1Q23 worldwide data center capex grows ‘only’ 8%: Dell’Oro

Global data center capex continued to grow in the first quarter of 2023, but at a lower rate than in previous quarters, according to Dell’Oro Group. The space saw capex increase by 8% during the quarter, with hyperscale capex growing at an even lower rate, the market research firm states in its new Data Center IT Capex Quarterly Report.

Hyperscale capex growth came in at 5%, as some data center operators in this group have begun what Dell’Oro called “a capex digestion cycle” that sees them reducing inventories.

“While data center capex for the hyperscalers will decline significantly this year, we project some of the cloud service providers such as Microsoft and Google will continue to increase spending by double digits,” stated Baron Fung, senior research director at Dell’Oro. “Meanwhile, the beginning of the year witnessed a slow start in enterprise IT spending, with revenues for the server and storage OEMs down Y/Y. We anticipate that the demand will continue to deteriorate throughout the first half of 2023. The lower demand environment will have an impact of slowing systems pricing growth, which could prompt customers waiting on the sidelines to resume spending later this year. In addition, the recent server platform refresh from Intel and AMD, and the growing demand on AI/ML applications, is expected to motivate customers to upgrade their infrastructure.”

Multiple factors keyed the slowing of capex growth trends, according to the report. Among them, server shipments by server OEMs declined 20% year-on-year in 1Q 2023, although white box server vendors saw shipments climb more than 20%. Looking forward, Dell’Oro has reduced its server and storage systems revenue prediction to 3% growth in 2023. Network and physical infrastructure revenues continue to on a double-digit revenue growth track, thanks in part to Dell’Oro’s belief that the Top 4 U.S. cloud service providers will launch services in 14 new regions this year. However, that figure is half the number of regions in which these operators launched new services in 2022.

Dell’Oro’s Data Center IT Capex Quarterly Report details the data center infrastructure capital expenditures of each of the 10 largest cloud service providers, as well as the “rest-of-cloud,” telco, and enterprise customer segments. Allocation of the data center infrastructure capex for servers, storage systems, and other auxiliary data center equipment is provided. The report also discusses market trends, drivers of the leading cloud service providers’ capex growth during the quarter, and the outlook for the next year.

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