Traditional datacentre hardware revenues hit by digital transformation efforts

Datacentre hardware suppliers are seeing their profits dwindle as enterprise adoption of virtualisation, hyper-convergence and public cloud technologies divert IT budgets away from traditional servers, storage and networking kit.

According to Technology Business Research’s (TBR’s) latest Data Center Benchmark report, incumbent datacentre hardware suppliers reported a 4.3% year-on-year drop in revenue during the second quarter of 2016, and suffered a 5.4% fall in gross profit.

Krista Macomber, senior datacentre analyst at TBR, said the demand for greater business agility and productivity within enterprises is prompting hardware buyers to rethink their datacentre investment priorities.

Interest in hyper-converged technologies, which tend to be faster to deploy and easier to configure than more traditional, siloed server, storage and networking setups, is growing and “significantly disrupting” the datacentre market, said Macomber.

“At a quickening pace, customers are embracing software-defined functionality and service-based delivery for business-critical workloads and datacentre consolidation initiatives,” she said.

In the light of these trends, the analyst house is urging incumbent datacentre hardware suppliers to take action now to ensure their strategies align with the needs of enterprise IT buyers.

“For mainstream hardware suppliers, this shift necessitates business model evolutions that are equally as radical to remain relevant,” said Macomber.

TBR’s figures reveal a continued push to adopt volume, industry-standard servers (ISS) during Q2, with revenue for this segment up 39.8% year-on-year, while demand for software-defined networking tools is also on the rise.

The growing use of ISS technology is being driven by customers that need a more cost-effective and flexible IT infrastructure, said TBR, which is not always possible to achieve when proprietary servers and storage arrays form the foundation of their digital initiatives.

Stephanie Long, datacentre research analyst at TBR, said these trends are putting pressure on the likes of Dell-EMC, HP and Brocade to ensure their product roadmaps adequately reflect the “evolving infrastructure-level pain points” that enterprises are now starting to encounter.

“Shrinking opportunities to differentiate on hardware and consolidation of the supplier landscape will result in a highly competitive market for the foreseeable future,” she said.