Enterprise spending on cloud data centers shot up to a three-year quarterly high in Q1 2022 and is expected to grow further or continue the momentum in the year ahead, according to the Dell’Oro Group.
In its 1Q 2022 Data Center IT Capex Quarterly Report, market research company Dell’Oro Group has revealed that capital expenditure on data centers continued to increase in Q1 2022 and will continue to do so in the near future, courtesy a surge in higher per-unit infrastructure costs for cloud deployments.
A dampened supply chain could’ve played spoilsport, but organizations continued to outspend themselves. “Data center capex grew double-digits year over year in (Q1) 2022, despite persistent supply chain constraints,” stated Dell’Oro Research Director Baron Fung.
“We anticipate further upside in data center capex later this year, as the (top four) cloud service providers expand their services and as server memory prices trend higher.” So a higher capex on data centers is not so much a function of higher demand resulting from supply-side problems as it is of jacked-up price points.
Higher per-unit infrastructure costs for new cloud deployments basically mean companies get less for the same amount of capital. But cloud providers have no plans to slow down, according to the Dell’Oro Group, thanks to increasing demands for multi- and hybrid-cloud deployments.
Dell’Oro assessed that top hyperscalers, including Amazon, Microsoft, and Google, have enough impetus to proceed with their plans for operational expansion to 30 new regions. Notably, state-of-the-art hardware (GPUs et al.) for accelerated computing services such as artificial intelligence and machine learning chips, not to mention new data center footprint and network upgrade cycle, may drive higher infra spending.
See More: How to Set Your Cloud Up for Success with the Right IT Infrastructure
Some of this spending could spill over to the next year, but that’s evaluated purely from challenges in the supply chain. Fung told The Register, “Originally, the sentiment was that supply chain would stabilize in the second half of this year, but that doesn’t appear to be the case anymore.”
Dell’Oro also expects server unit growth to be in high single-digits in 2022 due to persistent supply chain issues. But once again, unit growth is expected to be lower than the corresponding growth in capex.
For example, the capex of the top four operators was expected to grow 28% in 2022, according to Dell’Oro’s report for Q4 2021, which was released in March this year. The research company’s latest report ascertained an additional 25% capex by the same four companies.
Naturally, a disparate rate of growth in data center/server units and capex could mean cloud providers may offset higher costs to end-users. Meanwhile, as supply chain constraints are expected to ease by late 2023, demand will stay higher than the supply, which going by the law of supply and demand, could mean higher prices.
Current uncertainty makes it difficult to predict how this relationship will affect the price elasticity of cloud services once supply chain challenges subside.
Over the long term, Dell’Oro Group predicted in February 2022 that data center operators will double their capex levels by 2026 to $350 billion.
Let us know if you enjoyed reading this news on LinkedIn, Twitter, or Facebook. We would love to hear from you!
