Tabor Research Bullish on HPC Market

By Michael Feldman

October 16, 2008

With the threat of a deep recession looming on the horizon, IT industry analysts have been busy trying to figure out if their slice of the economic pie is about to shrink. If a broad and protracted recession does occur, the IT industry will certainly suffer, since so much of its revenue is driven by consumer and SMB spending. But there will be pockets of growth too, and the high performance computing market may be one of them.

Tabor Research has looked into its crystal ball and found plenty of signs that HPC will continue to experience healthy growth over the next couple of years. In the company’s latest user survey, the “HPC Budget Map Survey,” two thirds of the 93 respondents said that they are prepared to increase their HPC budgets substantially over the next couple of years. Of these, two thirds expect to increase spending by 10 percent and nearly half by over 20 percent. Less than one in eight users say they will scale back spending.

Looking further out, Tabor is forecasting total HPC revenue (servers, software, storage, plus services) to grow from $18.6 billion in 2007 to $27.2 billion in 2012, a 46 percent increase. IDC, meanwhile, is predicting $15.6 billion by 2012, but that represents only HPC server revenue. Since Tabor estimates around 42 percent of total HPC revenue is derived from server sales, the corresponding 2012 server figure for them is just $11.4 billion.

That’s not surprising. IDC gets most of its input from suppliers — OEMs mostly — so you’ve got to consider that there might be some wishful thinking mixed into the calculation. The Tabor results are based on end users, a demand-side view, which is more likely to portray actual buying behavior. Regardless, the annual growth rates forecast by both analyst organizations are quite similar — around 9 percent CAGR.

Tabor is actually predicting servers will grow less slowly than some of the other segments. It highlights HPC storage, in particular, as the fastest growing piece of the market. That seems to make sense, since the current explosion of data is driving a discontinuity between compute and storage demand.

One may wonder if all this cheery news takes into account the tanking of the global economy. The IDC numbers came out last month, so presumably the data was collected during the summer. But the Tabor surveys were completed in September, after the start of the U.S. credit crisis. Additional Tabor surveys were completed in one local market in the first half of October and were consistent with the earlier findings. So unless these users were hiding under a rock for the past few months, they’re all aware of the current financial turmoil.

The theory behind this seemingly recession-proof growth is the close relationship between HPC and R&D. Both IDC and Tabor Research believe that HPC will endure tough economic times because of the strategic importance of R&D for commercial and government organizations. And since both OEMs and end users appear to agree, it must be true, right? I suppose it depends on how deep the recession goes. If it turns into a 1929-type collapse, all bets are off, since both government and business behavior is going to switch into survival mode.

On the other hand, for either a recession or depression, the federal government ends up being the most dependable source of spending. If grown-ups are in charge, spending will actually increase to help pull the economy out of a hole. In the U.S. at least, that would involve printing money, which would precipitate inflation. That could actually lead to higher revenue numbers for HPC, since everything will cost more. That’s not a good thing in itself, since inflated dollars aren’t “worth” as much.

Since government is heavily into HPC, both directly (e.g., DOE centers, supercomputing centers) and indirectly (e.g., academia, commercial partnerships), it could and should play a stabilizing role in the HPC market during a downturn. In the Tabor survey only 12 percent were government users, while 38 percent were from commercial and industrial organizations and 50 percent came from academia. But all groups were generally bullish on HPC spending. “We looked at the data, and similar growth expectations exist across academia, commercial, and government, with only minor variation,” said Addison Snell, vice president and general manager of Tabor Research.

The irony here is that if HPC were broadly deployed across small and medium sized businesses, like everyone is clamoring for, the market would be much more exposed in an economic downturn. The fact that high performance computing is still (mostly) a technology for elite users will insulate it from the nastiest effects of a recession. The agonies and the ecstasies of true HPC “democratization” await.

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