In the early days of the COVID-19 outbreak, the data center industry served as the backstop for the global economy. The social distancing measures in the first months of the crisis saw many businesses and organizations rushing to set up systems to enable effective remote work and support the major shift to online services and eCommerce sales. This sudden shift put a major emphasis on the importance of cloud computing and data centers in the global market.
For many businesses, an industry transformation for more reliance on digital infrastructure has occurred in a matter of weeks, which would have likely taken several years. As the world slowly emerges out of the pandemic, however, data center market growth can be anticipated to follow several patterns.
Understanding the Role Data Centers Have Played During the COVID-19 Pandemic
The role of data centers during the COVID-19 pandemic cannot be understated. The shift to remote work and online services for schools, nonprofits, and businesses has exposed a society increasingly more reliant on network connectedness.
Since data centers are critical for maintaining global interconnections, they have been key components in the changing face of business during the pandemic. Efforts to slow the virus led to many businesses and institutions urging employees and students to work from home. The end result was millions of people remotely working, using data for online classes, browsing social media, gaming, and using streaming services more than ever. Though there have been higher traffic spikes in the past - such as during events like the Olympics and Superbowl - people have been turning to the internet for virtually everything while self-quarantining. Whether it’s the latest news on COVID-19 or ordering groceries for the week, data centers have been integral for providing stable connections.
Internet usage isn't the only thing being employed more regularly to keep businesses afloat during the COVID-19 pandemic; other services, such as cloud storage, are being utilized as well. Also, teleconferencing platforms such as Zoom and Google services saw a substantial increase in usage due to employees working from home. Many businesses turned to teleconferencing to effectively communicate with their staff, while schools and colleges used video-teleconferencing to ensure students could continue their education with online learning.
Without stable and reliable connectivity, organizations would have a difficult time continuing operations. Data centers have been crucial with supporting the increased amount of network traffic globally throughout the pandemic, allowing industries to stay afloat.
What Could the Data Center Market Look Like Post-Pandemic?
While digital tools are continuing to be essential for businesses to continue operations during remote work environments, data center growth projections need to account for a world where COVID-19 recedes. Though there has been data center market growth due to increased activity, there are other factors to consider when anticipating the demand of the data center industry post-pandemic.
Global Effects of Supply Shortages
The pandemic has tested the limits of internet infrastructure supply chains, which may have an impact on the market even as the virus recedes. Equipment components supply and manufacturing shortages and disruptions began early in the pandemic since most of the data center hardware is produced in Asia. The supply chain disruptions rippled throughout the rest of the world, spreading through Europe and eventually the United States.
Supply shortages have resulted as manufacturing shipping has slowed or completely halted as non-essential businesses are forced to close. Information from the Data Center Network Equipment expects data center switch suppliers to make $5.4 billion in revenue in the first half of 2020, which is down from $5.9 in the first half of 2019. However, the second half of 2020 is predicted to make $7.3 billion, more than a billion dollars up from the second half of 2019. So, while the data center market has suffered due to COVID-19, it has also seen promise for experiencing a rise in demand due to heavy consumer demand during the pandemic.
The Impact on IT Budgets
Although most market forecasts for 2020 expected the IT budget of organizations to continue trending upward, falling consumer demands and reduced global trade due to the pandemic have affected budget spending.
Since the unfolding months of the pandemic, the market research firm Forrester revised its original tech market forecast for 2020 downward. They now expect global tech market growth to slow to about 2% in the best-case scenario, with a 50% chance that the market will actually decline by 2% in the worst-case. However, hardware spending is expected to take the biggest hit, with a potential fall as much as 5% to 10% as companies put off expensive equipment upgrades.
While the data center market may be affected by limited IT budgets, the sudden transition to remote working environments has led companies to ramp up their technology budget to keep pace with cloud services and expand their cyber-security expenditures.
A Permanent Change?
For many organizations who have put off modernization, the COVID-19 pandemic has forced them into a digital transformation. Industries who were not adjusted to a virtual workforce have been driven to force structural IT changes to allow employees to do so. Increased cyber-security measures and emphasis and spending on cloud platforms that place premiums on speed and scalability will continue to be relevant for companies who previously did not devote as much of their budget to this area.
Although the COVID-19 pandemic will eventually recede, the shift to emphasizing virtual connectivity will be a permanent change for many industries in order to compete with the speed and productivity of competitors. The data center market will be adjusting to changes in the wake of the pandemic and may flux, but the massive surges in user-ship, whether it’s remote working, e-learning, or other activities, will continue to impact the market throughout the rest of the year and after.
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