Server, storage and networking hardware revenue decreased 1.1 percent year-to-year in the first quarter of 2016 (1Q16), due to ongoing software prioritization in the IT data center market, according to the latest market study by Technology Business Research (TBR).
Year-to-year growth in the industry-standard server (ISS) and networking product segments was not enough to drive overall revenue growth during the quarter, due to steep declines in the legacy proprietary server segment.
Software functionality is very important in the migration to hybrid cloud-enabled and data-centric IT business models, as enterprise buyers seek to mitigate complexity and management challenges. This change in demand is causing a significant shift away from proprietary servers and legacy storage technologies.
Data Center Market Development Transition
"Customers target high business growth areas to make strategic IT investments, but at the same time, they face budget restraints," said Krista Macomber, senior analyst at TBR.
Hardware commoditization drove combined proprietary server and storage revenues for vendors down by 27.9 percent and 7.3 percent year-to-year, respectively.
Growth of ISS and networking revenues was attributed to vendors’ abilities to monetize investments in emerging growth areas such as cloud computing and flash storage.
Data center hardware revenues declined across the Americas and EMEA, while growing in APAC for the sixth consecutive quarter during 1Q16, per the latest TBR estimates.
TBR analysts believe that geopolitical challenges and increasing volatility in emerging countries will drive vendors to capitalize on opportunities in markets of consistently high growth.
Outlook for Software-Defined Infrastructure
"Storage-focused vendors are investing in areas such as converged infrastructure and flash to better address customers’ cloud and analytics workloads needs," said Macomber.
They're also making these strategic investments to differentiate their portfolios, as the storage market continues to decline due to the IT investment shift from traditional hardware to software-defined infrastructure.
To cope with geopolitical challenges and support growth of enhanced portfolio capabilities, vendors seek local partners in areas where they fail to gain market entry. Additionally, vendors are making more acquisitions in regions where they would otherwise struggle to expand.