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Friday, December 04, 2020

Why China Leads Global Cloud IT Infrastructure Growth

As more CEOs of forward-looking organizations accelerate their digital business growth agenda, the adoption of cloud computing continues to gain momentum as savvy CIOs and CTOs seek the most effective ways to support the demand for just-in-time IT computing and storage resources. 

Vendor revenue from sales of IT infrastructure products for cloud environments -- including public and private cloud -- increased 34.4 percent year-over-year in the second quarter of 2020 (2Q20). Meanwhile, investments in traditional, non-cloud, IT infrastructure declined by 8.7 percent year-over-year in 2Q20, according to the latest worldwide market study by International Data Corporation (IDC).

These growth rates show the market response to major adjustments in business, educational, and societal activities caused by the COVID-19 pandemic and the role IT infrastructure plays in these ongoing adjustments.

Cloud IT Infrastructure Market Development

Across the globe, there were massive shifts reported to online IT tools in all aspects of human life -- including collaboration, virtual business events, entertainment, shopping, telemedicine, and education.

Cloud environments were a key enabler of this shift. Spending on public cloud IT infrastructure increased 47.8 percent year-over-year in 2Q20, reaching $14.1 billion and exceeding the level of spending on non-cloud IT infrastructure for the first time.

In contrast, spending on private cloud infrastructure increased 7 percent year-over-year in 2Q20 to $5 billion with on-premises private clouds accounting for 64.1 percent of this amount.

While IDC increased its forecast for both cloud and non-cloud IT spending for the full year 2020, investments in cloud IT infrastructure are still expected to exceed spending on non-cloud infrastructure -- 54.8 percent to 45.2 percent.


Most of the increase in spending will be driven by public cloud IT infrastructure, which is expected to slow in 2H20 but increase by 16 percent year-over-year to $52.4 billion for the full year. Spending on private cloud infrastructure will also experience softness in the second half of the year and will reach $21.5 billion for the full year, an increase of just 0.3 percent year over year.

Starting of 2019, the dominance of cloud IT environments over non-cloud already existed for computing platforms and Ethernet switches, while the majority of newly shipped storage platforms were still residing in non-cloud environments. Starting in 2020, with increased investments from public cloud providers on storage platforms, this shift will remain persistent across all three technology domains.

Within cloud deployment environments in 2020, compute platforms will remain the largest segment (50.9 percent) of spending at $37.7 billion while storage platforms will be the fastest-growing segment with spending increasing 21.2 percent to $27.8 billion, and the Ethernet switch segment will grow 3.9 percent year-over-year to $8.5 billion.

Spending on cloud IT infrastructure increased across all regions in 2Q20 with the two largest regions, China and the U.S. markets, delivering the highest annual growth rates at 60.5 percent and 36.9 percent respectively. In all regions except Central & Eastern Europe and the Middle East & Africa, growth in public cloud infrastructure exceeded growth in private cloud IT.

At the vendor level, the results were mixed. Inspur more than doubled its revenue from sales to cloud computing environments, climbing into a tie for the second position in the vendor rankings while the group of original design manufacturers (ODM Direct) grew 63.6 percent year-over-year. Lenovo's revenue exceeded $1 billion, growing at 49.3 percent year over year.

Outlook for Cloud IT Infrastructure Investment Growth

Long term, IDC expects spending on cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 10.4 percent, reaching $109.3 billion in 2024 and accounting for 63.6 percent of total IT infrastructure spend.

Public cloud datacenters will account for 69.4 percent of this amount, growing at a 10.9 percent CAGR. Spending on private cloud infrastructure will grow at a CAGR of 9.3 percent. Spending on non-cloud IT infrastructure will rebound after 2020 but will continue to decline overall with a CAGR of -1.6 percent.

I believe that the growth of leading hyperscale cloud service providers will still outpace, by far, all the other companies in the sector. That said, there are upside opportunities for smaller cloud service providers within niche IT applications and some industry verticals. Domain expertise matters, and the ability to provide information and guidance to those that lack the experience of the early-adopters.