Data center capex growth hit three year peak – report

Single-digit growth predicted, based on supply chain woes

Data center capital expenditures (capex) grew at the fastest rate year-over-year in three years in 1Q 2022, according to a new report from Dell’Oro Group. New cloud deployments and higher data center infrastructure costs drove those expenses despite supply chain constraints, according to Research Director at Dell’Oro Group Baron Fung.

Fung said that data center customers ate those supply chain cost increases, as reflected by higher data center equipment selling prices averages across the board. 

“We anticipate further upside in data center capex later this year, as the Top 4 cloud service providers expand their services and as server memory prices trend higher,” said Fung.

New server architectures hitting the market also contributed to demand, Fung said.

Semiconductor makers able to get products into the data center pipeline have been well-rewarded. Intel’s Data Center Group (DCG) ended last year reporting $7.3 billion in quarterly revenue, up 20% year over year and hit 22% for the first quarter this year. 

Fung noted that demand for improved accelerated computing products also drove data center capex spends. 

Strong demand for accelerated computing devices for data centers is certainly one element to Nvidia’s recently quarterly successes, where it continues to post record sales. Nvidia’s accelerated computing products use Intel CPUs, their graphics processing units (GPUs), and expensive RAM and custom interconnect hardware. The higher density of custom hardware, the higher average revenue per unit (ARPU) to help push data center sales upward.

Nvidia’s recent advancements include systems based on its Grace Hopper “superchip” architecture, an Arm-licensed semiconductor design the company says offers better data center power efficiency and scalability. The company has advanced several new designs for data centers aimed at improving operational efficiency, including a new liquid-cooling system. Nvidia is also driving computational muscle forward to power the next generation of Artificial Intelligence (AI) and Machine Learning (ML) technology.

Dell’s ISG business unit earlier this month reported $9.3 billion in revenue, up 16%, generating operating income of $1.1 billion. That’s the Dell business unit focused on data center sales. Storage revenue for Dell was up 9% to $4.2 billion, and servers and network revenue topped $5 billion, up 22% year-over-year (YoY).

Dell’Oro’s Fung predicts worldwide data center capex growth throughout 2022. But he also expects the persistent supply chain challenges that data center equipment vendors continue to experience will ultimately limit capex growth to only “high single digits” for the remainder of the year. 

The top four U.S. cloud service providers – Amazon, Google, Meta, and Microsoft – are expected to launch services in 30 new regions this year, which will continue to drive data center growth, said the report. Combined, the ten largest cloud services providers spent over $88 billion on data center infrastructure in 2021.

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