Global HPC market revenue reached $39 billion in 2019, growing a healthy 8.2 percent over 2018, according to the latest analysis from Intersect360 Research. A 3.7 percent COVID-related contraction is in store for 2020, ending a ten-year growth streak. The horizon still looks bright, however; the analyst firm is forecasting a rebound spike in 2021 and a five-year compound annual growth rate of 7.1 percent that would bring the total HPC market to $55 billion at the end of 2024.
The big 2019 winners in Intersect360 Research’s final accounting were HPE and Dell EMC, which ended the year in a virtual tie, together leading HPC system revenue with a combined 60 percent market share. These same companies also topped the storage segmentation by revenue, with Dell EMC maintaining the lead that it has held since 2017, after Dell acquired EMC.
The COVID-19 pandemic thought to have originated in Wuhan, China, in December 2019, did not influence the 2019 numbers from what Intersect360 can tell. And while the pandemic is impacting the 2020 forecast, the current outlook is slightly better than the midpoint of the preliminary guidance offered in March that projected a flat to 12 percent drop.
“The biggest thing contributing [to the updated guidance] is that effects internationally have not been as bad as we might have feared,” Addison Snell, founder and CEO of Intersect360 Research, told HPCwire. “International economies seem to really have been recovering. And cloud is absorbing a lot. The geographic effects are kind of the reverse of what we would have seen or foreseen from March. Looking at it then, it seemed like Asia and Europe were going to be worse than North America. And if you ask me today, I think it’s the other way around.”
“The good news is we’ve seen it before,” said Snell, referencing other recessions and disruptions. “Most of this shortfall is from purchases that are delayed, not canceled. So long as the economy comes back in 2021, we’ll see a big spike as those delayed HPC purchases get realized.”
The major asterisk to this guidance is that it presumes that the economic effects of the pandemic are essentially contained to this year or, at the worst, early next year. “This isn’t to say everyone has to be cured and there’s a universal vaccine by that point, but rather that we start getting past the economic effects by the early part of the next calendar year. If we don’t, and we’ve got another recession here, then all bets are off, and we have to tear up the forecast and go to a new one,” said Snell.
With an 8.2 percent year-over-year growth rate, 2019 came in a point above Intersect360’s original forecast. Despite lighter growth on the hardware side, non-hardware portions of the market filled in the gap, and ensured the strong finish to the year, said Snell.
“On-premise hardware had a much lower growth rate; servers and storage were both between 2-3 percent in growth with cloud computing taking a much larger share,” said Snell. Additionally, there was an increase in “things that aren’t really cloud, but kind of look like cloud — arrangements like managed services contracts and facilities outsourcing.”
Server and storage spending also saw a shift, where the biggest vendors lost revenue, but the markets demonstrated overall modest growth due to gain in revenue among smaller vendors. On the server side, HPE led Dell EMC by less than a half-point of market share, such that HPE holds on to its server market share lead for the seventh consecutive year.
HPE did benefit somewhat from its acquisition of Cray, which was completed in September 2019. “That 14 weeks of revenue could have made the difference between HPE being number one or Dell being number one,” said Snell. “It’s a situation where, as an analyst, I hate to declare either one of them as being number one. It’s a virtual tie at the top of the market, and it’s just how the numbers are washing out.”
Dell EMC and HPE were also dominant in storage with Dell EMC holding onto its number-one positioning. NetApp experienced a loss of market share that dropped the storage vendor into third place.
Along with NetApp, IBM also lost share (in storage and servers), while Lenovo had a strong showing, the biggest storage vendor by market share to show growth. One thing to consider though is that Lenovo sells Netapp storage solutions with Lenovo branding, and given that revenue only goes on one ledger, that may have amplified Netapp’s loss, according to Snell.
DDN had “a fantastic year,” per Snell, posting one of the highest year-over-year growth rates. And European vendor Atos saw strong market growth for both storage and servers. It was a year where business was stronger outside the U.S., said Snell, but “there was also a trend toward smaller vendors in general.”
Does the revenue shift from the bigger companies to the smaller companies run counter to the consolidation we’re seeing with M&A activity in HPC?
Snell, “What I would say about that is that no amount of M&A would consolidate all of the diversification that’s going on in the technology space right now. As we’re seeing movements toward new workloads and new technologies, there’s just too much experimentation to be done in the end user community, it would be difficult for any one big company to say, well, we’re on top of all of these different things, and to be offering everything to everybody. We’ve been on a pendulum swing toward more specialization and less generalization in this space and seeing that spread of market share is indicative of that.”
In the vertical markets, government grew faster than industry last year, reversing a six-year trend; however, the commercial sector is still more than half the market with a 58 percent share.
“The biggest growth came from the different government sectors,” said Snell. “That was where we saw double digit growth year-over-year; national labs, national security, national agency, even state and local government had double digit growth.”
Vertical markets hardest hit by COVID-19 are energy, automotive, aerospace manufacturing and retail, according to Intersect360’s analysis. Not surprisingly, government research and pharmaceuticals are maintaining or growing during the pandemic.
On the commercial side, finance and manufacturing are still on top. Whether finance is number one or manufacturing is number one depends on whether consumer product manufacturing and automotive and aerospace manufacturing are considered the same vertical or different verticals. “We separate them out in our charts but some of our clients put them back together,” said Snell. “Are Procter and Gamble and Toyota in the same vertical market or not? That’s just a matter of taste how people like to do that.”
Snell said he expects government to provide steady growth, being less likely to experience the significant swings that can occur in commercial segments.
“There can be a lot of extreme short-term things that happen with vertical market shares and with vendor revenue shares over the next couple of years. And I’m foreseeing that as analysts we’ll be telling people not to overreact to those,” said Snell.
The HPC cloud market had its fifth year of double-digit growth in the last six years, and is on track to surge even higher in 2020.
“Cloud, interestingly enough, will do the opposite of what everything else does,” Snell observed. “Because when the industry constrains its on-premise acquisitions, cloud makes up part of the gap. So when everything else goes down, cloud will go up. Overall cloud will exceed its previous very high growth forecast for this year, according to our forecast.”
The HPC market market grew at a 4.4 percent CAGR from 2014-2019, according to Intersect360’s modeling. The analyst firm’s refreshed five-year forecast anticipates a CAGR of 7.1 percent through 2024.
Addison Snell will be discussing these latest market numbers and trends in a free webinar on Thursday, August 6, at noon Eastern Time.