Alan Weissberger Cloud Computing Technology

Dell’Oro: Cloud Services to benefit from COVID-19; CAPEX to increase

According to a recently published report from Dell’Oro Group, Cloud data center capex is forecasted to be higher this year despite challenges caused by the COVID-19 pandemic.

According to a recently published report from Dell’Oro Group, Cloud data center capex is forecasted to be higher this year despite challenges caused by the COVID-19 pandemic.

“We project a steep decline in enterprise IT spending [1] due to severe near-term supply and demand disruptions from COVID-19. Enterprises will seek to conserve capital during these uncertain times and resort to the Cloud to satisfy near-term demand for digital services. We expect that the Cloud service providers will need to expand their infrastructure at a measured pace to capture this incremental demand,” said Baron Fung, Research Director at Dell’Oro Group.

Baron Fung, Research Director at Dell’Oro Group, is shown in this photo.
Baron Fung, Research Director at Dell’Oro Group, is shown in this photo.
Note 1.  International Data Corporation (IDC) corroborated the steep decline in enterprise IT spending in two new reports Worldwide Quarterly Server Tracker and Worldwide Quarterly Enterprise Storage Systems Tracker.  The market research firm said that end-user spending on IT infrastructure (server and enterprise storage systems) will decline in 2020 as a result of the widespread coronavirus pandemic. Under the “current probable scenario” server market revenues will decline 3.4% year over year to $88.6 billion and external enterprise storage systems (ESS) revenues will decline 5.5% to $28.7 billion in 2020. The server market is expected to decline by 11.0% in Q1 and 8.9% in Q2 and then return to growth in the second half of the year. The external ESS market is forecast to decline by 7.3% in Q1 and 12.4% in Q2 before returning to slight growth by the end of 2020 with further recovery expected in 2021.
“The impact of COVID-19 will certainly dampen overall spending on IT infrastructure as companies temporarily shut down and employees are laid off or furloughed,” said Kuba Stolarski, research director, IT Infrastructure at IDC. “While IDC believes that the short-term impact will be significant unless the crisis spirals further out of control, it is likely that this will not impact the markets past 2021, at which point we will see a robust recovery with cloud platforms very much leading the way.”

The Tier 1 Cloud service providers are due to resume spending on servers following a pause in 2019.  “Despite recent market uncertainties, we anticipate the Tier 1 Cloud service providers to increase data center capex as planned, primarily on servers, as the sector seeks to resume capacity expansion,” Fung added.

Dell'Oro Group Logo. (PRNewsFoto/Dell'Oro Group)
Dell’Oro Group Logo. (PRNewsFoto/Dell’Oro Group)

Dell’Oro calculated that the top ten cloud service providers [2], in aggregate, spent US$66 billion on data center infrastructure during 2019, which was a 3% annual increase.  Amazon Web Services (AWS) maintained a 50% cloud revenue share during the year, while Microsoft Azure and Google Cloud Platform increased their respective cloud services market-shares.

Note 2.  In a February 4, 2020 report, Canalsys said that Cloud infrastructure services spending was up 37% in Q4 2019 to top US$107 billion for the full year. The worldwide cloud infrastructure services market reached a record high in Q4 2019, as spending grew 37% to over US$30 billion.  The market research firm reported that AWS, Microsoft Azure, Google Cloud and Alibaba Cloud were the top four cloud service providers.


Following are additional highlights from the 4Q 2019 Cloud Data Center Capex Quarterly Report:

  • The Top 10 Cloud service providers spent $66 billion, in aggregate in 2019, a 3 percent annual increase.
  • Amazon Web Services (AWS) maintained a 50 percent Cloud revenue share in 2019, although Microsoft Azure and Google Cloud Platform gained market share.
  • Spending on servers is projected to compose of 47 percent of data center capex in 2020.

About the Report

Dell’Oro Group’s Cloud Data Center Capex Quarterly Report details the capital spending of each of the ten largest Cloud service providers. Data is provided on facilities and servers by geographic region and availability zone as well as on the number of installed servers. The report also discusses market trends, drivers of the leading Cloud service providers’ capex growth during the quarter, and the outlook for the next year.



Author Alan Weissberger

By Alan Weissberger

Alan Weissberger is a renowned researcher in the telecommunications field. Having consulted for telcos, equipment manufacturers, semiconductor companies, large end users, venture capitalists and market research firms, we are fortunate to have his critical eye examining new technologies.

One reply on “Dell’Oro: Cloud Services to benefit from COVID-19; CAPEX to increase”

While Amazon Prime shipments/deliveries are now 3 to 4 weeks instead of 1 to 2 days, its AWS Cloud business is prospering during the pandemic. AWS was just 11% of AMZN revenue in its latest financial report, but contributed most of the company’s operating profit in the last few quarters.

“Cloud service providers such as Amazon Web Services (AWS) and Microsoft Azure will continue to see exceptional growth in their infrastructure offerings,” analysts with Moody’s Investors Service wrote. “While the transition to the cloud is a headwind for certain legacy software and hardware providers, the overall shift remains a net driver of revenue growth. We expect double-digit growth from cloud infrastructure players though moderately slower than their earlier pace.”

“Though some new cloud migrations will be postponed, the leading public cloud providers such as AWS and Azure will benefit from their ability to offer scaled-up infrastructure as certain workloads see a spurt in utilization,” the report says. “When business conditions stabilize, the migration toward the cloud could accelerate as enterprises weigh the benefits of the public cloud IT model, including scalable computer capacity and usage-based costs against on-premise investments and other governance factors.”

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