Data center splurge continues as big tech companies spread wings into new markets
Chandler, Arizona (USA), April 17, 2019 — MTN Consulting has released an analysis of the webscale network operators – technology companies such as Amazon, Facebook, Tencent and others, that are expanding their cloud networks – and related market trends. The analysis is intended to help vendors understand and plan for the needs of their customers, and help network operators deploy their technology budgets wisely.
SOME QUICK FACTS:
- Webscale network operators (WNOs) are web-centric technology companies building large cloud networks to support operations and customers. Companies covered in the analysis are Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, Tencent; Altaba, Booking Holdings (formerly Priceline), ChinaCache, Cognizant, eBay, Fujitsu, HPE, IBM, JD.COM, LinkedIn, Netflix, Oracle, Qihoo 360, Salesforce.com, SAP, Sina, Snap, Sohu, Twitter, Weibo, Xunlei, Yandex, and YY.
- The “Top 8” WNOs remain Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent, based on network spending and technology ambitions. With its recent surge, JD.COM is on the brink of elbowing out Baidu in this group.
- The operations of WNOs rely on distributed computing environments – such as the cloud – and their supporting connectivity. They typically have tens or hundreds of millions of customers or users, and leverage scale and network effects to support a wide range of product offerings.
- Most WNOs build and operate data centers, and rent/lease resources from other providers. Still, some WNOs — Netflix, Snap and Twitter are notable examples — rely largely on the rent/lease approach. WNOs without their own cloud networks often spend heavily on research and development (R&D).
- Top line growth in the webscale sector has been strong for many years. From a 2011 base of $653 billion, revenues grew an average annual rate of 11.0 percent through 2018, to $1.356 trillion.
- Alibaba continued its leading run from the previous quarter, topping the “Top 8” WNO pack with the strongest revenue growth in fourth quarter. This was mostly driven by its e-commerce retail and cloud businesses, with cloud emerging as Alibaba’s fastest-growing segment.
- Apple was the lone “thorn” in the pack, which posted a year-over-year revenue decline of 4.5 percent in the fourth quarter, because of declining iPhone sales that crashed by 15 percent from the prior year. Excluding Apple, all other Top 8 WNOs recorded more than 10 percent year-over-year revenue growth in the fourth quarter.
- In terms of spending, Alphabet alone spent a little over a-fifth of the total WNO sector capex in 2018 at $25.1 billion – mainly driven by its cloud infrastructure expansion efforts, though a “one-off” spend of $2.4 billion Chelsea Market property deal also contributed.
- Microsoft came in second with 12.3 percent share of total WNO capex in 2018 at $14.2 billion. Facebook, which came in a close third (12.1 percent share), was the only “Top 8” company to more than double its capex investments over the previous year at $13.9 billion.
- The companies in the WNO sector spent more than $100 billion in capex for the first time in a single year, investing $115.4 billion in 2018 — up by a robust 48.4 percent year-over-year.
- Global technology companies continued their spending spree into 2018, building and expanding their webscale networks. These are mostly centered around data centers and undersea cable systems that support network traffic on their online retail, video, and social media platforms along with cloud businesses.
- Both Microsoft and Alphabet (Google) are expected to continue their spending binge as they look to close the gap with the cloud market leader, Amazon, which held fifth spot after Apple in terms of total WNO capex spending.
- A broad set of vendors are benefiting, from semiconductor players selling into the data center market (Intel, Nvidia, Broadcom, etc.), to optical components & transport vendors selling into data center interconnect markets (Ciena, Infinera, Lumentum, Neophotonics, etc.), to contract manufacturers of white box/OCP servers such as Wistron and Quanta.
- Webscale operators continue to branch into new markets, including hardware, both through R&D and acquisitions. M&A activity in the sector remained vigorous in 2018, with Alphabet, Amazon, Microsoft, Oracle, and Salesforce each recording sizable related costs.
- “With revenues expected to exceed $1.5 trillion in 2019, webscale operators should spend well over $130 billion on capex this year”, projects Arun Menon, Lead Analyst and report author.
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