A new report released by Dell’Oro Group highlighted that data centre capital expenditure (Capex) grew at the fastest rate year-over-year in three years within the first quarter of 2022.
Dell’Oro Group’s “Data Center Capex Quarterly Reports” highlight market outlook and track the top-ten Cloud service providers, as well as their major customer segments. The report devotes close attention to vendor spending and volume on data servers, using that as an important measure for overall spending on data centres.
Research Director at Dell’Oro Group, Baron Fung, observed that new cloud deployments and higher data center infrastructure costs drove these expenses despite ongoing supply chain constraints. Rising demand coupled with supply issues were reflected in a higher average selling price of data centre equipment as a whole. Fung added that data centre customers would need to bear the cost increases.
Dell’Oro Group anticipates “further upside in data center capex later this year, as the Top 4 cloud service providers expand their services and as server memory prices trend higher.”
Strong Demand for Data Centre Services Worldwide
The report highlighted that worldwide data centre capital expenditure was expected to trend higher throughout 2022. However, persistent supply chain challenges would continue to limit server growth to single-digits in 2022. Nonetheless, the top four American cloud service providers (Amazon, Google, Meta, and Microsoft) are expected to continue launching services in 30 new regions in 2022, a considerable boost to data centre growth.
Overall, customer demand for data centre services is expected to grow and remain high. This strong demand may be attributed to the development of new server architectures, especially when combined with increased demand for improved accelerated computing products. For instance, software company Nvidia has performed exceptionally well in recent quarters, with record sales for its advanced computing products. Nvidia’s advanced new designs for data centres, aimed at improving operational efficiency and offering better scalability, have also been innovative solutions for data centre growth and sustainability.
Persistent Supply Chain Issues
However, supply chain issues will continue to plague the data centre industry, ensuring that demand will outpace supply. This shortage would then contribute to rising capital expenditure as cost prices of important components are driven up.
For instance, the Russian invasion of Ukraine, as well as the ongoing tech decoupling between the US and China, continue to adversely affect key supply chains in the data centre industry. Both Russia and Ukraine are key suppliers of raw materials for semiconductor manufactures, which have been disrupted by the war. Biden’s policies to reduce economic interdependence between America and China include heavy sanctions which disrupt businesses’ operations and supply agreements with Chinese companies.
Hence, strong demand for data centre services will continue to drive investment and interest in the industry. However, given existing supply-chain woes, vendors are also more likely to pass on supply-chain costs to end-users.
“Outstanding Data Center Projects” is an awards category for this year’s W.Media Asia-Pacific Cloud & Datacenter Awards. Thinking of nominating or sponsoring? Visit our Awards Page for more information. Nominations are open until 31st July.
