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Friday, August 09, 2019

Cloud IT Infrastructure Spend will Reach $66.9 Billion

Most enterprise CIOs and CTOs now operate in a 'coexistence environment' where traditional data center (non-cloud), private cloud and public cloud all are an essential part of their IT infrastructure. This technology mix will continue in the foreseeable future. Furthermore, this mix will change slowly.

According to the latest worldwide market study by International Data Corporation (IDC), vendor revenue from sales of IT infrastructure products for cloud environments -- including public and private cloud -- grew 11.4 percent year-over-year in the first quarter of 2019 (1Q19), reaching $14.5 billion.

IDC also lowered its forecast for total spending on cloud IT infrastructure in 2019 to $66.9 billion – that's down 4.5 percent from last quarter's forecast – with slower year-over-year growth of 1.6 percent.

Cloud Infrastructure Market Development

Vendor revenue from hardware infrastructure sales to public cloud environments in 1Q19 was down 13.4 percent compared to the previous quarter (4Q18) but increased 8.9 percent year-over-year to $9.8 billion.

This segment of the market continues to be highly impacted by demand from a small group of hyperscale public cloud service providers, whose spending on IT infrastructure tends to have visible up and down movement.

After a strong performance in 2018, IDC now expects the public cloud IT infrastructure segment to cool down in 2019 with vendor revenue dropping to $44.5 billion -- that's a 2.2 percent decrease from 2018. Although it will continue to account for the majority of spending on cloud IT environments, its share will decrease from 69.1 percent in 2018 to 66.5 percent in 2019.

In contrast, spending on private cloud IT infrastructure has shown more stable growth since IDC started tracking sales of IT infrastructure products in various deployment environments.


In the first quarter of 2019, vendor revenues from private cloud environments increased 16.9 percent year-over-year reaching $4.7 billion. IDC expects spending in this segment to grow 10.1 percent year-over-year in 2019.

Overall, the IT infrastructure industry is at a crossroads in terms of product sales to cloud vs. traditional IT environments. In 3Q18, vendor revenues from cloud IT environments climbed over the 50 percent mark for the first time but have since fallen below this important threshold.

In 1Q19, cloud IT environments accounted for 48.8 percent of vendor revenues.

According to the IDC assessment, for the full year 2019, spending on cloud IT infrastructure will remain just below the 50 percent mark at 49.4 percent. Over the long-term, however, IDC expects that spending on cloud IT infrastructure will grow steadily and will sustainably exceed the level of spending on traditional IT infrastructure in 2020 and beyond.

Spending on the three technology segments in cloud IT environments is forecast to deliver growth for Ethernet switches and storage platforms while compute platforms are expected to decline in 2019.

Ethernet switches will be the fastest-growing at 20.9 percent, while spending on storage platforms will grow slightly at 1.9 percent. Meanwhile, compute platforms will decline by 2.8 percent in 2019 but will remain the largest category of spending on cloud IT infrastructure at $34.2 billion.

Sales of IT infrastructure products into traditional (non-cloud) IT environments remained flat compared to 1Q18. For the full year 2019, worldwide spending on traditional non-cloud IT infrastructure is expected to decline by 3.5 percent, as the technology refresh cycle that drove market growth in 2018 is winding down.

By 2023, IDC expects that traditional non-cloud IT infrastructure will only represent 42.4 percent of total worldwide IT infrastructure spending (down from 51.9 percent in 2018). This share loss and the growing share of cloud environments in overall spending on IT infrastructure is common across all regions.

"As the overall IT infrastructure goes through a period of slowdown after an outstanding 2018, the important trends might look somewhat distorted in the short term," said Natalya Yezhkova, research vice president at IDC.

Outlook for Cloud Infrastructure Investment Growth

Most regions grew their cloud IT Infrastructure revenues in 1Q19. Middle East & Africa was fastest-growing at 35.3 percent year over year, followed by Western Europe at 25.4 percent year-over-year growth.

Other growing regions 1Q19 included Central & Eastern Europe (18.3 percent), Canada and Japan (both at 14.6 percent), the United States (10.7 percent), and China (5.4 percent). Cloud IT Infrastructure revenues were down slightly year over year in Asia-Pacific (excluding Japan) by 1.2 percent and in Latin America by 0.2 percent.

Long term, IDC expects spending on cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 7.5 percent, reaching $94.5 billion in 2023 and accounting for 57.6 percent of total IT infrastructure spend. Public cloud infrastructure will account for 66.2 percent of this amount, growing at a 6.6 percent CAGR. Spending on private cloud infrastructure will grow at a CAGR of 9.4 percent.