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2018 was a great year for the data-center business. But if the notices of 3 major players are any indication, the next year or two could be more, um, interesting.

The 3 are Intel, Nvidia and Gartner, and all have recently sounded data-center warnings. To be sure, all also insist the data-center business remains robust. But taken together, their notices warn of at least a temporary rough patch for the data-center business.

Gartner

Yesterday, Gartner issued its forecast for total worldwide IT spending in 2019. Overall, the numbers looked pretty good: Gartner predicts a 3.2% increase in total worldwide IT spending this year, to reach $3.76 trillion.

However, Gartner’s data-center story was mixed. Last year was indeed a very good year, with global data-center systems spending rising more than 11% to $202 billion. So far, so great.

But looking ahead, Gartner expects data-center spending to slow for at least the next 2 years.

For this year, Gartner expects, data-center spending will increase, but by only 4%. That would be less than half the rate of last year. If Gartner is right, that should bring total worldwide data-center spending to $210 billion.

Looking further ahead, this time to 2020, Gartner says data-center spending will decline by nearly 4%, reaching only $202 billion.

What’s behind the slowdown? One factor, Gartner says, is a saturated market for on-premises data-center infrastructure.

That makes sense to John Woodall, VP of engineering at Integrated Archive Systems, a solution provider based in Palo Alto, Calif.

“Customers were not able to move to the cloud as fast as expected,” he told CRN. “I'm not sure I see the drop for us at this point. Our pipelines are doing well. But there’s no reason to doubt the Gartner trends. We’re seeing an inevitable shift to more cloud-native deployments impacting data-center spending.”

Intel

Last week, Intel told a story similar to Gartner’s when the company reported its fiscal Q4 and full-year 2018 financial results.

Just as Gartner said 2018 was a good year for data-center spending, Intel reported that 2018 revenue for its Data Center Group rose 21% to $23 billion. That’s something to cheer about.

And to be sure, the first 3 quarters of 2018 were a great time for Intel’s data-center business.

But in Q4, Intel's data-center revenue grew only 9% year-on-year, and operating margins rose only 2%. Both were below Intel’s own expectations. In part, company officials say, that was due to cloud service providers (CSPs) “consuming their purchases” of the previous 9 months.

During Intel’s earnings call last week, company officers said data-center revenue in Q1:19 will grow only in the low single digits. But by the second half of the year, the company expects, its long list of innovative data-center products, including new Xeon processors and Optane memory devices, should turn the tide. Robust growth will return. 

Nvidia

Yesterday, Nvidia updated its financial guidance for Q4, reflecting what the company said were weaker-than-forecasted sales for its gaming and data-center platforms.

More specifically, the company says data-center revenue came in short of expectations because several deals were expected to close in the last month of the quarter, but in fact did not close.

Customers, Nvidia adds, have shifted to a more cautious approach due to economic uncertainties. In a letter sent yesterday to Nvidia shareholders, company CEO Jensen Huang explained, “Purchases can be large and are not always periodic or predictable.”

More details on Nvidia’s data-center business should be revealed during the company’s Q4 earnings call, scheduled for Feb. 14. Meantime, the company’s stock has fallen by an unnerving 52% since peaking on Oct. 1 of last year. As today’s Wall Street Journal points out, more than $90 billion in Nvidia’s market value has vanished in less than 4 months. Ouch.

Do you provide tech to data-center customers? If so, heed what these 3 major players have to say. We're in for some interesting times.

 

Blog Category: 
Cloud and Data Centers