Large-scale data center capital spending experiences a pause in Q1 2019.
Hyperscale data center operators including Amazon, Google, and Microsoft saw capex spending decrease year over year to $26 billion in the first quarter of 2019, marking a pullback after seven quarters of sequential growth. The decline represents a 2% decrease when excluding Google's one-off $2.4 billion purchase of Manhattan real estate in the first quarter of 2018. This slowdown contrasts with the record-setting 2018, when Amazon, Apple, Google, Facebook, and Microsoft spent a combined $120 billion on data centers. As of the first quarter of 2019, there are approximately 458 large-scale data centers worldwide.
According to John Dinsdale, managing director and chief analyst at Synergy Research Group, the fundamentals driving data center investment remain intact. "Nothing important has changed. The hyperscalers' underlying businesses are strong and growing. Their need for data center infrastructure continues to grow, new data centers continue to be built, and they have to maintain and refresh an ever-larger installed base of servers, storage and networking gear," Dinsdale stated. While acknowledging that "the capex growth rates seen in 2018 were so high that they are not sustainable," he emphasized that capex will continue to grow. Despite the recent slowdown, Q1 2019 capex was still up 56 percent from Q1 2017 and up 81 percent from 2016. Among the 20 major cloud and internet services firms analyzed by Synergy—including Amazon, Alibaba, Apple, Facebook, Google, IBM, Microsoft, NTT, and Tencent—nine companies showed double-digit growth rates year on year in the first quarter.
Dinsdale expects capex spending on data center technologies and facilities to bounce back and continue growing throughout 2019. Meanwhile, Gartner's broader analysis of the worldwide data center market projects a 2.8 percent decline in spending on data center systems to $204 billion in 2019, following a sharp 15.5 percent increase in 2018 compared to 2017, with lower average selling prices for servers contributing to the decline. However, the anticipated contraction is not expected to persist into 2020, with spending projected to rebound to $207 billion.