Private Cloud Spending Steady, Public Cloud Declines

November 11, 2019 Timothy Prickett Morgan

It is interesting to watch the progress of the transition from traditional bare metal machines running discrete workloads on separate systems to cloudy infrastructure that is virtualized and is therefore more malleable and also allows for the utilization to be driven up on systems.

Perhaps the most interesting thing is that the traditional, monolithic architecture is going away over the long term, but in the short term, cloudy infrastructure – at least determined by the amount of money that regular enterprises as well as the hyperscalers, cloud builders, and other service providers spend – rises and falls and is still shy of the 50 percent mark, at least according to statistics compiled by IDC for the second quarter of 2019.

It takes a while for IDC to add up the cloudy infrastructure spending, which includes servers, storage, and switching allocated to these systems, which is why the second quarter data is only coming out now. In the quarter ended in June, cloud infrastructure sales, which includes both private cloud machinery sold to enterprises as well as for that peddled to the hyperscalers, cloud builders, and service providers, fell by 10.3 percent to $14.1 billion. Within this, public cloud infrastructure sales in Q2 2019 fell by 15.1 percent to $9.4 billion, while sales of private cloud infrastructure actually rose by seven-tenths of a point to $4.7 billion.

IDC reckons that sales of all servers, storage, and switching, after overlapping sales are removed from each category in the overall sales we see from IDC each quarter, fell by 10.1 percent to $29.1 percent, and that means non-cloud IT sales – traditional bare metal machines – fell by 9.9 percent to $15 billion. If you do the math, the cloud portion of total datacenter infrastructure sales was 48.4 percent, down from the peak of 50.9 percent of total sales in the third quarter of 2018.

IDC has been forecasting a very aggressive transition from non-cloud to cloud, and it has not been panning out exactly as planned, and the latest forecast shows traditional datacenter gear holding at 42.4 percent of total sales even out to 2023. Take a gander at this chart:

This is a very gradual transition, but it is being mitigated by one factor: A lot of modern workloads are deployed on bare metal machines, and even those that are not are deployed on container environments running on bare metal machines, and that is not, strictly speaking, cloudy as we know it. But, one could argue that containers are absolutely cloudy even if they are not using virtual machine hypervisors. We do, however, agree with IDC that there is definitely a shift away from bare metal for a lot of workloads. The real question is where is the natural split of bare metal versus virtualized either with hypervisors or containers? That is not obvious in this analysis from IDC.

It is also very hard to see the trend lines for public cloud, private cloud, and all cloud revenues per quarter versus non-cloud revenues, so we built our own chart after calculating some of the datapoints that are not explicitly given by IDC (but which are implicitly there if you do a little math as we have done). The chart below gives you a better sense of what has been going on since 2014, when IDC first started to consolidate and de-duplicate its server, storage, and switching data and cut it up into cloud and non-cloud categories:

As you can see, both public and private cloud spending have their ups and downs, even if the general trend lines are up and to the right. Moreover, non-cloud IT spending has been holding more or less steady at an average of around $17 billion per quarter, if you level it out a little bit. It is not like non-cloud IT is plummeting at 20 percent or 25 percent every quarter, which would be cataclysmic for a lot of IT vendors. That said, the share of cloudy infrastructure has doubled in about five years, from about a quarter of the pie to half the pie, and that is significant given that the pie is also nearly half again as large as it was.

A few interesting points. First IDC has revised downward its spending forecast for cloud infrastructure spending for 2019 already twice this year. Back in June, when the first quarter numbers came out, IDC chopped the forecast by 4.5 points with growth expected at only 1.6 percent to $66.9 billion. Now, IDC is revising it downwards again by 4.9 percent, showing a 2.1 percent decline year on year to $63.6 billion. Other interesting stats embedded in the data. In the second quarter, compute is projected to represented $33.8 billion of that total cloud infrastructure spending, down 2.4 percent. Ethernet switching spending is expected to grow at 13.1 percent and storage spending is expected to decline by 6.8 percent.

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