Capital expenditure on compute and storage infrastructure products for cloud deployments surged by double digits in Q1 2022 and shows no signs of slowing down later in the year. Cloud-related spending will continue to exceed that of non-cloud infrastructure by a significant margin.
The surge in demand for shared cloud infrastructure will enable the domain to attract a greater capex than the whole of non-cloud infrastructure investment in 2022, says a recent IDC reportOpens a new window that evaluated capex by both service providers and enterprises.
The total cloud infrastructure spending in Q1 2022 increased 17.2% year-over-year to $18.3 billion, divided among shared ($12.5 billion) + dedicated cloud infra ($5.9 billion). IDC expects cloud infrastructure spending to surge even further for the entire year at 22% YoY to $90.2 billion (shared cloud: $63.9 billion + dedicated cloud: $26.3 billion).
Comparatively, non-cloud infrastructure spending, which grew 9.8% YOY to $14.8 billion in Q1 2022, is expected to grow only 1.8% to $60.7 billion in 2022. So by the end of this year, the shared cloud infrastructure will attract higher capex than that on the entirety of non-cloud infra.
Dedicated cloud infrastructure is designed for specific applications of companies and usually entails a service agreement. It is less affordable than shared infrastructure, which, as the name suggests, is designed to address small and medium businesses’ relatively simple cloud needs.
The surge in spending on all fronts, including cloud or non-cloud, indicates higher demand. However, IDC pointed out that inflation may have been shaping IT infrastructure demand by extension and spending.
“The increased forecast for both segments is partially driven by inflationary pressure and expectations of higher systems prices during 2022 as well as improvements in the supply chain in the second half of the year,†IDC noted. An inflated price means customers get less for the same amount, leading them to spend a little bit more to fulfill their computing needs.
Last month, the Dell’Oro Group said something similar in their assessment of industry-wide capex on the cloud data center. In the 1Q 2022 Data Center IT Capex Quarterly Report, Dell’Oro Group research director Baron Fung said:
“Data center capex grew double-digits year over year in (Q1) 2022, despite persistent supply chain constraints. We anticipate further upside in data center capex later this year, as the (top four) cloud service providers expand their services and as server memory prices trend higher.â€
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A consolidated table of IDC’s Q1 data and 2022 forecast is given below:
|
IT Infra Spending |
Q1 2022 (Absolute) | Q1 2022 (Growth) | 2022 (Absolute) |
2022 (Growth) |
|
Shared Cloud Infra |
$12.5 billion | 15.70% | $63.9 billion | 24.30% |
| Dedicated Cloud Infra | $5.9 billion | 20.50% | $26.3 billion |
16.80% |
|
Cloud Infra (Shared + Dedicated) |
$18.3 billion | 17.20% | $90.2 billion | 22% |
| Non-Cloud Infra | $14.8 billion | 9.80% | $60.7 billion |
1.80% |
Despite supply chain woes and higher prices due to inflation, the demand for cloud infrastructure has remained high, making it inelastic. Therefore, an improvement in supply chain constraints and lower inflation in the future could mean demand for cloud infra to remain inelastic but how it affects the price elasticity remains to be seen.
On the other hand, the demand elasticity for non-cloud infrastructure is impacted more by higher demand for cloud infrastructure and lesser by inflationary forces.
Looking ahead, IDC expects organizations to continue their reliance on cloud infrastructure. With shared cloud overtaking the value share of non-cloud infra spends in 2022, the gap is only expected to grow, as shown in the image below.
Worldwide Enterprise Infrastructure Buyer and Cloud Deployment Forecast | Source: IDCOpens a new window
Region-wise, Asia/Pacific excluding Japan and China or APeJC, outspent others, with its cloud spending growing 50.1% in Q1 2022. Japan, the Middle East, Africa, China, and the United States saw growth in double-digits, while cloud spending in Western Europe grew by 6.4%. Cloud spending in Canada, Central & Eastern Europe and Latin America declined 1.2%, 10.3%, and 11.3%, respectively.
IDC also released its Worldwide Semiannual Public Cloud Services Tracker last week that detailed how organizations spend on infrastructure as a service, platform as a service, software as a service system infrastructure and finally, the usual software as a service.
All four accounted for a 29% jump YoY to $408.6 billion in earnings, $177.8 billion of which came from SaaS, $91.3 billion from IaaS, $68.2 billion from PaaS, and $71.2 billion from SaaS SIS. 40% of the global market share, IDC found Microsoft, AWS, Salesforce, Google Cloud and SAP to be the top five public cloud providers in 2021.
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