Thanks to the mania surrounding AI as well as the impact of inflation, spending on servers and storage for cloud deployments climbed in the first quarter of this year. Looking ahead, cloud infrastructure sales are expected to grow over the next four years while on-premises spending will diminish, reports IDC.
The research firm’s quarterly enterprise infrastructure tracker finds that spending on compute and storage infrastructure products in the first quarter increased 14.9% year over year to $21.5 billion. Spending on cloud infrastructure continues to outpace the non-cloud segment, which declined 0.9% in 1Q23 to $13.8 billion.
Demand was down, but prices spiked, IDC reports.
In the cloud infrastructure segment, unit demand fell 11.4%, but average selling prices grew 29.7%. IDC attributes the soaring prices to a combination of inflationary pressure as well as a higher concentration of more expensive, GPU-accelerated systems being deployed by cloud service providers.
This matches recent projections from another market researcher: Omdia said unit sales for servers were down for the first time in almost two decades, while prices were up because of dedicated AI servers with expensive GPUs in them.
Spending on shared cloud infrastructure reached $15.7 billion in the first quarter of 2023, increasing 22.5% compared to a year ago. IDC expects to see continuing strong demand for shared cloud infrastructure, which is predicted to surpass non-cloud infrastructure in spending in 2023. (Shared cloud services, according to IDC’s definition, include public cloud services as well as digital services such as media/content distribution, sharing and search, social media, and e-commerce.)
For the full year 2023, IDC forecasts cloud infrastructure spending to grow to $96.4 billion, which is up 7.3% compared to 2022, while non-cloud infrastructure is expected to decline 6.3% to $60.4 billion. The market will face significant macroeconomic headwinds and curbed demand, IDC says. As a result, the cloud market will expand while the non-cloud segment will contract as enterprise customers shift towards capital preservation.
“Cloud infrastructure spending remains resilient in the face of macroeconomic challenges,” said Kuba Stolarski, research vice president for IDC’s infrastructure systems, platforms, and technologies group, in a statement. “However, the segment is grappling with substantial price hikes, and Q1 marked the second consecutive quarter of declining system unit demand. Although the overall outlook for the year remains positive, its growth hinges on the expectation that volume will drive it. Prolonged stagnation in demand could pose a significant obstacle to growth for the remainder of this year.”
There was a dip in sales of servers and storage for hosting under rental/lease programs such as HPE GreenLake, Dell APEX, and Lenovo TrueScale; that segment fell 1.5% to $5.8 billion, according to IDC. But that was a quarterly aberration. In the trailing 12 months, sales of gear into dedicated cloud use have risen by 18.7%.
So, by and large, on-premises sales continue to slow while cloud sales increase. This reflects the increasing migration of services, including AI as a service, to the cloud.
Long term, IDC predicts spending on cloud infrastructure to have a compound annual growth rate (CAGR) of 11.2% over the 2022-2027 forecast period, reaching $153 billion in 2027 and accounting for 69% of total compute and storage infrastructure spend. Shared cloud infrastructure will see a 11.9% CAGR and reach $110.1 billion by 2027, while spending on dedicated cloud infrastructure will grow at a CAGR of 9.6% to $42.9 billion.
IDC did not specify what is driving sales, but AI is a logical choice. It is extremely compute- and storage-intensive, and it is now a top priority at a number of firms. In a survey of 100 executives by CNBC Technology Executive Council, nearly half of companies (47%) said AI is their top spending area in technology over the next 12 months, and 58% said AI is a critical part of their strategy.
Copyright © 2023 IDG Communications, Inc.
