Cloud Computing

Data center spending spikes due to Big 4 cloud expansions, Covid-related disruptions

Amazon, Google, Meta, and Microsoft are expanding, while the pandemic continues to stifle component supplies
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Francis Scialabba

· 3 min read

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Big data, big bucks: Capital expenditure on data centers grew at the fastest rate YoY in three years during the first quarter of 2022, according to recently published research from Dell’Oro Group.

The report projects the biggest four hyperscalers—Amazon, Google, Meta, and Microsoft–are projected to expand their spending by 25% to $18 billion in 2022 as they “expand to as many as 30 new regions.” Yet Dell’Oro Research Director Baron Fung told IT Brew the capex surge is primarily due to lingering pandemic supply-chain disruptions.

“There’s still really strong demand in the markets for data-center construction and new build-outs,” Fung said. “But, as we know, the supply-chain issues have been ongoing for years. So it’s sort of, I suppose, limiting the growth. And we see shipments of servers and other data-center equipment constrained. We are seeing long lead times. It’s no surprise the situation is not really getting better or worse.”

The biggest issue isn’t high-end components like processors or memory, but lower-end chipsets with less-specialized production processes like “some storage controllers and analog ICS power supplies,” Fung told IT Brew. That’s because those products are competing for the same factory floor space as other industries like automotive and consumer electronics, according to Fung. Fung projected that the supply constraints won’t ease until at least 2023. Technology transitions also play a role, with companies' increased interest in accelerated computing and new server architectures, such as Intel’s Ice Lake or the delayed Sapphire Rapids, requiring new and better hardware, he added.

Updated architecture has “an impact on driving up the server cost with more memory, more processor cores, more storage, more accelerators,” Fung said. “In addition, a lot of these companies are investing more in accelerated computing, right? So servers with more GPUs, FPGAs, or other AI accelerators in them, which is driving up the infrastructure cost overall.”

The Dell’Oro report projected that capex spending will continue to trend upward, with the long-term result being increased cloud adoption among enterprises that run their own data centers seeking more flexibility via hybrid solutions. In the meantime, Fung said, he hasn’t heard of the major hyperscalers and cloud providers passing on the capex costs to customers as their sheer scale puts them in a favorable position to hide costs.

“I think there’s gonna be a lag, it’s gonna take some time before we see these costs being passed on,” Fung said. “Usually, it’s not immediate, especially if you’re talking about higher capex costs, translating into the operating costs later on, which will translate into higher costs to customers…It takes many quarters, even for any price increases to take effect.”—TM

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Top insights for IT pros

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