Cloud spending back to business as usual at end of 2021: Slight slowdown was a blip due to overprovisioning

IDC figures suggest providers had extra inventory to shift after pandemic panic

Spending on compute and storage infrastructure for the cloud rose by 6.6 per cent during the last quarter following a cooldown in the middle of 2021 due to overprovisioning by cloud providers in response to the pandemic.

The figures come from IDC's latest worldwide quarterly enterprise infra tracker that traces buyer and cloud deployment. The report shows that spending on compute and storage infrastructure products increased to $18.6bn during the third quarter of fiscal 2021.

This resumes the underlying trend of net positive year-on-year spending growth in each quarter, which, according to IDC, saw a dip in the second quarter of 2021 when spending actually decreased by 1.9 per cent.

A drop-off in demand for cloud infrastructure seems puzzling at first glance, but IDC said this is simply because there was so much pandemic-related investment in new infrastructure the previous year that cloud providers felt able to slacken new buys during the middle of last year.

Andrew Buss, research director for European Enterprise Infrastructure at IDC, told The Register that capital spend in the cloud saw a higher-than-expected increase during 2020 as everyone shifted to cloud services in response to the requirement to work from home during the pandemic.

"Anything available got bought and deployed. There was huge growth during Q2 2020, much larger than normal," Buss said.

IDC's own figures show that cloud infrastructure spending increased by 55.1 per cent during that quarter, driven by the spike in demand for public cloud services in the first months of the pandemic.

Reg readers will no doubt recall the massive uptake of videoconferencing and online meeting tools such as Zoom during 2020.

"Even the cloud does not have instant turn-on if there is a sudden large increase in demand, and new traffic patterns," Buss commented.

It appears that cloud providers may have over-procured new infrastructure to ensure they could meet the huge spike in demand, and found themselves with more capacity than they needed once the demand curve smoothed out. A year later in 2Q21, it seems the cloud firms eased back on purchasing while they worked through some of that excess inventory.

That sudden fall in spending on infrastructure products for cloud came after seven quarters of year-on-year spending growth that started back in 2019. It appears to have been just a blip as the latest figures for 2021 show spending on the rise again, reflecting the underlying long-term trend of cloud growth.

Spending on infrastructure for public clouds – which IDC refers to as shared cloud infrastructure – reached $13bn during 3Q21, while spending on dedicated cloud infrastructure increased 13.4 per cent to $5.6bn.

IDC forecasts that cloud infrastructure spending for all of 2021 will show an increase of 8.3 per cent compared with all of 2020. This should equate to a total of $71.8bn, while non-cloud infrastructure is expected to show a growth of 1.9 per cent to $58.4bn after two years of declines.

Looking to the future, IDC predicts that spending on compute and storage cloud infrastructure will expand at a compound annual growth rate (CAGR) of 12.4 per cent for 2020-2025, hitting $118.8bn in 2025 and accounting for 67 per cent of total compute and storage infrastructure spend.

Spending on public cloud infrastructure will account for the lion's share of this, about 70 per cent, IDC believes. Spending on non-cloud infrastructure will show a slight rebound for the whole of 2021 but then flatten out to a CAGR of just 0.5 per cent, with IDC expecting it to reach a total of $58.6bn in 2025.

"We will see strong growth in public cloud, but on-premise will continue to be important, especially in Europe, which is more private cloud-centric," Buss said. ®

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