Traditional IT infrastructure spending surpasses cloud – for now

Vendor revenue from the sales of IT infrastructure products for cloud environments grew 28 percent year over year in the fourth quarter of 2018, reaching a total of US$16.8 billion.

This includes server, enterprise storage, and Ethernet switch revenue.

IDC's Worldwide Quarterly Cloud IT Infrastructure Tracker reveals annual spending in 2018 (vendor revenue plus channel mark-up) on public and private cloud IT infrastructure grew 4.5 percent to surpass $66 billion. This is forecast to reach $70.1 billion in 2019 with year-on-year growth of 6 percent.

Despite quarterly spending on public cloud IT infrastructure in 4Q18 being down 6.9 percent from the previous quarter, it still almost doubled in the past two years reaching $11.9 billion in 4Q18 and growing 33 percent year over year, while spending on private cloud infrastructure grew 19.6% percent to reach $5.75 billion.

IDC has been tracking IT infrastructures in different environments since 2013, and during this time public cloud has claimed the biggest piece of the pie for spending on cloud IT. In 2018 this peaked at 69.6 percent with annual spending growing at an annual rate of 50.2 percent, while private cloud grew 24.8 percent.

In the final quarter of 2018, vendor revenues from IT infrastructure sales in cloud environment declined and once again were lower than revenues from sales into traditional IT environments, accounting for 48.3 percent of the total worldwide IT infrastructure vendor revenues, up from 42.4 percent a year ago but down from 50.9 percent last quarter.

For the full year 2018, spending on cloud IT infrastructure remained just below the 50 percent mark at 48.4 percent.

* IDC declares a statistical tie in the worldwide cloud IT infrastructure market when there is a difference of onepercent or less in the vendor revenue shares among two or more vendors.

** Due to the existing joint venture between HPE and the New H3C Group, IDC will be reporting external market share on a global level for HPE as "HPE/New H3C Group" starting from Q2 2016 and going forward.

Spending on all three technology segments in cloud IT environments is forecast to deliver slower growth in 2019 than in previous years. Ethernet switches are expected to post the healthiest growth with 23.8 percent, while spending on storage platforms will grow just 9.1 percent, and remain flat on compute platforms.

The rate of annual growth for the traditional (non-cloud) IT infrastructure segment slowed down from 3Q18 to below 1 percent but the segment grew 11.1 percent quarter over quarter. For the full year, worldwide spending on traditional non-cloud IT infrastructure grew by 12.2 percent, as the market has started going through a technology refresh cycle, which will wind down by 2019.

IDC expects the spending proportion on traditional non-cloud IT infrastructure to continue dwindling, representing just 40.5 percent of total global IT infrastructure spending by 2023 – as opposed to 51.6 percent in 2018. This share loss and the growing share of cloud environments in overall spending on IT infrastructure is common across all regions.

"The unprecedented growth of the infrastructure systems market in 2018 was shared across both cloud and non-cloud segments," says IDC platforms and technologies infrastructure systems research director Kuba Stolarski.

"As market participants prepare for a very difficult growth comparison in 2019, compounded by strong, cyclical, macroeconomic headwinds, cloud IT infrastructure will be the primary growth engine supporting overall market performance until the next cyclical refresh. With new on-premises public cloud stacks entering the picture, there is a distinct possibility of a significant surge in private cloud deployments over the next five years."

In terms of global growth, all regions grew their IT infrastructure revenues by double digits in the fourth quarter of 2019.

Regions among the fastest growing included Western Europe (39.7 percent), Latin America (37.9 percent), Japan (34.9 percent), Central - Eastern Europe and Middle East - Africa (30.9 percent and 30.2 percent, respectively), Asia/Pacific (excluding Japan) (APeJ) (28.5 percent), and the United States (15.5 percent).

In terms of countries, Canada claimed the fastest growth with 67.2 percent year on year, followed by China with 54.4 percent.

In the long term, IDC forecasts cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 10.9 percent, reaching $99.9 billion in 2023 and accounting for 59.5 percent of total IT infrastructure spend.

Public cloud data centers will account for 68.3 percent of this amount, growing at a 10.4 percent CAGR. Spending on private cloud infrastructure will grow at a CAGR of 12 percent.

Dell, HPE, Cisco, Inspur, and Huawei are the top five vendors with the biggest claims of the cloud IT infrastructure market in terms of revenue.