Dell-EMC To Leapfrog HPE, Cisco As Cloud IT Infrastructure Market Soars To $29B

Dell-EMC, HPE, Cisco Battle For Cloud Infrastructure Market

Although Hewlett Packard Enterprise is leading the rapidly growing $29 billion worldwide cloud IT infrastructure market, a combined Dell-EMC merger would leapfrog the leader.

HPE captured more than $4.5 billion in cloud IT infrastructure revenue in 2015, owning 15.7 percent of the total market, according to market research firm IDC's new Worldwide Cloud IT Infrastructure Tracker report. But if Dell, ranked No. 2 in the market, and EMC, ranked No. 4, combined their cloud IT infrastructure revenue for 2015, the total would surpass $5.2 billion.

"HPE is the leader and has been the leader in this combined space, but there's so many moving pieces," said Kuba Stolarski, research director for computing platforms at IDC, in an interview with CRN. "The Dell-EMC merger, looking just at the positions -- a leader in the server space and a leader in storage -- clearly, that gives you a potential synergy from the customer perspective … but there's still a lot of questions remaining."

Networking giant Cisco is also gaining significant momentum in the market and jostling for position, according to Stolarski.

The Data: Cloud Market Surges 22 Percent

IDC's market data combines sales of servers, storage and Ethernet switches by public and private clouds. The market grew to $29 billion in 2015, up 22 percent from 2014, with all three segments showing strong growth.

As a percentage of overall IT infrastructure spending, cloud IT infrastructure sales climbed to 32 percent in the fourth quarter of 2015, up 28 percent from a year ago. Revenue from infrastructure sales to private cloud rose 17.5 percent, to $3.3 billion, and to public cloud by 14.6 percent, to $4.9 billion.

HPE Leading The Way

Palo Alto, Calif.-based HPE was the market leader in 2015, capturing $4.5 billion in revenue, an increase of 27 percent compared with last year. The company owned 15.7 percent of the market in 2015, up from 15 percent in 2014. For the fourth quarter of 2015, HPE gained the most revenue of any vendor by pulling in $1.3 billion.

Stolarski says there are questions remaining about whether a Dell-EMC could effectively compete against HPE.

"When combining server, switches and storage, HPE is the leader and has been the leader," said Stolarski. "Although a [Dell-EMC] could certainly be competitive in scale with HPE, there's lots of questions to be asked like, 'How will they come together? Will it be efficient from a customer's point of view? Where are the synergies between the two businesses?' "

Dell-EMC Merger Has Huge Implications For Cloud Infrastructure Market

Dell is poised to acquire EMC this year in a deal worth around $60 billion. The combined company will propel it past leader HPE and widen the gap between it and other vendors like Cisco and IBM.

A Dell-EMC combination would create a company that would own 18.2 percent market share, compared with HPE's 15.7 percent share.

"This obviously looks good for Dell, and leveraging their channel will be key," said Stephen Monteros, vice president of development at Sigmanet, an Ontario, Calif.-based Dell and EMC partner.

"You really need to look at what customers are asking for, in particular the hybrid cloud data center," Monteros said. "Whoever moves faster and more effectively in this space will take the lead a year from now."

Dell, EMC By The Numbers

Dell captured $3 billion in overall cloud infrastructure revenues for 2015, up 25 percent year over year. Round Rock, Texas-based Dell ranks No. 2 in the market with 10.6 percent of shares in 2015, up from 10.3 percent in 2014.

EMC pulled in $2.2 billion in revenue for 2015, an increase of 14 percent compared with a year earlier. The Hopkinton, Mass.-based storage specialist owned 7.6 percent of the market in 2015, down from 9.2 percent share in 2014.

For the fourth quarter of 2015, Dell captured $845 million in revenue, an increase of nearly 27 percent year over year, while EMC gained $759 million, a nearly 20 percent increase from a year ago.

