UPDATED 13:41 EDT / JUNE 18 2018

CLOUD

Report: Public cloud infrastructure spending keeps surging

Synergy Research Group today popped out its latest report on the public cloud infrastructure market, revealing a relentless surge in hardware and software spending from the leading service providers.

Synergy’s data shows that spending rose by 32 percent in the first quarter from the same period in 2017, following what it said was an “unusually vigorous” start to the year. The growth in spending was the highest in nine quarters, the analyst firm said.

In normal years, the first quarter generally sees spending drop off following a seasonally strong fourth-quarter period. On average, first-quarter spending falls by about 10 to 20 percent from the fourth quarter, but this year the drop was just 2 percent.

Total quarterly public cloud infrastructure revenue is now “comfortably over $11 billion,” Synergy said. Ninety-five percent of these revenues came from servers, operating systems, storage, networking and virtualization software, with the remaining 5 percent made up of cloud security and cloud management.

The bigger story, however, is the growing market share of original design manufacturers, or so-called “white box” makers, which accounted for almost 30 percent of the total market revenue. The ODMs as a single group now lead the way, with traditional players such as Dell EMC, Cisco Systems Inc. and Hewlett-Packard Enterprise Co. holding a market share of between just 5 to 10 percent each. Microsoft Corp., Huawei Technologies Co. Ltd. and VMware Inc. each grabbed between 3 and 5 percent of the market.

Looking at the individual market segments, Synergy’s data shows that ODMs are making significant headway in server and storage hardware, where they have a clear lead overall. Cisco, however, is one legacy firm that continues to dominate its own specialist niche – networking gear – while Microsoft and VMware rule the roost in virtualization software.

Synergy said the growing dominance of ODMs is thanks to hyperscale public cloud players such as Amazon Web Services Inc. and Google Inc. favoring those suppliers, because they can provide the infrastructure they need at cheaper prices, tailored to their precise specifications.

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The rise of ODMs means that legacy companies such as Dell EMC and HPE are at risk of seeing their future growth opportunities being cut off, warned John Dinsdale, Synergy’s chief analyst and research director. He said these firms will probably need to take a multipronged approach in order to confront the challenge, which may or may not involve competing with ODMs in their high-volume but low-margin business selling gear to the hyperscalers.

“It would definitely need to involve a willingness to support hardware design which is far removed from the needs of enterprise customers,” Dinsdale said.

Other than that, Dinsdale said options for legacy companies include a focus on lower-volume, higher-value areas of hyperscale operators’ needs, doubling down on enterprise markets and more focus on small-to-medium data center operators, software and management and services and channels.

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