LONDON (April 6, 2020) — Data center capital spending by cloud and colocation providers is expected to grow at a 9.8 percent compound annual growth rate (CAGR) from 2019 through 2023 as service providers work to stay ahead of customer demand, according to Omdia.

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

Data center capex fell 8 percent in the first half of 2019 compared to the second half of 2018. However, capex was up 8 percent from the first half of 2018, as reported by Omdia’s Cloud and Colocation Data Center Capex Market Tracker.

“Data-center capex tends to ebb and flow over time as service providers construct new data-center capacity and then absorb the new capacity based on demand,” said Alan Howard, principal analyst, colocation and cloud services, at Omdia. “Last year represented a major phase of data-center construction among the largest cloud and colocation service providers, as revealed by Omdia’s detailed forecast numbers for capex by category. 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.”

Variations in the performance of various capex categories are being driven by deployment timing. IT Infrastructure spending—including 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.

Land and building capex were down 10 percent HoH, and up 13 percent YoY.

Other developments reported by the Cloud and Colocation Data Center Capex Market Tracker include:

• 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.

Hyperscale cloud providers dominate capex

In the first half of 2019, cloud service providers Google, Microsoft, Amazon and Alibaba alone represented 44 percent of total provider data-center capex spending of $17.2 billion, compared to total capex for the period of $39 billion.

Using our data center capex spend categories, Omdia also has gained visibility into how cloud providers invest their capex. In the first half of 2019, IT infrastructure made up 80 percent of capex spend, while physical infrastructure along with land and building capex made up the remaining 20 percent.

The COVID-19 wildcard

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 center 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 minimize foot traffic in data centers 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.