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As the pandemic continues to push customers to hybrid IT, vendors aim to meet demand with flexible, cloud-like pricing models

Average revenue growth for vendors in TBR’s Cloud Components Benchmark increased 12.6% year-to-year in 3Q21, partly due to a favorable year-ago compare considering the economic impacts of COVID-19 in mid-2020. Further, with many vendors operating transactional-heavy business models, rebounding demand for license products supported revenue growth during the quarter, especially for software-centric vendors like Microsoft and VMware. COVID-19 is causing customers to reevaluate their digital transformation plans; this may include migrating completely to a cloud environment, which will erode opportunities for some vendors while others will expand their existing data center investments through solutions like hyperconverged infrastructure (HCI).

Software-centric circles are blue. Hardware-centric circles are orange.

Given some customers’ reluctance to move outside the data center, opportunities arise for vendors to push ‘as a Service’ offerings

According to TBR’s 2H21 Cloud Infrastructure & Platforms Customer Research, 42% of respondents plan to keep most of their workloads inside the data center over the next three years. As COVID-19 accelerates customers’ cloud migration timelines, many enterprises turn to self-built private cloud environments as an intermediary step to a fully managed vendor-hosted private or public cloud model.

Further, many larger, established enterprises are looking to protect their existing investments in IT and find that their own data centers are a better fit for certain workloads, particularly those with stringent security or latency requirements. These customer trends present opportunities for hardware-centric vendors such as Hewlett Packard Enterprise and Dell EMC to capitalize on demand for cloud-like consumption services on premises in the coming years.

Data center consolidation persists

Many self-built private cloud customers adopt HCI solutions to modernize their legacy systems and consolidate their overall data center footprint, a trend brought on by cloud migrations and exacerbated by the pandemic. Colocation is emerging as a notable alternative to privately owned data centers in this model, as customers are offered a secure landing spot for their hardware while providing high proximity to major public cloud platforms. Recognizing this trend, OEMs are partnering with colocation providers to offer central management and governance capabilities that facilitate customers’ workloads.

Vendor competition ramps up amid high demand for cloud-like economics on premises

The cloud components market is consolidating around select vendors, such as Microsoft and VMware, specifically in the virtualization space. However, on the hardware side, vendors are emphasizing their consumption-based pricing offerings, seeking differentiation by taking a workload-by-workload approach. While in general IBM has been lacking in consumption-based hardware, the company is expanding its investments in the area, evidenced by the release of the company’s Tailor Fit Pricing solution for hardware consumption, which applies a pay-as-you-go model to a highly scalable, premium solution like IBM Z.

Gain access to the entire 3Q21 Cloud Components Benchmark, as well as our entire Cloud & Software research, with a 60-day free trial of TBR Insight Center™.

Register for our upcoming webinar, 2022 Predictions: Cloud, an in-depth discussion on the increasing importance of cloud partnerships in the market; how partners will enable growth and stickiness; vendor embrace of open, hybrid architectures; and more.

Top 3 Predictions for Data Center in 2022

Vendors respond to customers’ accelerated IT transformations​

Hardware vendors will race to further entrench themselves in customers’ ecosystems

While storage, hyperconverged infrastructure (HCI) and servers are the main products being sold by data center vendors, they are hardly noticeable in the go-to-market messaging that is being pushed out to customers. These vendors are more focused than ever on selling the outcome over the hardware itself,  whether that outcome is building a hybrid cloud environment to serve remote workers or deploying an edge solution on a factory floor. Data center vendors are looking to capture more of their customers’ environment, from managed services to hybrid cloud enablement, to diversify their revenue beyond hardware and create more reliable revenue streams.​

Building ecosystems is at the forefront of data center vendors’ go-to-market strategies to add value and create stickier offerings. This ranges from building management consoles and expanding software capabilities to refining “as a Service” offerings rolled out over the past 18 months. For leading vendors, this is done with an eye toward helping customers reap the same benefits they seek in public cloud alternatives — agility and simplicity — while also providing flexibility and cost control. ​

