The slow growth of cloud computing and data centers worries US chipmakers

By TechThop Team

Posted on: 17 Aug, 2022

As consumers signed up for cloud-based entertainment and companies retooled their offices, the chip sector's strongest sector may be its next problem: Growth in the cloud and data centers is slowing.

The cloud market has rarely had to weather a prolonged economic downturn as businesses adopted the technology, making it harder to predict whether it will be recession-proof or hit by a recession.

The recession and 40-year inflation have sent advertisers' purse strings tightening, say big tech companies.“Datacenter cuts might be driven by an advertising drought hurting companies like Facebook and Snapchat,' Bernstein analyst Stacy Rasgon told CNBC.

Alphabet's Google Cloud revenue growth rate has fallen over eight percentage points, Microsoft's Azure has declined over six percentage points, and's AWS has declined over three percentage points.

The cloud market is still growing, according to Nathaniel Harmon, research director at YipitData, but he noted there are pockets of weakness in regions such as Europe.

As part of their efforts to save money during the pandemic, the three companies have said they will keep data center equipment for longer, in some cases up to six years, from three years.

“As they are likely to cut back on their expenditures for data center capacity, that will lead to fewer chips from Intel and AMD being bought,” said Glenn O'Donnell, a Senior Research Director at Forrester Research.

A 16 percent drop in Intel's data center and AI group business left Wall Street disappointed by nearly $2 billion. A Micron Technology warning last week said the trouble was not just in PCs and smartphones, but also in the cloud.

Slower growth of the cloud market isn't the only problem, Micron's chief business officer Sumit Sadana told Reuters. The problem was caused by a shortage of some chips, preventing servers from being built, which led to a pile-up of other chips.

The servers supply chain is at record highs, but key parts remain missing, according to Supplyframe's Richard Barnett. The server needs 500 components, of which 10 to 20 are unavailable.

The tech sector is affected. We hear from clients that they aren't turning off the faucet, but they are closing it a bit. Dell and Hewlett Packard Enterprise are also going to see some of that reflected in earnings.'

As executives and analysts debate the impact of the slowdown in cloud growth, Super Micro Computer Inc., which makes custom servers for new technology, says self-driving cars and the metaverse are still driving demand.

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