Pandemic demand bolsters server market

The global server market surged during the first quarter of 2020, driven by a wave of COVID-19 related demand from hyperscale cloud service providers, according to a new report.

Server shipments reached 3.3 million during the first quarter, up nearly 1 million from Q1 2019, according to research by Omdia.

These gains were fueled by a rapid rise in customer and enterprise demand during the quarter that prompted service providers to expand their server install base, Vlad Galabov, principal analyst for data center IT at Omdia, explained in the report.

“Enterprises increased their investment in servers as these organizations prepare employees and business processes for remote working. Meanwhile, telecommunications network providers ramped up server deployments to cope with increased demand on wireless and wired networks,” he wrote. “As a result, the server market attained a quarter of year-over-year growth exceeding 30%.”

Mixed Forecasts for 2020

The findings are in contrast to Omdia’s initial forecasts, which had predicted a much steeper decline in shipments as a result of the pandemic. The firm initially predicted a 700,000 unit reduction in shipments for a total of 12.2 million in 2020.

However, while many server vendors reported supply chain shortages early in the quarter, most were able to resolve these problems and achieved record shipments by March, according to analysts.

Omdia is now preparing to revise its forecast upward by approximately 500,000 units, which would see 2020 server shipments reach 12.7 million.

“We now have multiple indicators that the start to 2020—and likely the entire first half of the year—will see the server market grow double digits over 2019,” Galabov wrote.

However, Galabov says the possibility of a global recession can’t be underestimated. “Many enterprises and governments are likely to postpone investing in new servers in the second half of 2020,” he said.

Additionally, the report found that there remain numerous reports of component shortages globally. “The outcome of the second quarter of 2020 will be key in understanding the impact of the global lockdown on the server market,” said Galabov.

While the effects of a global recession remain unknown, Omdia predicts that any decreased investment will be offset by strong demand from cloud and telecommunications services.

Uncertain Market Outlook

Omdia was relatively positive in its assessment of the global server market, but the uncertainty brought on by the pandemic and the associated economic fallout continues to cloud outlooks.

Many vendors and associated markets, including those in the semiconductor space, have pulled their 2020 financial outlooks. A separate report from IDC found the continued spread of COVID-19 will likely disrupt server demand and suppress revenues.

“The impact of COVID-19 will certainly dampen overall spending on IT infrastructure as companies temporarily shut down and employees are laid off or furloughed,” wrote Kuba Stolarski, research director of IT infrastructure at IDC.

IDC predicts server market revenues will decline 3.4% year over year to $88.6 billion during 2020. It is also forecasting external enterprise storage will fall by approximately 5.5%.

―SDX Central