The road to a more diversified revenue stream is not without hurdles. Customers have already developed preferences for management tools and development platforms from cloud providers and ISVs. Markets like edge compute are complex with customization and industry nuance. Selling subscription models requires sales and delivery transformation for not only vendors but also partners, and a sales strategy that delivers on values that resonate with customers. In 2022 TBR expects to see further proliferation of the journey vendors embarked on in 2021, building out solution portfolios one use case at a time by identifying areas ripe for transformation that also benefit from on-premises hardware.

2022 data center predictions

  • Infrastructure vendors’ “as a Service” offerings will gain traction as the offerings are refined for specific use cases
  • Hardware vendors embrace the ecosystem
  • Vendors will carve out niche specialties under the broad banner of edge compute

Send me a free copy of TBR’s Top 3 Predictions for Data Center in 2022

Telecom Business Research’s 2022 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices, data center, and services & digital.

TBR releases exclusive webinar content from August 2021

Technology Business Research, Inc. (TBR) announces on-demand availability of its August 2021 webinars for market intelligence and competitive intelligence teams. August webinars feature top trends in the hyperconverged infrastructure (HCI) market and IT services and digital transformation markets.

Speed of HCI market evolution accelerates due to COVID-19

Principal Analyst and Practice Manager Angela Lambert sheds light on how HCI purchasing fits into broader IT environment investment plans and key use cases being targeted.

Digital transformation amplifies IT services market trends

Principal Analyst and Practice Manager Patrick Heffernan, Principal Analyst Boz Hristov, Senior Analyst Elitsa Bakalova, Senior Analyst Kelly Lesiczka and Analyst John Croll discuss recent performances of the leading 30 IT services providers and enterprise buyers’ priorities as they accelerate their digital transformation programs. 

TBR webinars are typically held Wednesdays at 1 p.m. EST and include a 15-minute Q&A following the main presentation. To find out what we are discussing next month, check out the Webinars page of our website.

Interested in a one-on-one discussion with one of the above subject-matter experts or a private webinar with one or more of our teams?

Contact us today for more information on our free 60-day trial

Spending recovers as pandemic conditions wane in the U.S., but competition among HCI vendors remains high

Spending recovers as pandemic conditions wane in the U.S., but competition among HCI vendors remains high

Opportunity

Survey data suggests U.S. hyperconverged infrastructure (HCI) customers’ budgets began to rebound in 1H21 after pandemic-related spending cutbacks in 2020. Although average budgets increased, HCI vendors must still contend with overarching data center consolidation trends that are limiting net-new HCI use cases, illustrated by 54% of respondents using HCI only to replace outdated hardware for existing workloads. Most respondents do not plan to shrink their HCI installments over the next three years, suggesting traditional servers and storage will face the greatest impact in the near term as organizations switch to HCI and migrate other workloads to SaaS and public cloud.

Competitive Landscape

Respondents believe that HCI vendors are differentiated by their abilities to run specific workloads. This is critical for vendors to account for in go-to-market (GTM) motions as customers give considerable weight to whether a vendor has specific experience with their use case. TBR believes experience with hybrid use cases such as backup, disaster recovery and DevOps will be key, as will industry-specific use cases that cater to sensitive data such as medical records in healthcare or transaction processing in financial services.

Learn more: Join TBR Aug. 11 at 1 p.m. EDT for an exclusive webinar during which Principal Analyst and Practice Manager Angela Lambert will review top takeaways and key implications from TBR’s 1H21 Hyperconverged Platforms Customer Research. Click here to save your seat!

The Hyperconverged Platforms Customer Research addresses hyperconverged infrastructure (HCI) vendors’ customer-centric questions, drilling down into key categories such as adoption and budget, purchase drivers, workloads and attributes, purchase patterns, and vendor selection. Although the report is HCI-centric, TBR also researches the answers to questions related to software and services, such as what types of security customers desire to attach to their HCI purchases and what additional services are desired to make an HCI purchase complete.

