Cloud infrastructure spending drops for the first time since pandemic began

Full-year growth still expected as businesses continue to ramp up their infrastructure to keep up with remote working

Cybersecurity engineer- An engineer works on servers in a research and development cloud laboratory at Nokia OYJ in Ottawa, Ontario, Canada, on Friday, Jan. 25, 2019. The federal government just announced a $40-million investment in the company, some of which will go towards product improvement, cybersecurity tools development for telecommunications networks and 5G technology research. Photographer: David Kawai/Bloomberg

Spending on cloud infrastructure has declined in the second quarter of 2021, the first drop since the Covid-19 outbreak last year when companies scrambled to meet unprecedented demand for more cloud-based services amid a rise in remote working, the International Data Corporation said.

Spending on compute – a segment that refers to components required to run an operating system – and storage products for cloud infrastructure declined 2.4 per cent year-on-year in the April-to-June period to $16.8 billion, the first drop after six quarters of expansion. Notably, it compares to the 39.1 per cent yearly growth the market witnessed in the year-ago period amid the Covid-19 outbreak.

But spending on cloud services is still on track for full-year growth in 2021, the consultancy's latest quarterly tracker shows.

"Such discrepancy in growth rates attributable to exceptional events creates 'hard' comparisons that don't reflect long-term trends. The IDC expects to see continuously strong demand for shared cloud infrastructure with shared cloud infrastructure spending surpassing non-cloud infrastructure spending by 2022," the market intelligence firm said in the report.

Companies began to invest massively in cloud services after a pandemic-necessitated shift to remote working drove demand for such solutions last year.

Although restrictions on movement have been relaxed, the hybrid nature of work being adopted by companies is fuelling investments in cloud services.

Cloud infrastructure spending is expected to expand 12 per cent to $74.3bn for 2021, with non-cloud infrastructure expected to grow 2.7 per cent to $58.9bn after two years of declines, the IDC projects. For the full year, shared cloud infrastructure would increase 11.1 per cent annually to $51.4bn, while spending on dedicated cloud infrastructure is expected to grow 14.1 per cent to $22.8bn.

On a yearly basis, investments in non-cloud infrastructure increased 3.4 per cent in the second quarter to $13.4bn, recovering from a 7.2 per cent decline. Spending on shared cloud infrastructure hit $11.9bn, down 6.1 per cent, but was up 17 per cent from the first quarter of 2021.

The weakness in public cloud service provider demand comes after an exceptionally strong second quarter in 2020, where spending leapt 55.5 per cent, driven by heightened demand in the first months of the pandemic. Spending on dedicated cloud infrastructure rose 7.8 per cent year-on-year in the second quarter of 2021 to $4.9bn, with 46.5 per cent of this deployed on customer premises. The IDC expects cloud environments will continue to outpace non-cloud ones.

Cloud infrastructure spending rose across the Asia-Pacific sub-regions, Latin America, Canada and Central and Eastern Europe, but dropped in the US, Western Europe and the Middle East and Africa.

Canada had the strongest annual increase at 25.6 per cent, while Western Europe posted the biggest decline at 8.8 per cent. For the full year, however, spending is expected to increase across all regions compared to 2020.

Major vendors also reported mixed results in their cloud infrastructure revenue. Dell Technologies and the joint ventures of Hewlett-Packard Enterprise and New H3C, and Lenovo and Lenovo NetApp Technologies improved sales, while the Inspur/Inspur Power Systems partnership and Huawei posted declines compared to the second quarter of 2020.

Updated: October 3rd 2021, 12:20 PM
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