Cloud infrastructure spending decreased 2.4% YOY in 2Q21

Spending on compute and storage infrastructure products for cloud infrastructure, including dedicated and shared environments, decreased 2.4% year over year in the second quarter of 2021 (2Q21) to $16.8 billion, according to IDC.

This decrease comes after six quarters of year-over-year growth, and most notably compares to the 39.1% annual growth seen by the market in 2Q20, when the world just entered the pandemic with the first wave of business and country closures causing a spike in investments in cloud services and infrastructure. Investments in non-cloud infrastructure increased 3.4% year over year in 2Q21 to $13.4 billion recovering from a 7.2% decline in 2Q20.

Spending on shared cloud infrastructure decreasing too

Spending on shared cloud infrastructure reached $11.9 billion, a decrease of 6.1% compared to 2Q20, and a 17% increase from 1Q21. Weakness in year-over-year demand from public cloud service providers comes after an exceptionally strong 2Q20, in which spending increased 55.5% driven by the spike in demand for cloud services in the first months of the pandemic. Such discrepancy in growth rates attributable to exceptional events creates “hard” comparisons that don’t reflect long-term trends.

A continuously strong demand for shared cloud infrastructure is expected, with shared cloud infrastructure spending surpassing non-cloud infrastructure spending by 2022. Spending on dedicated cloud infrastructure increased 7.8% year over year in 2Q21 to $4.9 billion with 46.5% of this amount deployed on customer premises. Cloud environments will continue to outpace non-cloud throughout its forecast.

Despite weakness in 2Q21, cloud infrastructure spending expected to grow

Despite weakness in 2Q21, cloud infrastructure spending is forecast to grow 12% to $74.3 billion for 2021, while non-cloud infrastructure is expected to grow 2.7% to $58.9 billion after two years of declines. Shared cloud infrastructure is expected to grow by 11.1% year over year to $51.4 billion for the full year. Spending on dedicated cloud infrastructure is expected to grow 14.1% to $22.8 billion for the full year.

In 2Q21, service providers as a group spent $17.1 billion on compute and storage infrastructure, down 1.9% from 2Q20 and up 13.6% from 1Q21. This spending accounted for 56.5% of total compute and storage infrastructure market. Compute and storage spending by service providers is expected to reach $74.6 billion for 2021, growing at 10.5% year over year.

Regional and company level

At the regional level the year-over-year changes in spending on cloud infrastructure were mixed: spending increased across the Asia/Pacific subregions, in Latin America, Canada, and Central and Eastern Europe, and declined in the United States, Western Europe, and the Middle East and Africa.

Canada showed the strongest year-over-year increase in cloud infrastructure spending in 2Q21 at 25.6% while Western Europe recorded the strongest decline at 8.8%. For the full year, spending on cloud infrastructure is expected to increase across all regions compared to 2020.

At the company level, major vendors showed mixed results in their cloud infrastructure revenue in 2Q21, with Dell Technologies, HPE/H3C(a), and Lenovo/Lenovo NetApp Technologies(c) increasing sales while Inspur/Inspur Power Systems(b), and Huawei experiencing declines compared to 2Q20.