Cloud IT infrastructure revenues continue to expand

Vendor revenue from hardware infrastructure sales to public cloud environments in 1Q19 was down 13.4% compared to the previous quarter (4Q18) but increased 8.9% year over year to $9.8 billion. This segment of the market continues to be highly impacted by demand from a handful of hyperscale service providers, whose spending on IT infrastructure tends to have visible up and down swings. After a strong performance in 2018, IDC expects the public cloud IT infrastructure segment to cool down in 2019 with vendor revenue dropping to $44.5 billion, a 2.2% decrease from 2018. Although it will continue to account for the majority of spending on cloud IT environments, its share will decrease from 69.1% in 2018 to 66.5% in 2019. In contrast, spending on private cloud IT infrastructure has showed more stable growth since IDC started tracking sales of IT infrastructure products in various deployment environments. In the first quarter of 2019, vendor revenues from private cloud environments increased 16.9% year over year reaching $4.7 billion. IDC expects spending in this segment to grow 10.1% year over year in 2019.

Overall, the IT infrastructure industry is at a crossroads in terms of product sales to cloud vs. traditional IT environments. In 3Q18, vendor revenues from cloud IT environments climbed over the 50% mark for the first time but has since fallen below this important threshold. In 1Q19, cloud IT environments accounted for 48.8% of vendor revenues. For the full year 2019, spending on cloud IT infrastructure will remain just below the 50% mark at 49.4%. Over the long-term, however, IDC expects that spending on cloud IT infrastructure will grow steadily and will sustainably exceed the level of spending on traditional IT infrastructure in 2020 and beyond.

Spending on the three technology segments in cloud IT environments is forecast to deliver growth for Ethernet switches and storage platforms while compute platforms are expected to decline in 2019. Ethernet switches will be the fastest growing at 20.9%, while spending on storage platforms will grow slightly at 1.9%. Meanwhile, compute platforms will decline by 2.8% in 2019 but will remain the largest category of spending on cloud IT infrastructure at $34.2 billion.

Sales of IT infrastructure products into traditional (non-cloud) IT environments remained flat compared to 1Q18. For the full year 2019, worldwide spending on traditional non-cloud IT infrastructure is expected to decline by 3.5%, as the technology refresh cycle that drove market growth in 2018 is winding down. By 2023, IDC expects that traditional non-cloud IT infrastructure will only represent 42.4% of total worldwide IT infrastructure spending (down from 51.9% in 2018). This share loss and the growing share of cloud environments in overall spending on IT infrastructure is common across all regions.

"As the overall IT infrastructure goes through a period of slowdown after an outstanding 2018, the important trends might look somewhat distorted in the short term," said Natalya Yezhkova, research vice president, Infrastructure Systems, Platforms and Technologies at IDC. "IDC's long-term expectations strongly back continuous growth of cloud IT infrastructure environments. With vendors and service providers finding new ways of delivering cloud services, including from IT infrastructure deployed at customer premises, end users have fewer obstacles and pain points in adopting cloud/services-based IT."

Most regions grew their cloud IT Infrastructure revenues in 1Q19. Middle East & Africa was fastest growing at 35.3% year over year, followed by Western Europe at 25.4% year-over-year growth. Other growing regions 1Q19 included Central & Eastern Europe (18.3%), Canada and Japan (both at 14.6%), the United States (10.7%), and China (5.4%). Cloud IT Infrastructure revenues were down slightly year over year in Asia/Pacific (excluding Japan) (APeJ) by 1.2% and in Latin America by 0.2%.

Long term, IDC expects spending on cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 7.5%, reaching $94.5 billion in 2023 and accounting for 57.6% of total IT infrastructure spend. Public cloud infrastructure will account for 66.2% of this amount, growing at an 6.6% CAGR. Spending on private cloud infrastructure will grow at a CAGR of 9.4%.