Hyperconverged: Insights from TBR’s Data Center team

Speed of HCI market evolution accelerates due to COVID-19

Join Principal Analyst and Practice Manager Angela Lambert for a discussion on the top trends found in TBR’s Hyperconverged Platforms Customer Research. Angela will also share insights on how vendors can align to changes in enterprise customers’ infrastructure strategies and support customers’ top needs.

Don’t miss:

  • How COVID-19 impacted the hyperconverged infrastructure (HCI) market
  • Trends in data center consolidation and HCI implications
  • The role of hybrid cloud and key use cases driving HCI adoption

Register today to reserve your space

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

WEBINAR FAQS

OEM earnings roundup: Unpacking a quarter of ‘record growth’

OEMs boasted revenue and profit gains in the first calendar quarter of 2021

“Record growth” was a frequently repeated phrase over the last week as Dell Technologies, Lenovo, Hewlett Packard Enterprise (HPE) and HP Inc. reported their earnings for the first calendar quarter of 2021. For these major OEMs in the PC and data center hardware space, record gains in revenue and profitability have been hard to come by in recent years due to several factors including slowed PC refresh cycles, stiff competition from cloud offerings, component shortages, and uncertainty about the  pandemic’s impact on businesses and consumers.

For all these reasons, it was a pleasant surprise to witness a series of positive earnings announcements. But as one company after the next reported breaking multiple growth records in revenue and/or profit, it led me to wonder the degree to which business growth was based on increased economic stability rather than major changes in the OEM’s go-to-market approach.

Comparing first quarter revenue figures from the last two years provides a good snapshot of how the hardware market has changed since the world was immersed in the COVID-19 pandemic. For Dell Technologies, HP Inc. and HPE, the earnings reported in the first quarter represent revenue from February to April. Looking back to 2020, this represents the time frame when many countries imposed lockdowns. Lenovo’s earnings time frame is slightly different — reporting on revenue from January through March — but remains a good comparison, particularly as Lenovo may have felt the pandemic impacts earlier than peers as a China-based company, especially given that Lenovo has a manufacturing facility in Wuhan.

All vendors but Dell Technologies saw a first quarter corporate revenue decline of at least $1 billion in 1Q20 compared to 1Q19. In 1Q21 all vendors exceeded their revenue levels from the start of the pandemic, and three of the four grew revenue by $1.9 billion to $3.9 billion compared to 1Q19. This is impressive revenue growth for these vendors operating in mature and, in some cases, declining market segments. But are all business units growing equally? The fact that HPE was the only vendor of the four to not grow revenue in 1Q21 compared to 1Q19 and is also the only vendor in the compare lacking a PC business suggests growth is not consistent across hardware segments.

PCs are the driving force in the revenue rebound

Demand for both consumer and commercial PCs has been strong throughout the pandemic as many people spent an increasing amount of screen time at home for work, school and socialization. Dell Technologies, Lenovo and HP Inc. have not only reported 1Q21 revenue gains of billions of dollars compared to 1Q20, but the OEMs’ revenue is also up significantly compared to 1Q19. In addition to pandemic-related demand for PCs, silicon supply shortages have also helped to stem the race to the bottom for PC prices. With limited chip supply available, Intel and peers have focused on producing higher-end chips for premium devices. OEMs are also less competitive on pricing while demand outweighs supply. Improving selling prices and shifting toward premium PCs benefit not only revenue but also profitability.

