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Global Server Revenues to Grow 17% YoY in 2022

  • Global server revenues will grow 17% YoY in 2022 to reach $111.7 billion.
  • Global server shipments will rise 6% YoY in 2022 to reach 13.8 million units.

New Delhi, Boston, Toronto, London, Hong Kong, Beijing, Taipei, Seoul – June 7, 2022

The global server market’s revenue will grow 17% YoY in 2022 to reach $111.7 billion, according to Counterpoint’s Global Server Sales Tracker. From an enterprise perspective, transformation to hybrid cloud and upgrades of existing infrastructure to handle increased workloads will provide growth impetus after a pause during the COVID-19 pandemic. 5G, automotive, cloud gaming and high-performance computing will remain the key drivers for cloud service providers in data center expansion.

The market is evolving with the introduction of “As-a-Service” and “pay per use” models by server companies, like Pointnext from HPE, APEX from Dell and TruScale from Lenovo. The business model pivot has been enjoying great success due to more flexibility given to the customer at minimum capital expenses due to the emergence of workload-based infrastructure.

Looking at the overall market, Research Analyst Akshara Bassi said, “In an inflationary but extremely dynamic environment, companies are looking to strengthen their infrastructure as they prepare for Web 3.0 demands from the infrastructure end. Companies are diversifying their IT infrastructure to meet the needs of data evolution and making customers cloud-ready.”

Counterpoint Research Global Server market Revenue

Global Server Market Observations, 2018-2021

  • Revenues were flat in 2020 and early 2021 owing to the pandemic and less spending by enterprises on IT infrastructure upgrades and expansion.
  • In H2 2021, there was a backlog due to supply chain disruptions across the whole value chain from accelerator chips to power ICs, which has trickled into H1 2022.
  • The demand in 2021 picked up due to investments by hyperscalers in the fields of supercomputing, edge computing and 5G deployment. From an enterprise perspective, the upgrades and expansions happened to enable digital transformation along with cloudification of processes.
  • The shipments rose at a single digit owing to better attach rates and higher configurations within the servers.
  • Higher compute and storage requirements by customers along with supply chain disruptions raised the average unit price considerably for the server units.

Counterpoint Research Global Server market Revenue by Company

Commenting on the server market, Bassi said, “Dell and HPE are the server market icons but are seeing companies like Lenovo, Inspur and Supermicro giving strong competition as demand for flexible customised configurations in bare metal option continues to rise.”

ODM Direct grew at a higher pace by 3 percentage points than the overall market for 2021 indicating shift towards ODM direct as choice of hardware for large scale Data Center deployments. Foxconn and Quanta have been gaining significant market share over the years as hyperscalers continue to expand and favor ODM Direct for their data center orders.

Key Market Drivers, 2022

  • Edge servers: Edge server configurations will be a key driver of growth in server shipments as companies start enabling chip-to-cloud features within the devices and 5G deployments make IoT use cases penetrate across all verticals – consumer, industrial, healthcare and banking.
  • Metaverse: The infrastructure spends to enable the Metaverse will give an impetus to servers as they are the building blocks of the Metaverse. Major internet corporations and hyperscalers have already detailed their plans for spends on Metaverse infrastructure.
  • Supercomputing: Many enterprises are building their own supercomputers to develop software that can unleash Web 3.0 on consumers. From a government perspective, supercomputers are becoming ubiquitous in every research department within it – from being used only in defense initially to climate and healthcare now.
  • Cloudification of services: Many services are increasingly becoming cloud-based offerings as opposed to device-based earlier, with device storage and compute needs being taken care of by cloud-based services. Data centers, and thereby servers, are an integral part of the infrastructure needed to enable these services.

Note: ODM Direct constitutes sale to hyperscalers and whitelabel device sales to Enterprises directly.

Background

Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

Analyst Contacts:

 Akshara Bassi

 

 Dale Gai

 

 Neil Shah

 

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The Hybridisation of Hybrid Cloud

As the corporate world experiences an accelerated digital transformation owing to fundamental changes in workplace and consumer habits, most enterprises are adopting the cloud to pave the way for this change.

However, choosing to grow with the cloud comes with its own set of challenges that makes skeptics out of believers. Earlier, it was a binary choice between a public cloud and a private cloud (or expansion of the on-premises infrastructure). On the other hand, in a hybrid cloud, the benefits of public cloud, namely lower TCO (total cost of ownership), agility and higher speed, get married with the security, compliance and on-demand geographical data access provided by a private cloud.

The use cases for hybrid cloud go way beyond the obvious. Apart from the apparent adopters like telecom operators and the gaming industry due to the low latency it offers, we see financial institutions and media entertainment houses, which struggle with strict compliance and data residency rules, adopting hybrid cloud. This enables them to innovate at a higher pace while still complying with regional data laws.

Counterpoint Research Hybrid Cloud Infographic​

 

The hybrid cloud ecosystem is undergoing critical changes, with major public cloud providers offering customized solutions for those opting for hybrid cloud deployments. The emergence of Hybrid Cloud as a Service in the past two years has morphed into a more sophisticated bundle of offerings to accommodate varied workloads while driving cloud adoption. We expect a majority of enterprises to move to this medium in a multi-cloud environment in the next three years.

Cloud providers are increasingly focusing on multiple vendor partnerships to offer full-stack solutions that boost interoperability. This need for a symbiotic relationship is driven by the fact that the security and privacy of data is the most important resource while evaluating IT infrastructure. Therefore, the gaps in the public cloud are seemingly filled with hybrid cloud solutions.

