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As Hyperscale Data Center Market Explodes, Will The Channel Cash In?

‘While hyperscale operators are spending ever-increasing amounts on building, equipping and refreshing data centers, they are also spending an ever-increasing share of that on [in-house]-designed hardware that is manufactured for them by ODMs,’ says Synergy Research Group’s John Dinsdale.

The amount of large data centers operated by hyperscale providers ballooned to 430 by the end of 2018, up 11 percent year over year, with Amazon and Google leading the way building new facilities. And there’s no sign of the market slowing down. There already are 132 hyperscale data centers in the pipeline this year, likely making 2019 a record-breaking year for spending, according to Synergy Research Group.

However, it’s a “mixed bag” when it comes to whether data center providers including Cisco, Dell Technologies, Eaton and Hewlett Packard Enterprise and their channel partners will reap all the rewards of the billions being spent on equipping these massive facilities with technology, said John Dinsdale, managing director and chief analyst at Synergy.

“While hyperscale operators are spending ever-increasing amounts on building, equipping and refreshing data centers, they are also spending an ever-increasing share of that on [in-house]-designed hardware that is manufactured for them by ODMs [original design manufacturers],” said Dinsdale in an interview with CRN.

[Related: The 10 Biggest Data Center News Stories Of 2018]

Synergy analyzed the data center footprint of 20 of the world’s major cloud and internet services firms, including the largest operators in Software as a Service, Infrastructure as a Service, search, social networking and e-commerce. Dinsdale said, on average, these companies are growing revenue 24 percent annually while capital expenditure is increasing by over 40 percent, “much of which is going into building and equipping data centers.”

Capex spending for hyperscale operators, which include Amazon, Apple, Facebook, Google and Microsoft, topped $26 billion in the third quarter of 2018, up from roughly $21.5 billion one year ago, according to Synergy. Hyperscale Capex for the first three quarters of 2018 was up 53 percent compared with the same period in 2017.

However, the billions being spent on technologies inside these data centers, like storage, servers and networking, doesn’t necessarily mean it’s trickling down to the channel.

One top executive from a solution provider who is a Dell EMC Platinum and Cisco Gold partner said neither vendor has asked his company to participate in any hyperscale accounts in terms of providing any sales or services.

“These multimillion-dollar deals from Google and Amazon are obviously out there, we just don’t really get a piece of that,” said the executive, who declined to be identified. “Partners can provide some types of services for them, but the [hyperscale] deal seems to go mostly direct. We’ve seen this in the past in larger service provider deals, where our vendor partners go direct for one reason or another.”

Dell and Cisco did not respond to a request for comment by press time.

Dinsdale said although vendors and solution providers have opportunities to cash in on the massive hyperscale data center spending, “I’d assume that given the huge volumes involved in the hyperscale deals, the hyperscale operators would be more inclined to buy from the original source rather than go via indirect sales channels.”

Looking at the market in 2018, Amazon and Google opened the most data centers, together accounting for over half of the total new data centers built. The companies with the broadest data center footprint are Amazon, Google, IBM and Microsoft, each of which has at least 55 or more data center locations.

Last year, the Asia-Pacific and EMEA regions opened the most new data centers, but the U.S. still accounts for 40 percent of the major cloud and internet data center sites, according to Synergy. The next most popular locations are China, Japan, the U.K., Australia and Germany, which collectively account for 30 percent of the worldwide market.

Dinsdale said there’s no end in sight to the rapid pace of new hyperscale data centers being built. Looking at the top two builders, Amazon and Google, he said their general strategy in 2019 is to, “build, build and build.”

“They both have a rich pipeline of planned new data centers that are increasingly targeting a broader range of countries,” Dinsdale said. “And of course their installed gear doesn’t last forever. They tend to have fairly aggressive replacement cycles, so you’ll see a lot of Capex going into refreshing an ever-expanding installed base of data center IT gear.”

The Dell EMC Platinum and Cisco Gold partner executive said his company is trying to make some inroads with vendors this year to see if there are any opportunities to get inside these large accounts. “If there’s any opportunity, we’ll jump at the chance,” he said.

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