Data center is still not immune to the impact of cloud migration

OEMs’ data center business units tell a different story. While the three vendors all reported increased year-to-year revenue in 1Q21, both Dell Technologies’ and HPE’s data center revenues are down compared to 1Q19. This suggests that year-to-year revenue gains represent customers showing less pandemic-related spending hesitancy and resuming delayed data center projects, while declines compared to 1Q19 align to the overall trend of enterprise data center consolidation in favor of public cloud. Although with the smallest data center revenue base, Lenovo was the only vendor in the comparison that increased revenue from 1Q19 to 1Q21, possibly buoyed by its Cloud Service Provider customer segment, which has higher demand for data center infrastructure compared to the enterprise segment. Overall, the revenue trends suggest that a favorable year-to-year compare may be masking impacts of public cloud adoption, which have accelerated through the pandemic.

Looking ahead to the remainder of 2021, TBR expects the trend of favorable year-to-year compares to continue for hardware vendors as businesses gain confidence in resuming IT spend. Profitability will likely also remain strong as supply constraints on chips will lead to price premiums and a focus on selling high-end devices. The data center space will likely continue to benefit from pent-up demand, but will be offset to some degree by the ongoing trend of public cloud and SaaS adoption, leaving PCs to drive the largest OEM revenue increases in 2021.

As digital transformation matures, customers voice their concerns about data and scale

This week TBR wraps up its 2019 digital transformation insights research with our Voice of the Customer report, in which Senior Analyst Boz Hristov notes, “More buyers are beginning to embark on full transformations as new technologies promising faster, scalable outcomes push buyers to ramp investments and AI and analytics gain mindshare. Vendors can take advantage of buyers’ increased investments in AI and analytics and demonstrate tangible ROI, but only if they can guarantee they are using cleansed data.”

Additional assessments publishing this week from our analyst teams

“Forging closer relationships with clients in select regions enables opportunities to upsell and cross-sell emerging solutions and attach services as clients continue to modernize IT environments. HPE provides the infrastructure needed to modernize clients’ IT environments, creating opportunities for HPE Pointnext’s expertise around close-to-the-box services and solutions.” Kevin Collupy, Analyst

“TBR’s 3Q19 Dell Technologies report dives deep into the complex market dynamics impacting the vendor’s go-forward path. Ongoing server market softness has caused some pivots within the Infrastructure Solutions Group’s initial 2019 goals, and VMware’s transition to more of a subscription sales model coupled with the associated expenses of completed and pending acquisitions add wrinkles to the vendor’s financial story.” Stephanie Long, Analyst

“The 3Q19 Hewlett Packard Enterprise report tunes its lens to the implications of Antonio Neri’s Everything as a Service by 2022 goal. The impact of this goal will be felt, both positive and negative, throughout the next year as the vendor’s financials adjust to a subscription selling model from a transaction selling model and as customer demand for consumption-based pricing is increasingly satisfied by these changes.” — Stephanie Long

 “As Accenture wraps up 2019 we expect the company to continue to capitalize on its momentum, targeting Diamond clients by deploying industrialized, AI-enabled solutions. We expect Industry X.0 and other similar initiative to further support the company’s efforts to secure core revenues as buyers embark on broad-based transformation initiatives.” — Boz Hristov

“As discussed in TBR’s Hyperconverged & Converged Market Landscape, the emergence of public cloud competition in the private cloud market, as vendors seek to capitalize on the rising trend of hybrid cloud adoption, has created unique and complex dynamics for hyperconverged infrastructure (HCI) vendors to navigate in the HCI space. These vendors not only continue to grapple with hardware commoditization and the ongoing emphasis on software in HCI sales, but now also face an additional angle of competition from the public cloud side, as Amazon Web Services makes Outposts generally available and Microsoft’s Azure Stack increasingly resonates with customers for hybrid cloud. On the other hand, HCI’s applicability to the edge is also resonating and creates additional pockets of opportunity for HCI vendors. Similar market dynamics are being noted in TBR’s upcoming Hyperconverged Platforms Customer Research, which examines the market through a customer-centric lens.” — Stephanie Long

Deloitte’s willingness to go into unorthodox markets supports growth

“Broad-based investments including low-cost resources and platform-based solutions are among the recent examples of Deloitte’s efforts to expand its addressable market, resulting in improving non-management consulting revenue performance,” says Senior Analyst Boz Hristov.