Some recent industry examples include IBM’s acquisition of RedHat, HPE’s partnership with Nutanix, VMWare Cloud on AWS, Netapp with Equinix, and Istio–Google partnership with Cisco. These partnerships are driven by the confluence of the following trends prevailing in the industry:

  • Accelerated rate of 5G adoption: According to Counterpoint estimates, in Q1 2021, every one out of three smartphones sold was 5G enabled. In evolved markets like the US, Europe, China, Japan and South Korea, the sales were past the 50% mark and adoption levels nearing 80%.
    As the emerging economies embrace 5G, the onslaught of data generated will push telcos to turn to hybrid cloud infrastructure to quickly meet the rising demand and region-specific data compliance agreements.
  • Rise of AI and ML workloads: AI-specific workloads have increased considerably in the past two years. AI/ML workloads require modern IT infrastructure to glean insights from them. It is evidenced by the rise of AI/ML as-a-Service segment in major cloud providers’ portfolios. As the enterprises focus on application development to support product releases enabled by AI insights, the focus shifts from IT infra handling to DevOps Productivity. The hybrid cloud enables the enterprises to focus on the application while taking away the pain of being a Data Center Manager!
  • Edge compute: The unprecedented volumes of data generated at the edge are accelerated by 5G and are outpacing the traditional compute infrastructure. Real-time data analysis has transitioned from ‘should have’ to ‘must have’ for the enterprises. Counterpoint estimates that IoT shipments have increased ~25% in the last two years. We see cloud providers increasingly offering specialized Edge services – AWS IoT Greengrass, Azure IoT, IBM Edge Computing, HPE IoT and many more. In fact, nowadays almost every player has a service catering to Edge compute.

Companies are increasingly adopting this ‘best of both worlds’ solution called the hybrid cloud, which drives their IT and business priorities. We believe that this trend will accelerate even further as 5G penetrates globally and enterprises reach turnaround points in their digital transformation journey.

The interesting thing to look forward to as 2021 rolls into its latter half will be the introduction of Specific Workloads aaS (as a service) at Edge and the offerings of hybrid cloud supporting multi-cloud environment.

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Azure Arc: A Paradigm Shift in Hybrid Cloud Management

Microsoft announced Azure Arc on 4th November 2019 at the Ignite 2019 conference. Azure Arc enables enterprises to deploy Azure cloud services, on any type of on-premises infrastructure as well as in a multi-cloud environment. As hybrid cloud strategies for enterprises gain more popularity, app and cloud management will be a more sought-out service that public Infrastructure as a Service (IaaS) can provide. In this regard, Microsoft’s biggest competitors, AWS and Google Cloud have also recently launched their hybrid cloud management services, AWS Outposts, and Google Anthos, respectively.

A hybrid cloud strategy is an enterprise cloud strategy that involves managing and operating workloads across different infrastructure environments, namely, on-premises, private cloud or public IaaS cloud. Enterprises often need to keep confidential data on-premises or in a private cloud. However, other less sensitive data and applications can be maintained in public cloud environments because it can be more cost-effective and offer additional features. Azure Arc has added a further dimension to this hybrid strategy with managing resources across multiple public cloud platforms.

According to Microsoft, Azure services can be enabled on any computing platform, including Windows and Linux servers, located on-premises, in the cloud or at the edge. Any Windows or Linux server, even those running behind a firewall and proxy, can be registered with Azure Resource Manager. VMs running on top of VMware vSphere, Amazon EC2, and Google Compute Engine can also be registered with the Azure Resource Manager.

In addition to this, Microsoft said that Azure Arc can also register Kubernetes clusters. Once registered, any Kubernetes cluster can be managed like Azure’s Kubernetes Service (AKS). Customers have the flexibility to deploy Azure SQL Database and Azure Database for PostgreSQL Hyperscale, where they need it, on any Kubernetes cluster.

From the Azure portal, customers get a unified and consistent view of all their Azure data services running across on-premises and clouds and can apply consistent policies for security and governance across the different environments. Microsoft has a good hold in the enterprise cloud market; however, it has limited visibility among start-ups due to better offerings from AWS and Google Cloud in terms of pricing and services.

AWS’ hybrid cloud solution, Outposts, combines pre-configured hardware and software to the customers’ on-premise data center or co-location space to run applications in a cloud-native manner, without having to operate from AWS data centers. Currently, users can utilize EC2 instances and EBS volumes for storage. At a later stage, Outposts will locally support Amazon ECS and Amazon EKS clusters for container-based applications, Amazon EMR clusters for data analytics, and Amazon RDS instances for relational database services. However, until now, there has not been a multi-cloud solution being provided by AWS.

Google hybrid cloud solution, Anthos, is a combination of Google’s Kubernetes Engine (GKE), GKE on-premises and the Anthos Config Management console for unified administration and security policies across hybrid Kubernetes deployments. It can be run on customers’ existing servers. Anthos will also let users manage workloads running on third-party clouds like AWS and Azure, giving freedom to deploy, run and manage applications on any cloud. However, Google is yet to bring managed database services such as Cloud SQL and Bigtable to Anthos.

Azure Arc has shifted the paradigm of hybrid cloud management, by providing resource management on different types of servers as well as different cloud platforms. This feature will help its customers undertake cloud migration. This will also increase the cloud adoption for enterprises that are yet to migrate. Until now, Google Anthos is the closest competitor to Azure Arc, for example in the way it provides Kubernetes clusters across multiple cloud platforms. However, the absence of managed databases in Anthos gives Azure Arc an edge. AWS must boost its hybrid cloud management services to compete with Microsoft and Google. However, Microsoft will need to capitalize on this opportunity by targeting small and medium businesses as well as start-ups, as its competitors are chasing hard with their own multi-cloud management solutions.

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