To the surprise of perhaps no one, hyperscale capex spending continued at a fast clip last year, but what is somewhat surprising is that despite virtualization, digital transformations and the rollout of 5G, telco capex spending remained flat.
According to a report by Synergy Research Group, full-year hyperscale operator capex spending increased by 43% last year to almost $120 billion. For the fourth quarter of 2018, hyperscale capex spending reached over $32 billion, which far outstripped each of the previous three quarters.
On the flip side of the capex coin, telco capex spending was more than double that of the hyperscale providers, but it remained at the same level as the previous two years.
The top-five hyperscale spenders last year were Google, Amazon, Microsoft, Facebook and Apple. The aggregate 2018 capex spend of those five was almost the same as that of the top-five telco spenders: China Mobile, AT&T, Verizon, NTT and Deutsche Telekom.
Expect more of the same going forward.
“The hyperscale operators are quickly becoming the capex kings of the IT world,” said John Dinsdale, a chief analyst at Synergy Research Group, in a prepared statement. “On average hyperscale operator revenues are growing by 20% per year driven by expansion of cloud services, e-commerce, social media and online advertising; and it is notable that the leading players are investing an ever-increasing share of their revenues into capex.
"This is in stark contrast to telcos who are seeing neither revenues nor capex growing. We do not see these trends changing any time soon.”
Due to the overall scale and early growth stage of the hyperscale service providers versus the size of the largest telcos, it may not be an apples-to-apples capex comparison, but the hyperscale capex growth is a further indication of the importance of the cloud across various verticals.
Synergy Research Group said that a large chunk of the hyperscale capex went toward building, expanding and equipping large data centers, which have now grown in number to 439. Amazon and Google opened the most new data centers last year. Outside of the top five, other leading hyperscale spenders in 2018 included Alibaba, Tencent, IBM, JD.com and Baidu.
The hyperscale data was based on analysis of the capex and data center footprint of 20 of the world’s major cloud and internet service firms, including the largest operators in IaaS, PaaS, SaaS, search, social networking and e-commerce.
The telco data was based on tracking and analysis of the world’s 40 largest telcos, which in aggregate account for 85% of the communications services market.
Synergy Research Group's report this week stands in slight contrast to a December report by Morgan Stanley Research that said third-quarter U.S. hyperscale cloud capex growth decelerated approximately 10 points from the first half 2018 to about 40% year over year. The cloud companies' respective capex numbers were still growing in the third quarter, but not at the same pace as previously, according to Morgan Stanley Research.