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Cloud and colocation data centre capex spend to top $125bn by 2023

A report from Omdia suggests that data centre capital spending by cloud and colocation providers is expected to grow at a 9.8 percent (CAGR) from 2019 through 2023 as service providers work to stay ahead of customer demand.

Worldwide capex is forecast to rise to $125 billion in 2023, up from $82 billion in 2019.

Data centre capex has tended to ebb and flow over the past couple of years, according to Alan Howard, principal analyst, colocation and cloud services, at Omdia.

“That's because as service providers construct new data-centre capacity and then absorb the new capacity based on demand.

"Last year represented a major phase of data-centre construction among the largest cloud and colocation service providers. Physical infrastructure spending in 2019 increased by 9.9 percent over 2018, outpacing IT infrastructure, which was up 1.7 percent. However, the pendulum is swinging the other way in 2020 with IT infrastructure growing by 12.3 percent and physical infrastructure rising by 8.4 percent compared to 2019," Howard explained.

Variations in the performance of various capex categories are being driven by deployment timing. IT Infrastructure spending, which includes servers, networks and storage equipment, was down 7 percent half-over-half (HoH) from the second half of 2018, and up 6 percent YoY from the first half of 2018. Physical infrastructure, including uninterruptable power supplies, power distribution units and cooling equipment, was down 11 percent HoH and up 12 percent YoY.

The research conducted by Omdia found that:

  • IT infrastructure will grow at a five-year CAGR of 9.9 percent from 2018 through 2025.
  • Physical infrastructure will rise at a CAGR of 8.5 percent.
  • Other land and building will rise by 12.7 percent.

In the first half of 2019, cloud service providers Google, Microsoft, Amazon and Alibaba alone represented 44 percent of total provider data-centre capex spending of $17.2 billion, compared to total capex for the period of $39 billion. IT infrastructure made up 80 percent of capex spend, while physical infrastructure along with land and building capex made up the remaining 20 percent.

Clearly the coronavirus pandemic has the potential for far-reaching economic impacts globally. There is not yet enough data or information to provide specific guidance regarding cloud and colocation markets or data centre capex.

Short-term implications remain to be assessed as it could take some time for coronavirus’ economic impacts to play-out in this sector. There are reports of service providers instituting policies to reduce foot traffic in data centres and postponing non-essential projects.

There is also the possibility of customers delaying deployments. Based on continuing non-secular trends and current market momentum, the longer-term prospects for continued growth should remain intact.

Neil Tyler

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