Does Cloud Really Hamper Server Sales? - InformationWeek

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5/30/2014
09:06 AM
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Does Cloud Really Hamper Server Sales?

Common sense suggests that mainstream cloud adoption will gut server sales, but that's not really happening, analysts say. Here's why.

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8 Data Centers For Cloud's Toughest Jobs
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It's often said that tablets are eviscerating traditional PC sales. That's an overstatement, but the same logic could be applied to traditional servers: As companies move the workloads once assigned to on-premises infrastructure to the cloud, they'll buy fewer servers. Right?

Again, there's some partial truth there. There are businesses, especially new startups and other small companies, that do just about everything online. There are plenty of others that have opted to move at least part of their infrastructure to the cloud, rather than maintaining their own data centers. And there's a bevy of stats to support the notion that cloud adoption will push down corporate capital expenditures on new servers.

Most research firms reported modest gains in server shipments in 2013, but revenue actually declined. Gartner reported a 2.1% bump in shipments with a 4.5% drop in revenue for the year; IDC reported a revenue decline of 4.4% for the year. Yet it wasn't all bad news; shipments grew 3.2% by IDC's figures, good for a record 9 million units. The firm also said it expected evidence of a refresh cycle to appear in 2014.

So where's the server market really headed next? Don't expect a bunch of "cloud killed the server" sound bites, said Techaisle analyst Anurag Agrawal.

[SAP business apps are coming to Azure. Read Microsoft Brings SAP Apps To Azure Cloud.]

The "fall in revenue is primarily due to tepid demand for behemoth expensive Unix/RISC-based servers, as those were usually underutilized," Agrawal said in an email interview. "With the rapid emergence of cloud and virtualization, those workloads have started to move towards cloud. On the other hand, demand for smaller, right-sized servers continues to rise."

There's a reason that Lenovo bought IBM's server business for $2.3 billion, he said, just as there's a reason Dell keeps rolling out new server models and Intel's datacenter business grew in the first quarter of this year. Servers aren't going away; they're just going to change. He also said original design manufacturers in Taiwan are shaking up the server establishment by offering custom-built servers to spec.

So what's in store for servers? Agrawal sees five themes emerging:

1. Hybrid cloud: the dominant model
Agrawal expects hybrid cloud -- a mix of public cloud, private cloud, and traditional on-premises infrastructure -- to be the favored IT strategy in the long term. Nearly one-third of midsized businesses (100-1,000 employees) already use a hybrid approach, according to Techaisle data. Cloud spending will take up a greater slice of the pie in those businesses, but that doesn't mean on-premises servers will evaporate. Recent Techaisle research shows 83% of midsized businesses that use or plan to use cloud platforms also plan to buy servers, for example.

"While storage and data backup workloads may migrate to cloud, server workloads may still remain on-premises as most mid-market businesses and enterprises register a high rate of concern regarding the difficulty of integrating operational systems across hybrid traditional/cloud-based systems, security of applications and corporate data, and about control over data, users and applications," Agrawal said.

2. First server purchases: plenty left
The first-server market isn't saturated -- 1.5 million small and midsized companies in the US alone have yet to purchase their first

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Kevin Casey is a writer based in North Carolina who writes about technology for small and mid-size businesses. View Full Bio

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Charlie Babcock
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Charlie Babcock,
User Rank: Author
5/30/2014 | 8:17:33 PM
How to judge in an economy with a lingering recessionary influence?
The cloud service providers have picked up some of the slack that would otherwise exist in server sales. They built data centers with thousands of server units, and the server vendors know how to cater to them. You can't really make a long term judgment yet on what server sales look like in the age of cloud computing because we haven't gotten back a normal, non-recessionary economy. Fuller utilization of servers through skilled operations -- in both the public cloud and private enterprise -- will tend to flatten sales in the long run, in my opinion.
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