US chipmakers are worried about the slow growth of cloud and data centers

US Chipmakers Worry About Slow Growth of Cloud and Data Centres

Cloud and data centers, the chip industry’s strongest sector, may have its next problem: Growth is showing signs of slowing in the Covid era as consumers sign up for cloud-based entertainment and companies reopen their offices.

Analysts say the cloud market has rarely weathered a long economic downturn since it became popular over the past decade as more businesses adopted the technology, making it difficult to say whether the recession is evidence that it will be hit by the economic crisis.

As 40-year high inflation weighs on consumers and economists discuss signs of a recession, advertisers are tightening their purse strings, big tech companies say.

“Investors are concerned that the next shoe is going to drop,” said Bernstein analyst Stacey Rasgon, adding that the advertising drought plaguing the likes of Facebook and Snapchat could fuel cutbacks in data center investment.

Big tech has slowed annual cloud revenue growth this earnings season — Alphabet’s Google Cloud fell more than 8 percentage points, Microsoft’s Azure fell 6 percentage points and’s AWS fell 3 percentage points from the previous quarter.

Nathaniel Harmon, director of research at IPitData, said that cloud market revenue growth is still significant, although weakness has been reported in regions such as Europe.

All three companies also said during the pandemic that they would keep data center equipment longer, in some cases up to three years, to save money.

“If they’re going to reduce their spending on data center capacity, it’s less chips from Intel or AMD,” said Glenn O’Donnell, research director at Forrester Research.

The concern was compounded by Intel’s data center and AI group business falling 16 percent to $4.6 billion (roughly Rs. 36,521 crore) against Wall Street estimates of roughly $2 billion (roughly Rs. 15,883 crore).

And last week Micron Technology warned of an even worse-than-expected outlook, this time adding that the problem was not just in PCs and smartphones, but in the cloud as well.

But the slow growth of the cloud market is not easy, Sumit Sadana, Micron’s chief business officer, told Reuters. Part of the problem was the shortage of some of the chips that bound the server, causing other chips to pile up—a situation similar to the auto chip shortage.

According to SupplyFrame chief marketing officer Richard Barnett, inventories in the server supply chain are at record highs but key parts are missing. “Assume 500 components are required for a server and 10 or 20 unavailable components are preventing completion.”

Still, Sadana warned that companies worried about the economy are more conservative about buying chips.

O’Donnell at Forrester said he’s seeing this across the technology space. “As we talk to our clients about their spending plans, a lot of them are saying, well, you know, we’re not going to close the deficit, but we’re going to close it a little bit,” he said. “You’ll also see some of that reflected in the earnings of companies like Dell and Hewlett Packard Enterprise.”

As executives and analysts debate the impact of slower growth in the cloud market, Super Microcomputer Inc., which specializes in customized servers for new technologies, said developments such as self-driving cars and Meta-verse are still driving new waves. demand

“There’s been a lot of growth as projects move from lab projects to deployment,” said Michael McNerney, Super Micro’s vice president of marketing and network security.

© Thomson Reuters 2022


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