On-premises data center spending drops in priority

The cloud is having an impact on data center spending, according to a new Computer Economics survey. Bad news for HPE, Dell EMC and Lenovo.

On-premises data center spending drops in priority
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A survey has found that on-premises data centers are the lowest priority for investment by IT organizations, a reflection of the growing impact of cloud infrastructure and services. 

For Computer Economics’ annual IT Spending and Staffing Benchmarks report, the organization surveyed more than 200 IT organizations over the first half of this year. It noted that top-line findings show that IT organizations continue on a path of “steady but modest growth in operational budgets while capital budgets and hiring are essentially flat.”

+ Also on Network World: IT budgets shift away from capital expenses thanks to the cloud +

Now, that’s not to say data center spending will be cut. It’s just that it won’t get the priority for increased spending and is being reduced. IT capital spending now accounts for only 18% of total IT spending, compared to 24% in 2013. 

The report says data centers now have the lowest priority for new spending among five categories. Top priority is given to the development of business applications — which I would point out usually need a data center to run. In this category, 54% of respondents said they plan increased spending. Another 32% of respondents said they plan to increase spending on network infrastructure, which also goes in a data center.

However, only 9% plan to increase data center spending, which the study attributes to the increasing emphasis on cloud infrastructure, cloud storage and SaaS.

“As a sign of the data center’s demise as a priority, end-user technology, including PCs and printers, has passed the data center, and for the first time, data center is the spending category with the lowest priority,” the report said.

Still a need for on-premises data centers

Demise is a bit of an overstatement. Trends could be reversed. And there are some workloads that will never move to the cloud. As much as Google and Amazon peddle the pure cloud play, it’s unlikely to happen for the majority of firms. They will need something on premises. The question is how much. After all, you need a data center with a strong network infrastructure to connect to the cloud to begin with.

And there are other positive indicators. Almost half, 49%, of the IT organizations surveyed indicated they will be increasing their spending on infrastructure, equipment, or major system development and implementation. Another 23% percent said their spending will decline, and 28% said there would be no change.

Still, it’s undeniable that capex is down. The survey puts capital expenses at a five-year low of 18%, down from 21% for the last two years and 24% back in 2013. Again, a primary reason? The cloud.

“Virtualization, the cloud, and other technologies are lessening the need for capital expenditure growth even when times are good. While existing equipment must still be refreshed, the years of large capital expenditures in order to handle growth are likely gone, due to the elasticity and efficiencies of newer technologies,” the report said.

Security is the top priority

According to the survey findings, the top priority is security, with 70% of the organizations surveyed saying they plan to increase spending on security, followed by 67% that said they will increase spending on cloud applications and 52% on cloud infrastructure.

Another interesting turn is in the area of staffing. Moving to the cloud inherently means fewer staff needed, so perhaps the news that staffing levels are expected to remain even is good news. The survey said hiring is slowing for lower-level skills such as computer operations, scheduling, and lower-level tech support positions. But positions that required higher-level skills, such as business analysts, project managers, data analysts, and IT security professionals, are increasing in demand.

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