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Enterprise data centre investment to bounce back this year

Enterprise spending was put on hold in 2020, as businesses delayed infrastructure refreshes, but signs point to renewed consolidation this year.

Enterprise data centre investment shrank in 2020, as organisations delayed infrastructure upgrades and flocked to the public cloud. But growth is expected to return in 2021, and equipment vendors are confident of a bumper year.

On Friday, Sanjay Mehrotra, CEO of US memory chip manufacturer Micron said his company was “positioned for success” in the data centre market in the coming months and years, as it reported revenue growth in the last quarter.

He told the company’s earnings call: “In data centre, cloud and AI will drive long-term growth with memory and storage becoming an increasing portion of server bill of materials cost. New compute architectures are enabling more memory channels and higher density modules, contributing to increases in server memory content.”

Data centre spending on the up

Global data centre spending fell 10.3% in 2020, with analysis from Gartner showing that 60% of new data centre projects were put on hold due to Covid-19 lockdowns. But the market is expected to grow 6% in the coming year, with spending again topping $200bn, though failing to reach its 2019 peak of $210bn.

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Naveen Mishra, senior research director at Gartner, said that falling demand from enterprise saw the market contract, with businesses focused on “keeping the lights on” during a difficult period. Public cloud spending, however, remained relatively buoyant.

“CIOs and their teams delayed infrastructure refreshes, extended life cycles, or moved workloads to the public cloud,” Mishra explains. “The flip side of that is that we’ve seen the hyperscalers headquartered in the US and China continue their expansion plans around the world.”

Though most investment in the sector currently comes from enterprise, Gartner expects that by 2023 this will change, with cloud accounting for most of the spending, meaning vendors will need to be alert to this changing market. “Right now the mix is pretty close, but tilts towards enterprise,” Mishra says. “In the next 24 months, we expect that to change.”

Within enterprise data centres, much of the new spending will be driven by a desire to consolidate assets. “A lot of CIOs now want to drive more efficiency and cost optimisation with the intent of driving down the per-unit cost of IT,” Mishra says. “So I think consolidation is going to be a big theme that will drive the decision making in the next six to 12 months.

“They are trying to consolidate their infrastructure and data centre footprint, and to do this they are looking at some of the emerging technologies.”

Investments in areas such as software-defined data centres, software-enabled infrastructure, or composable infrastructure could prove popular, he adds.

Vendors cash in on hyperscaler demand

Some vendors were able to ride out the enterprise data centre spending dip because demand for space from cloud hyperscalers remained high. Indeed, Micron enjoyed a successful 2020, and posted revenue of $5.77bn for the three months to 3 December, up 12% year-on-year and beating analysts expectations of $5.66bn. The news sent its share price to its highest level since 2000.

data centre spending
Micron Technology hopes to grow its presence in the data centre space. (Photo by Charles Knowles/Shutterstock)

Its ambitions in this space have been helped by the arrival of its ultra-bandwith HBM2E memory, which started revenue shipping in Q1 and is used in data centres. Available in four-layer 8GB and eight-layer 16GB stacks, with transfer speeds of up to 2.8Gbps or 3.2Gbps respectively, it is designed to be used in server chips that support AI training applications. The company is already working on its successor, a higher-bandwidth memory dubbed HBMnext, which was announced last year and is expected to arrive in 2022.

Mehrotra did not reveal further details of HBMnext on his call with analysts, but was bullish about Micron’s prospects for 2021 on the back of continuing growth in demand for cloud products.

“Compared to our pre-Covid expectations, 2020 was a strong year for cloud and we did well,” he says. “It was good for the industry and good for us as well. In 2021 we’ll continue to see strength in cloud, a healthy business environment and healthy demand for cloud.”

Featured photo by Gorondenkoff/Shutterstock.

Matthew Gooding

News editor

Matthew Gooding is news editor for Tech Monitor.