Amazon, Other Cloud Offerings Will Hurt IT Hardware Spending

Investor's Business Daily

Greater corporate use of cloud computing services will drag down revenue growth for information technology hardware and software suppliers, says Barclays in its 2014 global technology outlook.

"We believe the deflationary impact from the cloud ($1 spent on cloud infrastructure actually results in several dollars coming out of other IT end markets) should prevent IT spending from growing meaningfully in 2014 and 2015," said the Barclays report. "We believe global IT spending will remain challenged in the lower single-digit growth range," the report said.

Amazon.com's (AMZN) push into cloud-computing services has the IT industry bracing for more competition, as IBD today reported.

"2014 could represent a more disruptive phase for the cloud, which is not just for the Googles, Facebooks and Amazons anymore," said the Barclays technology report. "Our research indicates that traditional revenue streams in hardware, software and services could face even more pressures in 2014, but (the cloud) still creates opportunities for the next wave of tech companies.

Amazon Web Services is a growing provider of infrastructure-as-a-service, or IaaS, in which companies rent computers and data storage via the Internet. Growth of IaaS has taken a toll on IT hardware suppliers, since customers can spend less on their own data-center gear.

"The enterprise wants cloud economics: Cloud technologies allow for significant efficiencies through sharing of pooled resources," said the Barclays report. "To be clear, not all enterprise customers want to outsource to the cloud (and not) all workloads can move to the cloud. (But) the very presence of the alternatives has the potential to elongate evaluation cycles and drive down pricing for traditional tech products.

Research firm 451 Group forecasts that IaaS revenue for providers as a group will jump at a compound annual rate of 57% through 2016, reaching $10.2 billion in 2016, up from $2.9 billion in 2012.

Barclays uses data from research firm IDC in its report. "IDC has stated that revenue associated with the IaaS market approached about $9.5 billion in 2012 and could more than triple to over $31 billion by 2017, growing at a 27% CAGR. (IDC's) IaaS forecast consists of both server and storage related revenue.

There will be winners and losers as a result of cloud computing's surge, says Barclays.

"We expect hardware and server players like EMC (EMC) and IBM (IBM) to be particularly challenged, while system integrators like Accenture (ACN) may also struggle with the need for less on premise integration as their customers rely more on (cloud) architectures … We believe that some companies benefit in this transition by offering a key technology component or a key connection or 'toll' that enables the cloud.

"Big Data solution providers like Splunk (SPLK) as well as mobile and telecom carriers that provide the 'pipes' should also benefit.

Verizon Communications (VZ) recently announced new cloud products for enterprise customers, as IBD reported.

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