Summary: While amount of data annually created in the world in 2020 will be 10x higher than in 2013, Enterprise Computing hardware is not experiencing similar uptick in demand. More intelligent ways to store, process and transport data are gaining traction and decreasing demand for additional hardware to accommodate increased data volumes. In a market set for a moderate +0.6% per year until 2019, China is emerging as the key market, accounting for 2/3 of incremental growth in revenue worldwide. Rising self-build/ODMs are significantly outgrowing overall market and calling for distinct supply chain solutions compared to service-oriented OEMs.
As per IDC Digital Universe, amount of data annually generated worldwide will reach 44 zettabytes (or 44 trillion gigabytes) by 2020, which is a tenfold increase from 2013. Yet, massive boost of data that needs to be stored, processed and moved is not driving the similar surge in hardware demand. New, more intelligent ways to store and manage same amounts of data with less space consumed are gaining traction.
According to Gartner, Enterprise Computing hardware market (Servers and Storage) was down -4.5% year-over-year in Q1 2017 in revenue and -4.2% in shipments. Full year outlook for 2017 is stabilizing, followed by moderate +0.6% per year until 2019, with divergent trends in Servers and Storage. Asia Pacific stands out as the most attractive market generating USD +2.3 billion incremental revenue growth in the next 3 years, while all other regions shrink or remain flat. China accounts for 89% of Asia Pacific increment, mainly created in Servers.
EMERGING SELF-BUILD/ODMS DEMAND DIFFERENTIATED SUPPLY CHAINS COMPARED TO SERVICE-ORIENTED OEMS
In the Servers market, forecasted to grow at a steady pace (low single digits) by 2019, hyper-scale data center segment has been increasing in spending. The enterprise and SMB segments remain constrained as end users in these segments accommodate their increased application requirements through virtualization and consider cloud alternatives. Hyper-scale data centers are mainly sourced through Self-build/ODMs, which are growing in their combined revenue +15.2% year-over-year. The requirements on the supply chain are changing to support a project driven, fast ramp up of large scale infrastructure - different compared to a more service-oriented “on premise” business model pursued by OEM vendors.
Shipment volumes to China are expected to pick up in the next three years, based on increasing demand for community clouds and consumer applications. Intensified competition from ODMs and China-based providers will further foster hardware price pressures. Major OEMs are pushed to rely on presales and post-sales support quality to differentiate their customer experiences, in the face of what promises to be more aggressive hardware pricing landscape.
RISE OF ALTERNATIVE STORAGE MODELS CALLS FOR HIGHER FOCUS ON COST EFFICIENCY OF SUPPLY CHAINS IN TAPERING HARDWARE MARKET
Over the course of the next three years, continuous explosive growth in enterprise data is eminent. However, hardware Storage market will continue to decline in overall revenue (-1.3% per year). Maturing evolution of alternative storage solutions such as public cloud, hyper-converged integrated systems (HCIS) and software-defined storage (SDS), and more cost-effective hybrid and solid-state array (SSA) systems are main factors causing the market to shrink. SSA market surged for +72.4% YoY reaching USD 4.6 bn in 2016, progressively displacing high-cost disk-based storage systems. These newly architected storage platforms incorporate diverse data efficiency and data reduction technologies, thereby delivering more intelligently managed storage for less money. That is extending the typical three- to five-year useful life of existing Storage systems by 24 months or more, reducing the Storage spending and calling for higher focus on cost efficiency of vendors’ supply chains.
Accelerated adoption of alternative storage models is already having a significant impact on revenue in mature countries, such as the US (-2.6% CAGR), Germany (-2.1% CAGR), the UK (-3.9% CAGR) and Australia (-4.4% CAGR). Emerging markets are still on low single digit positive annual growth. China is expected to see stable storage demand increase over the next 3 years on +4.4% CAGR, which underlines the high demand for data storage in these markets, while public cloud, HCIS and SDS are still to take full swing in the market.
Enterprise Computing has historically been a market that is slow to change, but a number of factors are making it an interesting space to watch, as traditional vendors and new entrants battle for IT budget dollars. As industry is experiencing transformation, vendors aiming to stay competitive have to follow, and adapt their supply chains accordingly.
Published: September 2017