“While Deloitte is far from reaching revenue diversification compared to the likes of Accenture, the firm is making inroads in unorthodox markets such as outsourcing services. To succeed, though, Deloitte will need to showcase pricing flexibility as it deploys new ways of engaging with clients.”

In his recent assessment of Deloitte’s management consulting practice, Boz noted that augmenting legacy services through investments in legal services, as well as technology partnerships with the likes of Google and ServiceNow, will play a critical role in building and solidifying trust with new and existing buyers, especially as the majority of them fall within the Extension stage of Deloitte’s digital transformation initiatives. Teaming consulting and analytics experts with solutions architects as a core go-to-market strategy will likely not differentiate Deloitte much from rivals. However, the firm’s dedicated investments in regions such as Germany, where consulting sales revenue share surpassed that of legacy audit services, will help build the globally integrated, diversified portfolio Deloitte needs to protect its No. 1 position among TBR’s benchmarked vendors.    

Additional assessments publishing this week from our analyst teams

In 1Q19 VMware experienced another healthy quarter of revenue growth, which increased 12.8% to $2.3 billion. Late 2018 acquisitions helped buoy revenue, as did double-digit cloud management bookings and the reported success of CloudHealth in the quarter. — Cassandra Mooshian, Senior Analyst

In its 1Q19 Hewlett Packard Enterprise Cloud report, TBR discusses the company’s modest 2.8% cloud revenue growth, to an estimated $1.9 billion, and how that underscores Hewlett Packard Enterprise’s (HPE) focus on and commitment to cloud-based hybrid and emerging technologies. HPE GreenLake continues to play a crucial role in HPE’s success, as GreenLake orders grew a reported 39% year-to-year in 1Q19. — Cassandra Mooshian

TBR’s Dell Technologies report deep dives into the performance and strategies of the vendor’s Client Solutions and Infrastructure Solutions groups, while painting the picture of Dell Technologies’ bigger overall strategy. Deeper analysis of some of the announcements that emerged from Dell Technologies World will also be highlighted as well as the ongoing strategic positioning of VMware. — Stephanie Long, Analyst

And sign up now for TBR’s next webinar, Where will hyperconverged infrastructure fit in the modern data center?

Technology Business Research, Inc. announces 2Q19 webinar schedule

HAMPTON, N.H. (March 4, 2019) — Technology Business Research, Inc. (TBR) announces the schedule for its 2Q19 webinar series.

April 10        Progress report: State of the NFV/SDN telecom market

April 17        Channel partner ecosystems will evolve to support digital adoption

April 24        Evolutionary IoT: Starting small and controlling costs

May 1           Obstacles and triumphs on the journey to cloud

May 8           Health IT converges around consumerization, value and ROI

May 15        30 minutes, 3 months, 3 years: Evolution of digital transformation

May 22        Bringing the best: Talent and technology in management consulting

June 12        The makings of the telecom edge compute market

June 26        Where will hyperconverged infrastructure fit in the modern data center?

TBR webinars are held typically each Wednesday at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Where will hyperconverged infrastructure fit in the modern data center?

Insights from TBR’s hyperconverged infrastructure research stream

As digital transformation progresses, customers’ data center environments evolve in kind. TBR’s hyperconverged infrastructure (HCI) research stream provides some indicators on the market’s motions. TBR unearths customer preferences centered on HCI and maps the anticipated progression of HCI adoption over the next five years. Deep dives into the evolving vendor landscape, HCI use cases and workload trends are key highlights within this research.

Join Geoff Woollacott and Stephanie Long as they share key insights around the current state of the HCI market, how digital transformation will impact this market’s momentum, and where TBR expects the market to head in the next few years.

Don’t miss:

  • The state of the HCI market
  • HCI’s place in the cloud market
  • HCI market leaders, disruptors and laggards

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].