Top insights for IT pros
From cybersecurity and big data to cloud computing, IT Brew covers the latest trends shaping business tech in our 4x weekly newsletter, virtual events with industry experts, and digital guides.
Trouble in paradise. There are signs that sluggish economic conditions are beginning to hit the data center and cloud industries, with Reuters and the Register reporting that revenue growth is beginning to slow down.
According to Reuters, over the last earnings season, the three major hyperscalers saw reductions in their annual cloud revenue growth rates compared to the quarter prior:
- Google Cloud was down over 9% from 44%.
- Microsoft Azure was down 6% from 46%.
- Amazon Web Services dropped 3% from 37%.
All three companies have separately announced that they are prolonging the expected lifetime service of their servers by an additional year or two—meaning they’ll spend less on replacing hardware.
The decline in revenue dovetails with Intel reporting that its data center and AI group business saw revenue shrink 16% to $4.6 billion, leading it to finally shutter its never-profitable Optane persistent memory business. The Register noted that analysts at TrendForce predicted in June that the global server business would slow in 2022, with Chinese hyperscalers Baidu, Alibaba, and Tencent all planning to tighten the belt on procurement.
Wait, isn’t cloud spending up? You betcha! Slower growth doesn’t mean slow growth.
Globally, the Register noted, Canalys data estimated that the infrastructure-as-a-service (IaaS) market was worth $62.3 billion in the three months ending June 2022. That’s up a third over the year prior. And even the somewhat depressed growth numbers for the three major hyperscalers leaves other fast-growing industries, like healthcare, in the dust.
Rather than demand, one cause might be lingering supply chain issues. Just a handful of component shortages can delay expansion plans, because a data center can’t go online with partially-built servers.
While inventories of many parts are high, Supplyframe chief marketing officer Richard Barnett told Reuters, “Assume 500 components are needed for a server, and 10 or 20 unavailable parts are preventing its completion.” Micron chief business officer Sumit Sadana told the news agency that shortages of those critical parts are causing other components to pile up in the supply chain with nowhere to be installed.
The Register also pointed to high energy costs in the UK—where an unprecedented heat wave courtesy of the climate crisis recently fried data farms struggling to maintain low ambient temperatures—as a shackle on data center growth. A recent report by Aggreko, a power generation and temperature control equipment manufacturer, found 57% of data center operators now spend somewhere between 10–30% of operating costs on electricity, with 25% spending even more. Over 70% of respondents said it was impacting their ability to compete.—TM
Do you work in IT or have information about your IT department you want to share? Email [email protected] or DM @thetomzone on Twitter. Want to go encrypted? Ask Tom for his Signal.