Traditional IT Spending Bests Cloud Infrastructure, For Now

April 1, 2019 Timothy Prickett Morgan

Drawing the line between what is cloudy and what is not at this point in the history of the information technology business is not a trivial thing. But that’s why the analysts at IDC, Gartner, Forrester, and others get paid the big bucks to dice and slice the market so we can get a better of what is going on.

To hear the big public cloud providers talk, you would think that everything that companies buy to install on premises or rent from their bit barns is cloudy – which means that it is virtualized, available with metered pricing to end users in the organization, and that you can turn it off as easily as you can turn it on. The on premises cloudy gear sort of skirts this technical definition of cloud, but it comes close enough for market research work.

It takes quite a while to sort through all of the infrastructure sales to come up with a model that figures out public cloud, private cloud, and traditional infrastructure spending that includes compute platforms, storage platforms, and switching all lumped together. IDC released its reckoning of cloud versus traditional IT spending last week, and here is the deal. In the quarter, total spending on infrastructure that is cloudy in nature (public plus private) came to $16.8 billion, up 28 percent from the year ago period. Within this, spending on public cloud infrastructure came to $11.1 billion, up 27.8 percent, while spending on private cloud stuff (we are not sure if the IBM i platform is considered cloudy or not by IDC) rose by 28.4 percent to $5.7 billion. The entire market for IT infrastructure rose by 13.4 percent to $34.7 billion, with sales of traditional bare metal servers, virtualized servers, storage arrays, and switching infrastructure attached to them accounting for $17.9 billion, up 2.6 percent believe it or not. This is not the first time that cloudy infrastructure spending took a pause, as you can see from the chart below:

With that pause in cloud spending, revenues for traditional IT gear was actually considerably larger than for cloudy systems and services from public clouds, which is interesting and neat and, well, that’s probably the last time we are going to see that unless spending on public clouds – both by the companies providing the service and the companies buying the services – is severely crimped at some point in the future.

The forecast from IDC certainly bears this out on an annualized trend, as you can see below:

Traditional IT gear accounted for around 60 percent of revenues across those server, storage, and switching categories back in 2016, and in 2018 it managed to keep just a hair above half of the market at 51.7 percent of the total spending compared to 48.3 percent for the combination of private cloud and public cloud spending. (Let’s forget for the moment that public cloud spending is done by the hour, lumped up over days, weeks, and months, and that systems are bought all at once and then used and amortized over many years. This is like mixing apples and apple juice.) Over time, IDC expects for traditional IT gear to account for about 40 percent of total IT infrastructure spending, and it looks like that curve will be flattening out there. Cloud, it looks like, will not eat everything. Bare metal will have its place. We wonder what IDC thinks about bare metal iron running the Kubernetes cloud controller and Docker containers. Is that cloudy? We think it is, but it is not clear that IDC does.

According to IDC, Dell was the number one OEM supplier of cloudy infrastructure, with $2.82 billion in sales in the fourth quarter, up 41.6 percent. Hewlett Packard Enterprise (including its H3C partnership in China) ranked second with $2.05 billion in revenues, up 31.4 percent. The ODM vendors that sell to the public cloud builders as well as to the hyperscalers that sell services or deliver them free to have something to throw ads at saw more modest growth this time around, with sales up only 10.9 percent to $4.63 billion. Cisco Systems had $1.14 billion in cloud infrastructure sales in Q4 2018, up 11.6 percent, and Inspur, which sells a lot of iron into Alibaba, Tencent, and Baidu in China, posted 88.4 percent growth in its cloud infrastructure sales, to $950 million – nearly three times the market growth rate. Huawei Technology was right being its Chinese rival, with $910 million in cloud infrastructure sales, up 63.9 percent, more than twice the rate of the market at large. Other vendors accounted for the remaining quarter of the market and collectively they sold $4.27 billion in stuff, up 29.6 percent, just a tad bit more growth than the overall market exhibited.

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