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Software-Defined Data Centers Gain New Momentum

Many traditional IT vendors were challenged in 2015. The average revenue and gross profit margin slipped year-to-year as demand for legacy hardware vendor implementations declined, according to the latest worldwide market study by Technology Business Research (TBR).

However, the study's benchmarked IT vendors still achieved $23 billion in revenue and avoided more severe declines by adjusting their go-to-market portfolios and selling models to capture emerging technology opportunities.

"Industry-standard server (ISS) has a growing impact on the global data center hardware market, composing an increasing share of the data center market and retaining the largest share of total revenue," said Krista Macomber, senior analyst at TBR.

TBR analysts estimate that average ISS unit shipments increased by just 1.8 percent year-to-year, indicating the growing impact of hardware commoditization and the reactive low-price strategies used by many vendors.


Legacy IT Storage Declined in 2015 

Commoditization of high-end storage hardware and competitive pricing across the storage market drove down benchmarked vendor proprietary server and storage revenues by 0.4 percent and 7.7 percent year-to-year, respectively.

These declines stem from the challenged value proposition of traditional storage hardware, as savvy customers increasingly migrate less-critical workloads to public cloud solutions, creating a shift in sales opportunities to the ISS and networking segments.

To offset declines in these areas, TBR believes that vendors will increase investments in emerging areas such as flash, object storage and hyperconverged systems. However, as the number of customers transitioning to cloud solutions grows rapidly, the leading storage solutions will shift from hardware to software-defined.

Exploring the SDN Market Development Upside

Networking hardware revenue continued to record the highest growth in 4Q 2015. The networking hardware market hasn't been as heavily impacted as the server and storage markets, and the proliferation of software-defined networking (SDN) will have an increasing impact on growth.

To adapt, according to the TBR assessment, IT vendors must evolve their R&D, alliance and acquisition strategies to enhance their SDN and enterprise cloud computing capabilities.

Moreover, average data center hardware revenue in the Americas declined year-to-year for the first time since 3Q 2014. In APAC and EMEA, average benchmarked revenue grew year-to-year, as U.S. based vendors leveraged strategic alliances in these regions to gain market share.

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