Cloud and datacenters start to feel the slowdown amid spiking energy costs

While enterprises are spending more on infrastructure than ever before, what goes up must come down

The datacenter industry may be starting to feel the effects of the economic slowdown, leading to further impacts on IT vendors and other suppliers, according to reports, while operators in the UK in particular are feeling the pain from rising energy costs.

Cloud and hyperscale companies may have seemed less vulnerable to swings in the wider economy, thanks to the growing adoption of cloud services over the past decade. This was especially so during the pandemic, when many businesses were forced to upscale their use of cloud services to ensure staff could continue to work remotely.

But the signs are starting to point to a possible slowdown, with Reuters reporting that Google Cloud, Microsoft's Azure, and Amazon's AWS all showed slower growth in their recent results.

For example, Google Cloud reported $6.3 billion of revenue for Q2 2022, a 35 percent year-on-year increase, but a slower increase than the 44 percent jump it reported for its Q1 results.

In June, analyst outfit TrendForce was predicting that the global server market will grow more slowly in 2022 than in the past, with China's cloud companies – Baidu, Alibaba, and Tencent – all lowering their procurement this year. It warned that this could also spread to cloud and hyperscale companies in the US, leading to overall server shipments falling.

All the big cloud players have recently extended the life of their servers in order to save on procurement costs. Microsoft announced this month it was extending the life of its machines by two years, which it expected to save it $3.7 billion next year. Google announced in February an extension of its server lifecycle from three years to four, while Amazon said it expected to save a billion dollars in this quarter by running its servers for six years instead of five.

This could be bad news for the IT industry, which had already seen demand falling away on the consumer device side and may now face weakening demand for servers and lucrative components such as memory chips that servers have so far kept buoyant.

However, as The Register reported this month, enterprises are spending more on cloud infrastructure services than ever before, and falling prices for components may leave the hyperscalers well positioned to take advantage of this and add more capacity at a lower cost.

But supply chain issues may still be a complicating factor, with Microsoft's Azure cloud reported to be having difficulty providing enough capacity to meet customer demand last month.

Spiralling energy prices

Meanwhile, another factor affecting datacenter operators is the spiraling cost of energy. According to a recent report, datacenter operators in the UK and Ireland have seen their energy bills increase by as much as 50 percent.

In the UK, 57 percent of operators indicated that they are currently spending between 10 and 30 percent of their entire operating costs on electricity, with some paying more and many expecting this figure to hit 40 percent or higher.

The report, from power generation supplier Aggreko, says that this is causing problems because the all-in pricing models adopted by co-location providers mean they are forced to absorb additional costs and price increases.

It was based on a survey of 253 datacenter professionals, with 58 percent of those in the UK reporting that energy bills have had a significant impact on their company's margins.

The report concludes that operators are struggling to remain competitive, particularly as confidence in government support is "tepid" in both the UK and Ireland, and suggests some remedies.

However, it would seem there is still a danger that customers may be asked to pay more to offset some of the rising energy costs. For example, customers of cloud and network provider M247 were hit with a 161 percent hike in charges late last year, with rising energy prices blamed for the increase even then. ®

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