Advanced Computing in the Age of AI | Friday, June 9, 2023

IT Spending Shifting to Hyperscale Datacenters 

The rising value of the U.S. dollar along with modest declines in demand for IT and telecommunications services will slow the global pace of IT spending in 2015, a market watcher is forecasting.

Meanwhile, Gartner Inc. is forecasting a "tipping point" in the next three years as digital businesses shift from on-premise IT to hyperscale datacenters.

Gartner predicted this week that worldwide IT spending would grow to $3.8 trillion this year, a 2.5 percent increase over 2014. An earlier projection pegged the annual IT growth rate for this year at 3.9 percent. That forecast was revised downward as the dollar rises against the euro and other currencies. (The market watcher said plummeting oil prices would likely have had little impact on its quarterly projections.)

"The rising U.S. dollar is chiefly responsible for the change—in constant currency terms the downward revision is only 0.1 per cent," explained John-David Lovelock, Gartner's research vice president explained. "Stripping out the impact of exchange rate movements, the corresponding constant-currency growth figure is 3.7 percent, which compares with 3.8 percent in the previous quarter's forecast."

While currency fluctuations resulted in a 1.4 percent downward revision in Gartner's quarterly IT spending forecast, the market analyst noted that enterprise software continues to grow at a 5.5 percent clip. A key shift is away from software licensing to software-as-a-service, an option that brings with it monthly rather than annual payments. Lovelock noted that the "SaaS first" model provides greater agility as the Internet of Things emerges.

Gartner forecasts that SaaS will account for more than half of annual software deals this year.

Telecom services represent the lion's share of annual IT spending, totaling more than $1.62 trillion last year. That total is expected to increase by only 0.7 percent in 2015, Gartner forecast.

IT services represent the second-largest spending category, reaching $956 billion in 2014. Gartner is forecasting that global spending on IT services will increase 2.5 percent this year to $981 billion even as datacenter infrastructure spending remains essentially flat. The market analyst cited lower growth rates in some regions for enterprise software while economic uncertainty in the Russian and Brazilian markets squeezes short-term growth rates.

The Asia-Pacific region is the fastest growing market at 8 percent annual growth.

Overall, enterprise software spending shows the biggest annual increase, with Gartner predicting a 5.5 percent jump in spending this year to $335 billion. Gartner said it expects greater price erosion and vendor consolidation in 2015 as competition heats up between cloud and on-premises software providers.

Spending on datacenter systems is projected to reach $143 billion in 2015, a 1.8 percent increase from 2014, Gartner projected. Spending on datacenter infrastructure—servers, storage, networks—is projected to remain flat. But datacenter services and application support continues to soar as enterprises steadily shift from on-premise facilities to hyperscale datacenter providers.

Indeed, Gartner forecasts a tipping point in 2018 when traditional datacenters will no longer be able to meet the demands of a "digital business" era. Hence, its sees a continuous shift away from on-premise processing as more enterprises embrace hyperscale datacenters.

While projections for enterprise communications applications and network equipment spending were increased from the previous quarter's forecast, the market analyst said growth for the servers and storage segments was lowered. It cited "extensions in replacement life cycles and a higher than previously anticipated switch to cloud-based services."

Garter also foresees a continuing price war among cloud vendors such as Amazon Web Services, Google and Microsoft Azure heavily discount their cloud offering to maintain their customer base. Key areas of price competition include database management systems, application infrastructure and middleware, the market watcher predicted.