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Cloud Infrastructure Revenue Reached $32.6B in 2016

Cloud computing adoption continues to disrupt the traditional IT infrastructure marketplace, as more CIOs and CTOs execute their ongoing plans for digital business transformation. While some regional expansions have tapered off, there are still many significant upside opportunities.

According to the latest worldwide market study by International Data Corporation (IDC), vendor revenue from sales of infrastructure products -- server, storage, and Ethernet switches -- for cloud IT (including public and private cloud) grew by 9.2 percent year-over-year to $32.6 billion in 2016, with vendor revenue for the fourth quarter (4Q16) growing at 7.3 percent to $9.2 billion.

Cloud IT infrastructure sales as a share of overall worldwide IT spending climbed to 37.2 percent in 4Q16 -- that's up from 33.4 percent a year ago. Revenue from infrastructure sales to private cloud grew by 10.2 percent to $3.8 billion, and to public cloud by 5.3 percent to $5.4 billion.

Cloud Computing Market Development

In comparison, revenue in the traditional (non-cloud) IT infrastructure segment decreased 9 percent year-over-year in the fourth quarter of 2016.

Private cloud infrastructure growth was led by Ethernet switch at 52.7 percent year-over-year growth, followed by server at 9.3 percent, and storage at 3.6 percent.

Public cloud growth was also led by Ethernet switch at 30 percent year-over-year growth, followed by server at 2.4 percent and a 2.1 percent decline in storage.

In traditional IT deployments, storage declined the most (10.8 percent year-over-year), with Ethernet switch and server declining 3.4 percent and 9 percent, respectively.

"Growth slowed to single digits in 2016 in the cloud IT infrastructure market as hyperscale cloud data center growth continued its pause," said Kuba Stolarski, research director at IDC.

According to the IDC assessment, network upgrades continue to be the focus of public cloud deployments, as network bandwidth has become by far the largest bottleneck in cloud data centers that rely upon a distributed systems architecture.

After some delays for a few hyperscalers, data center expansion and refresh are expected to blossom throughout 2017, built on newer generation hardware -- primarily using a server acceleration architecture.

Regional Outlook for Cloud Computing

From a regional perspective, vendor revenue from cloud IT infrastructure sales grew fastest in Japan at 42.3 percent year-over-year in 4Q16, followed by Middle East & Africa at 33.6 percent, Canada at 16.6 percent, Western Europe at 15.6 percent, Asia-Pacific (excluding Japan) at 14.5 percent, Central and Eastern Europe at 11.6 percent, Latin America at 9.9 percent, and the United States at just 0.1 percent.

Note: IDC defines cloud services more formally through a checklist of key attributes that an offering must manifest to end users of the service. Public cloud services are shared among unrelated enterprises and consumers; open to a largely unrestricted universe of potential users; and designed for a market, not a single enterprise.

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