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Server demand continues despite the surge in cloud adoption, which is actually fueling server-purchasing activity.
Channel partners have long generated revenue from selling servers and, in the managed services era, providing ongoing monitoring, maintenance and upgrades. The rise of cloud computing, however, has changed the channel partner's evolving business mix. Partners have built practices devoted to planning cloud migrations, selling cloud services and cost-optimizing cloud environments.
Yet, on-premises servers are still part of the channel picture. Customers continue to purchase servers to host sensitive in-house applications and data or when migrating to the cloud isn't a viable option. Unclouding has sent some formerly cloud-resident workloads back to on-premises boxes. And although enterprise and small-business server use continues, some channel partners are server consumers as well as conduits. Partners are building out infrastructure to offer their own cloud, colocation, and backup and recovery services.
Indeed, service providers, a group which includes hyperscale cloud vendors and telcos, represent a large and growing source of server demand. Vlad Galabov, principal analyst of data center IT with the Cloud and Data Center Research Practice at Omdia, estimated just over two out of every three servers will ship to cloud service providers or telecom network providers in 2020. The London-based market research company foresees an even bigger share of the server market going to service providers. In 2024, service providers will operate three out of every four servers, according to Omdia.
But beyond service providers, server purchasing will carry on as organizations large and small pursue increasingly sophisticated hybrid IT environments. Features of interest include acceleration technologies for handling AI and analytics workloads.
The COVID-19 pandemic slowed server spending, particularly in March and April when access to businesses' on-premises infrastructure was limited, industry executives said. Prior to the lockdown, server demand came from infrastructure refresh initiatives stemming from the end of support for Windows Servers 2008, noted Peter DiMarco, vice president of VAR sales at D&H Distributing Co., a distributor based in Harrisburg, Pa. He said server upgrades, coupled with D&H's expanded partnership with Hewlett Packard Enterprise, helped fuel 38% growth in the distributor's server business, prior to the pandemic.
But as the economy reopens, so, too, will server projects previously put on hold, DiMarco noted. "We certainly expect that infrastructure to continue to be refreshed," he said, adding businesses will expand their revived projects to include support for remote worker capabilities.
Those expanded efforts could include router and switches upgrades and software-defined-WAN technologies as well as server infrastructure, he added.
As the recovery continues, channel executives also see GPUs, converged systems and consumption-based models driving server hardware sales.
Maghen Hannigan, director of converged and data center solutions at Tech Data, a distributor based in Clearwater, Fla., cited AI functionality and GPUs among the factors influencing partners' server purchasing. She said those technologies provide "additional innovation and differentiation capabilities in several verticals." Partners, she noted, "are currently leveraging GPU technology in support of research efforts around the coronavirus."
She also identified converged systems with non-volatile memory express and flash storage as motivating buyers along with flexible financial offerings. She said most vendors, distributors and channel partners are offering some form of subscription- or consumption-based financing for hardware.
Hybrid environments fuel server demand
Overall, customers' continuing focus on hybrid IT will propel enterprise and small-business server sales going forward.
Chris Weis, global practice manager for software-defined infrastructure at World Wide Technology (WWT), a technology solutions provider based in St. Louis, suggested customers are looking to run workloads on premises and in the cloud as appropriate.
"What we've learned from our customers is that they don't inherently want to run everything in the public cloud, but they do want to consume many of the public cloud services that are costly or complicated for them to build and operate on premises," Weis said.
Such services include databases, large-scale object stores, scalable and reliable web services, analytics and AI, to name a few.
"The need for these services is real, especially among developers, and it's often why customers start using public cloud services," Weis said. "But the large majority of workloads for most customers still exist on premises today."
He cited several reasons for running in-house workloads: cost, control, security policies, data gravity, workforce skill set and business process integration.
Tech Data's Hannigan, meanwhile, noted hybrid-cloud application support among the top drivers for server technology. "Even after we start to see businesses move through recovery, there will be a healthy mix of on-premise hardware and cloud to help resolve issues around data latency, security and support requirements."
Anurag Agrawal, CEO at Techaisle, an SMB IT market research firm located in San Jose, Calif., said he views hybrid IT as an important influencer for small companies. He said the only compelling reasons for small businesses to deploy servers in-house is to "move to hybrid IT or focus on private clouds."
Agrawal said Techaisle's research found that 51% of small businesses are using private clouds, but added the trend is toward advanced hybrid clouds with orchestration and automation.
Organizations ready to purchase a server look for a range of features from remote management to acceleration technologies.
"Servers are tools for a job, and no one tool is suitable for all jobs," noted Eric Dominguez, director of technology at ServerCentral Turing Group (SCTG), a cloud consultancy based in Chicago. "Some servers are scalpels, precisely engineered to perform a singular function with speed and grace. Some servers are hammers, manufactured to clunk workloads over the head into submission. We're always looking for the right balance when evaluating server technology."
