
4.8
IBM
831,622,879
6.6
1,270,901,371
9.7
-34.6
Cisco
825,610,000
6.6
850,230,000
6.5
-2.9
Lenovo
731,647,279
5.8
871,335,542
6.7
-16
Others
4,737,196,847
37.9
4,537,261,457
34.7
4.4
Total
12,508,818,106
100
13,091,592,596
100
-4.5
Source: Gartner (June 2017).

Nutanix, which offers a hyperscale solution integrating compute/storage/networking, recently reported that its quarterly revenue jumped 67% to reach $191.8 million for the quarter ended April 30, 2017. Its customers fit into the enterprise category. Cited examples include Caterpillar, KYOCERA Communication Systems, MobileIron, SAIC Volkswagen and Société Générale. From this one can conclude that market is shifting rapidly from stand-alone or departmental clusters of servers to an enterprise cloud architecture, whether public, private or hybrid. The distinctions between servers, switches and storage are also blurring.

Dell’Oro tracks white box server shipments

White box server shipments continued to grow at a rapid pace in 1Q17, increasing 41% year on year, according to a recently published report from Dell’Oro Group.  This research agency attributes the surge in spending to mainly Google and Amazon, with Facebook and Microsoft expected to pick up the pace of their white box server deployments too. Dell'Oro noted that nearly all the major U.S.-based branded vendors, led by Hewlett-Packard Enterprise and Dell Technologies, suffered quarter-over-quarter and year-over-year shipment declines for a number of different reasons, including: server migration from the Enterprise/on premise to the Cloud; typical Q1 softness; and a pause in server purchases in anticipation of the Intel Purley server refresh cycle, which is expected in the second half of the year.

These trends are probably best recorded in the sales data for Intel's Xeon products, which continue to dominate all segments of the market. More details on Intel’s plans for the data centre are expected later this week.



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