Pre-pandemic, the migration from on-premise to third-party data centers for most large organizations was a slow and deliberate process. Many were in the beginning stages of digital transformation initiatives slated for implementation over several months or even years. Fast-forward to 2020 with the pandemic upon us, for many organizations the pivot to the cloud occurred in near real-time, a forced migration to maintain business continuity during an unprecedented disruption. Data center capabilities were immediately tested by needing to provide critical service infrastructure enabling people to effectively work, learn, shop, or be entertained, all from home.
2020 Data Center Ecosystem Performance
While data centers in 2020 provided the needed infrastructure to keep businesses operating, the pandemic certainly affected overall growth. Looking at 2020 performance utilizing NPD’s Data Center Ecosystem Report, combined hardware and software revenue for the broader data center ecosystem fell by more than 3% year-over-year. Hardware reflected the biggest change, falling by over 10% in 2020 driven mainly by declines in storage arrays (-25%), desktop/server memory (-25%), and x86 chips (-14%).
Software fared much better with growth over 6% as the ongoing migration from hardware to software continued to see momentum driven mainly through networking (+16%) and security (+12%). Security, specifically identity and access management, drove the largest percentage of growth (+31%) fueled by remote workforce access needs.
2021 Q1 Data Center Ecosystem Performance
While 2021 began with little change in pandemic conditions, businesses held together as the federal government provided a welcome, broad-based stimulus to help stabilize small business and support the national education system. As vaccine deployment accelerated and infection rates began to decline, businesses started to see a small shift in positive momentum.
According to NPD, data center ecosystem sales in Q1 2021 were virtually flat vs. 2020 and 2019. In Q1, networking and security saw the only growth up a combined 7% and representing just under 50% of total revenue for the category in the quarter. In Q1, combined data center hardware sales fell by more than 5% year-over-year driven mainly by declines in solid state drives (-15%), hyperconverged systems (-11%), and racks, mounts and chassis (-14%). Data center ecosystem software saw continued momentum with Q1 revenue increasing 5% year-over-year and up 15% vs. Q1 2019. Software growth was again driven primarily by networking (+24%) and security (+8%).
2021 Data Center Ecosystem Look Ahead
As businesses return to full strength and digital transformation efforts continue to accelerate, data center expansion is poised for strong growth, especially in the second half of the year. Early indicators range from improving category performance across the broader ecosystem, to new hyperscale and co-location data center construction projects underway with the majority of capacity already pre-leased.
Additional expansion is expected with edge solutions as organizations look for increased capabilities in managing the significant amount of data now generated outside the data center. Edge provides core capabilities enabling ultimate agility; able to process and manage data faster from virtually anywhere, more efficiently, and at a lower cost. In addition, emerging technologies such as AI, ML, and IoT will act as significant catalysts for edge expansion due to inherent needs for real-time data processing and monitoring.