Pandemic ‘Wipes Out’ 2020 HPC Market Growth, Flat to 12% Drop Expected

By Tiffany Trader

March 31, 2020

As the world battles the still accelerating novel coronavirus, the HPC community has mounted a forceful response to the pandemic on many fronts. But these efforts won’t inoculate the HPC industry from the economic effects of COVID-19. Market watcher Intersect360 Research has revised its 2020 forecast for HPC products and services, projecting a flat period in the best case to a decline of 12 percent year-over-year due to the COVID-19 pandemic. This is in stark contrast with the firm’s original, pre-pandemic forecast of 7 percent YoY growth for 2020.

Addison Snell, Intersect360 Research CEO, said the report gives a range of guidance based on uncertain factors; the possible 12 percent decline is the midpoint of a spread from 6 to 17 percent below prior market expectations.

Revised 2020 Forecast, Total HPC Market Revenue ($000) – Intersect360 Research, 2020

Surveys conducted in February and March of this year by the firm indicate that 2019 numbers remain on track for a healthy 7 percent increase over 2018, from $36.1 billion in 2018 to $38.7 billion. The original 2020 forecast had the market up by another 7 percent year-over-year to $41.4 billion. This projection has been scaled down to between $34.1 billion and $38.7 billion total market size with a midpoint of $36.4 billion. Parallel to the bull-turned-bear stock market, this dip would end a streak of 10 straight growth years for the HPC market, according to the analyst firm.

“We are still early in the process of learning about the COVID-19 pandemic and what it will truly mean for the world,” said Snell. “That said, we cannot think everything will stay the same. Our data and experience show there will be an adjustment in the HPC market as a direct result of the spread of the novel coronavirus.”

Not all market segments will be equally impacted, according to Intersect360, with certain segments, such as public sector research and biosciences, resisting the downturn.

“The high performance computing market’s growth has been driven in large part by commercial vertical markets over the last decade, and that’s where we’re going to see the brunt of [the negative impact],” relayed Snell on the This Week in HPC podcast (produced by Intersect360 Research and distributed by HPCwire). “Interestingly enough, public sector research should be somewhat buoyed by a lot of the investments that we’re seeing at a national level, even academic research. We won’t see as much of a deviation from forecasts in the public sector, in biosciences. Similarly, investment in pharmaceuticals is somewhat shielded. But when we go to other commercial vertical markets, we’re going to see a larger effect; some of the worst hit are going to be automotive and aerospace engineering.”

The updated report notes that as budgets tighten in response to economic pressures, system and storage spending, whether on new acquisitions or upgrades, gets put on hold. This presents an opening for cloud spending, which the firm expects will rise above its “already-high” double-digit growth projections.

“[System acquisition] is the largest portion of expense that I can defer in order to protect operations,” said Snell. “Cloud computing is something that tends to do well in times of uncertainty or volatility, because you can use it on both ends. If you have a sudden increase in demand, for example, in the public sector and biosciences, cloud can absorb that kind of demand. At the other extreme, if you’ve deferred an expenditure for a new system or an upgrade, but need some capacity for ongoing work, cloud can pick some of that up. So our growth rate for cloud is going up substantially in our forecast for 2020.”

He added that as a small portion of the HPC market, cloud sector growth won’t offset losses in on-prem hardware spending. But hardware spending could bounce back the following year, Snell said, buffering aggregate losses as procurements are delayed rather than canceled. Visibility is limited, however, by so many unknowns  around the pandemic’s course and impacts.

“People will move to protect staffing and operations first,” said Snell. “If we get a minor effect, I think a lot of that [spend] will come back in a future year. But if we really see a deleterious effect throughout the worldwide economy, then some of the revenue is just going to wind up being lost. So we’ve given this range of guidance right now.”

Intersect360 acknowledged the wide range in its updated forecast with so much still uncertain about the unfolding of the pandemic. Snell said his team expects to narrow that range to a more specific number at the end of this year and will publish a revised five-year forecast in Q2. “We typically complete those numbers toward the end of April every year, but we didn’t want to wait another month to get out this pre-announced guidance for COVID-19 because it was pretty clear that we’re going to miss the original forecast as a result of the pandemic. That just goes beyond our forecast capabilities to look at things like war and famine, and in this case disease, that just wasn’t part of the forecast methodology, but it’s a reality now.”

Intersect360 Research is one of several analyst houses offering updated guidance on the impact of the pandemic that has instigated the biggest economic disruption since the 2008 financial crisis. Last week, HPCwire reported on projected market contractions. Hyperion Research stated it expects delayed product shipments, especially from China, and a decrease in 2020 Q1 and Q2 revenue, with growth possibly returning in the back half of the year. While there is substantial demand for computing to process COVID-19 workloads, it comes primarily from existing HPC systems rather than orders for new ones, noted Hyperion.

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