Hyperscale datacentre operators report first drop in capex growth for seven quarters

The amount being spent by the hyperscale cloud and internet giants on growing their datacentre footprints took a slight dip during the first three months of 2019, after a record run of growth during the previous year.

The downturn is expected to be relatively short-lived, according to the market watchers at Synergy Research Group, which keeps tabs on the datacentre investment and capital expenditure (capex) habits of the top 20 hyperscale cloud and internet firms on a quarterly basis.

Its data shows that, after seven successive quarters of capex growth, the total amount spent by the hyperscalers topped $26bn during the first quarter, which equates to a 2% year-on-year drop.

“We do expect capex levels to bounce back and grow again,” said John Dinsdale, chief analyst at Synergy Research Group. “The companies are in good financial shape, with 16 of the 20 companies growing their revenues in the quarter – 12 of them by double-digit percentages.”

In terms of what is behind the slowdown in expenditure, Synergy said the market is prone to “lumpiness”, which is why the downturn should be no real cause for alarm.

This is particularly as 10 of the 20 firms tracked by Synergy reported year-on-year capex growth, with the top five spenders called out as being Amazon, Google, Facebook, Microsoft and Apple, followed by Alibaba, Tencent, IBM, JD.com and Baidu.

The bulk of the investments these companies are making are funneled into growing their server farm estates across the world, with Synergy claiming the number of datacentres operated by the hyperscalers now stands at 458.

“After racing to new capex highs in 2018, the hyperscale operators did take a little breather in the first quarter,” continued Dinsdale, a chief analyst at Synergy Research Group.

“Though Q1 capex was down a little from 2018, to put it into context ,it was still up 56% from Q1 of 2017 and up 81% from 2016. And nine of the twenty hyperscale operators did grow their Q1 capex by double-digit growth rates year on year.”

Out of the 20 firms Synergy tracks, 10 also reported a year-on-year decline in capex growth, which Dinsdale said just serves to highlight just how competitive of a market it is.  

“This remains a game of massive scale with enormous barriers for those companies wishing to meaningfully compete with the hyperscale firms,” he added.

While Synergy is confident the levels of investment in the market will continue to grow, the dip comes at a time of reflection for some of the hyperscale market’s biggest players.

Amazon, for example, recently declared a refocus of its datacentre expansion strategy, which will put a greater emphasis on improving the efficiency and performance of its existing footprint of server farms.

Microsoft has made similar commitments this year, with a particular emphasis on improving the sustainability of its datacentre operations, as it works towards having more than 70% of its facilities powered by renewable energy by 2023.

At the same time, Google has outlined commitments to increase the geographical spread of its datacentres, with news breaking this week about its plans to $670m in expanding its server farm in Finland.

Earlier this year it also made a commitment to investing $13bn in building out its presence in the US, with offices and datacentres planned for 2019.