Firms Face Decelerating Cloud Spending: Analyst

The cloud computing revolution has been one of the most disruptive catalysts for change in the technology sector over the past couple of years. As enterprises move their data centers off premise and migrate to hybrid IT structures, companies such as Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG) and Microsoft Corp. (MSFT) have benefited from a surge in spending on cloud operating systems.

A group of other tech giants, such as Cisco Systems Inc. (CSCO) and Hewlett Packard Enterprise Co. (HPE), have targeted the booming cloud support, services and infrastructure segment, creating a massive tech ecosystem revolved around cloud computing.

Spending Reductions

Analysts at Susquehanna now warn investors on a foreseeable decline in cloud computing hardware. Susquehanna’s Mehdi Hosseini suggests that HPE, Western Digital Corp. (WDC) and their peers face a “decelerating” trend in cloud computing spending.

Hosseini reduced his estimates by 10% for how much the largest cloud computing operators will spend this year, with his newly introduced 2018-19 estimates suggesting a continued downward trend. This year, the analyst predicts the 10 largest cloud operators will spend $36 billion on infrastructure, compared to his previous estimate at $40 billion. The forecast indicates a 18% gain in spending, down from 24% last year. In 2018 and 2019, Hosseini foresees spending to slow to a gain of 16% and 5% respectively.

Slowdown Attributed to Open Source

The analyst attributes the cloud spend slowdown to “a maturing trend among the larger data center operators,” and “increased momentum around open source architecture.”

While Google continues to ramp up spending, Susquehanna says many operators are shifting resources to open source in efforts to reduce their overall spend. The investment firm believes overall cloud infrastructure has “reached a point where the pace of incremental investment will decelerate until 5G cellular infrastructure is available (2020-2021…

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