Dominguez said SCTG looks for platforms that provide excellent remote management, power efficiency and backplane configurability -- storage and PCI Express. The company provides cloud consulting services, colocation and disaster recovery, operating data centers in the Americas, Europe and Asia Pacific.
WWT's Weis said server customers continue to look for many of the same server enhancements that they have pursued in previous years. Those factors include performance improvements, smaller physical footprint/improved density, better power efficiency and overall lower cost per performance.
Maghen HanniganDirector of converged and data center solutions, Tech Data
In addition to those attributes, Weis said WWT is also encountering recent interest in storage density to support software-defined storage and hyper-converged infrastructure use cases. At the same time, high-performance computing, analytics and AI are driving customer demand for acceleration technologies such as GPUs, field-programmable gate arrays and application-specific integrated circuits, Weis noted.
"Due to the compute power required to drive AI, machine learning and other cutting-edge data requirements, we likely will continue to see growth in server sales," Tech Data's Hannigan noted.
Customers are also showing more interest in global centralized day-1 and day-2 management and operations to support a range of activities including remote bare-metal provisioning, software/firmware upgrades, hardware upgrades and expansions, and automated, standardized software stack deployments, Weis said.
Industry executives view the future of servers moving toward acceleration technology and, eventually, disaggregation and composability. With disaggregation, a server's components can be separated into subsystems such as compute, power and storage. A composable architecture enables IT administrators to reassemble the separate elements to address specific workloads.
Weis said he sees near-term developments around storage density and support for increasingly powerful processing and network acceleration technologies. He also cited better centralized management and monitoring of physical servers, surrounding networking systems and the software running on servers.
Farther out, Weis said he anticipates disaggregated systems "will help solve many of the scaling and cost challenges that come with current blade and rack-mount form factors."
Dominguez also cited "the continuation of disaggregation and composability" as a key trend in server technology. Other server directions, he noted, include increased network capacity to the server, the emergence of tensor and neural processing units to crunch specialized workloads and a continued focus on scalable, interoperable, remote management.
Data center trends
An increase in AI workloads is setting the stage for greater rack density, while the apparent end of a bus rivalry could usher in a period of hardware innovation.
Those developments are among the trends on tap for data centers. SCTG's Dominguez said cabinet power density has been stagnant for the past several years, as incremental improvements in CPU architecture have been offset by greater power efficiency gains across the rest of the server.
"That's about to change," he said. "AI, [machine learning] and deep learning will finally start to fulfill their destinies as the power-hungry workloads they intimated they'd be."
Meanwhile, the competition between the Compute Express Link (CXL) and Gen-Z interconnects has subsided in a memorandum of understanding between the industry groups backing those bus technologies. That agreement calls for those consortia to "promote interoperability" between the CXL and Gen-Z.
The cessation of the bus battle "should spark further OEM adoption and lead to new and innovative platforms," Dominguez said. "This should be true across both small- and large-scale infrastructure sets."
Data centers, he said, "should expect to see a bigger splash, early on, from Gen-Z- backed architecture" as web scale organizations clamor for composability, scalability and efficiency.
Although individual server improvements command some attention, the big picture of server evolution might barely register for those immersed in the technology.
"The closer you are to something, the less you see of it," Dominguez said. "Being entrenched with server technology, I often take for granted all the changes it's undergone over the last 20 years. But if I step back to appreciate the difference between a server from the year 2000 and today, I can see they only share a distant familial resemblance."
Dominguez said he believes the future of server hardware will follow a similar trajectory. Over time, connectivity at 100 Gbps and above will become commonplace inside the server, while non-volatile storage will become faster and denser, he said. And new materials such as carbon nanotubes will displace silicon in 2 nanometer (nm) and 1 nm microprocessor manufacturing processes.
"Even as all this comes to pass, it will all just be blinking lights and whirring fans in the data center to me," Dominguez said.
Small biz follows enterprise server buying patterns
The majority of servers are expected to ship to service providers instead of enterprise IT buyers as more organizations turn to cloud-based offerings. That pattern seems to be holding true for smaller businesses as well.
"I have spent quite a bit of time looking at the response of the larger and smaller enterprises, separately, and have to say that overall the trends are pretty aligned," said Omdia's Galabov.
One difference: Some companies in the SMB sector have a stronger affiliation with smaller cloud service providers and local telcos when they select an IaaS provider. Galabov said smaller companies believe they will receive better service levels from such companies.
"Beyond this subtrend, we have not seen SMBs trail significantly below or ahead of the overall enterprise trend," he said.
Techaisle's Agrawal said small businesses are rapidly moving toward 100% penetration with cloud technology. He said cloud adoption has moved "faster than any other technology solution adoption," noting it took PCs more than three decades to fully saturate the market.
According to Techaisle research, 85% of U.S. small businesses already use the cloud and another 10% plan to do so within the next six months to one year.
Agrawal noted 24% of small businesses are using both cloud servers and physical, on-premises servers, but only 1% of the small businesses using cloud servers plan to buy on-premises hardware. On the other hand, 61% of the small businesses currently using on-premises servers plan to use cloud servers, he added.