Cisco Sees Fastest Growth In Fourth Quarter

In 2015, Cisco captured 9.6 percent of the market share, pulling in nearly $2.8 billion in revenues for the year, up 26 percent from 2014.

"We've seen a big increase in Nexus switches and UCS sales," said Robert Keblusek, chief technology officer of Downers Grove, Ill.-based Sentinel Technologies, a Cisco Gold and EMC partner. "Our Cisco bookings are way up."

Cisco had the highest fourth quarter 2015 revenue growth in the market, up 35.5 percent year over year. For the quarter, Cisco captured $802 million in revenue, up from $591 million compared to a year before.

"Cisco expanded their [total addressable market] by moving into the server market, and they're doing a pretty good job -- in just the first few years, they're gaining significant market share," said IDC's Stolarski. "They're also being a pretty big player in the converged infrastructure space."

Cisco Versus Dell-EMC

Although Cisco has a strategic partnership with EMC and is part owner of the joint venture VCE -- VMware, Cisco and EMC -- its future partnership with a combined Dell-EMC company remains uncertain, according to solution providers.

" We're watching that with great interest," said Sentinel's Keblusek, a Cisco and EMC partner. "To the public, everything's been pretty positive for both of them as far as the relationship. I expect that to go quite a while, but there is definitely overlap in products that we'll start to see more and more of."

Solution providers say they expect the Cisco and EMC relationship to stay strong when Dell closes the deal, but will eventual drift apart over the next few years.

IBM Revenue Dropping Off

Big Blue's cloud IT infrastructure revenue dropped significantly in 2015, to $1.2 billion, down 24 percent from $1.6 billion in 2014. Armonk, N.Y.-based IBM still owned around 4.3 percent of the market in 2015, down from nearly 7 percent in 2014.

From an infrastructure standpoint, IDC's Stolarski said, IBM is focusing on becoming a service provider.

"IBM is looking at solutions -- looking to become a service provider, at least in part, and are well on their way there," he said. "There's also a lot of focus on analytics with [IBM] Watson and other platforms tied to a lot of [Internet of Things]."

For the fourth quarter 2015, revenue hit $352 million, up 2 percent from a year ago.

NetApp 'Struggling'

NetApp captured just over $1 billion in revenue for 2015, down 5 percent from 2014. The Sunnyvale, Calif.-based storage specialist witnessed a drop in market share, from 4.6 percent in 2014 to 3.6 percent in 2015.

"NetApp has been struggling," said IDC's Stolarski. "They're in a market that's going to be contracting in the near future."

He said the external storage space is becoming a niche market. "Because of the shift in storage capacity and spend to server-based storage [solutions], there's been a contraction or expected contraction in that space, and I think it has affected NetApp pretty significantly," Stolarski said.

Switching Leading The Way

Out of the three technology categories in the report, private cloud revenue growth was led by Ethernet switches, which grew by 36.6 percent from 2014 to 2015. Private cloud growth was also led by switching, with a 19.6 percent growth year over year.

For the public cloud in the fourth quarter 2015, switching led the way with 56.9 percent year-on-year growth, while public cloud revenue from server grew 28.9 percent year over year.

Server revenue in private cloud grew by 23 percent in 2015 compared with 2014.

Traditional Infrastructure Revenues On The Decline

Revenue in the traditional, non-cloud IT infrastructure segment dropped nearly 3 percent year over year in the fourth quarter, with declines in all three technology segments: server, storage and Ethernet switch.

Partners See Market Growth As Opportunity For More Services

IDC said public cloud as-a-service offerings are continuing to mature and grow, which bodes well for solution providers.

"Public cloud has been a massive growth [area] for us. Along with that, it pulls through a lot of managed services and support services," said Sentinel's Keblusek.

Partners said hot areas such as hyper-converged infrastructure and software-defined networking will lead to even more professional and consulting service opportunities as new types of cloud infrastructure is consumed.

"All those things to me contribute to the software-defined data center. EMC has a number of products in those portfolios as well as Cisco," said Keblusek.