Channel Futures’ 2023 Hardware Outlook: ESG Takes Priority Amid Economic Weight
As new hardware designs appear, demand will vary but the economy will pressure all segments.
December 21, 2022
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IDC is still forecasting that the server market will continue to grow, but not at the rate earlier projected. Last week, IDC lowered its forecast for server growth to 3.2%, down from 6.1% in September. Nevertheless, IDC maintained that it believes server growth will accelerate as economic conditions improve.
“The macroeconomic environment will continue to be a defining factor for the market performance in the short term,” noted IDC worldwide enterprise infrastructure research director Juan Seminara and analyst Viranart Chandarasanti. “In the longer term, continuous investments in infrastructure modernization, fast-growing workloads like AI/ML, and continued investments in cloud and edge deployments will drive further growth in the market.”
The economic concerns and the Ukraine war are also hitting demand for enterprise storage systems (ESS). Last week, IDC lowered its September forecast of 2.5% growth for next year to a 1.4% decline. IDC said global revenues of $32.9 billion in 2022 would grow $32.4 billion next year.
While server growth is expected to recover, increased adoption of hyperconverged infrastructure could make an ESS recovery more challenging, according to IDC analysts Seminara and Chandarasanti.
“In the longer term, continuous [in] investments infrastructure modernization, fast-growing workloads, and support of the overall growth of digital data will be sustainable factors for the overall market growth, although the external ESS market will continue to be threatened by server-based solutions,” they noted.
Nevertheless, IDC is expecting the ESS market to recover in 2024. According to IDC’s forecast, ESS revenues of $34.3 billion will reflect a growth of 5.1%.
As more organizations commit to supporting environmental, sustainability and governance (ESG), IT decisions will hinge on improving their carbon footprints. McKinsey, which published a report in September on how CIOs should create an ESG strategy, said the need is more significant than its consultants had initially anticipated.
According to the report, enterprise technology, in aggregate, emits roughly 350-400 megatons of carbon dioxide equivalent gases (CO2e). “Enterprise technology makes up 1% of all greenhouse gas emissions,” said senior partner Jeffrey Lewis. “To put that into perspective, that’s the equivalent of all of the emissions of the United Kingdom.
Lewis said the other surprise was that data center infrastructure isn’t the most significant culprit.
“Enterprise data centers run by the technology organization, while a core driver are not the largest driver of emissions for an enterprise — end-user devices in the enterprise actually makeup 50-100% more emissions on average than the data centers run by IT.”
According to the report, laptops, tablets, smartphones, and printers generate one-and-a-half-to-two times more carbon globally than hardware in data centers. That’s because organizations typically have substantially more end-user devices than servers. Also, organizations replace end-user devices more frequently. While they may replace smartphones every two years and laptops may last for four years, organizations typically keep servers for at least five years. However, according to McKinsey, 19% of organizations keep their servers in products for more than five years.
In the third quarter of 2022, the PC industry faced its steepest decline on over two decades, according to Gartner. Shipments of 68 million PCs between July 1 and Sept. 30 of this year totaled 68 million, compared with 84 million during the same period a year ago.
Analyst Mikako Kitagawa noted that the results “could mark a historic slowdown for the PC market. While supply chain disruptions have finally eased, high inventory has now become a major issue given weak PC demand in both the consumer and business markets.”
HP and Dell took the most substantial growth hits and market share declines. HP, which saw a 28% decline in growth, lost more than two points of market share. Dell’s decline was 21.1%. While Lenovo also shipped 15.3 million fewer units, it gained over a point in share, which it took from HP, Dell and Acer. Besides Lenovo, Asus and Apple also picked up some share.
While PC vendors have previewed various foldable laptops in recent years, look for a more serious effort in 2023. Some will be single screen displays that fold, while others will have dual screens.
In September, Lenovo launched its ThinkPad X1 Fold. It has a 16-inch foldable OLED display powered by an Intel Evo-based 12th Gen processor available with up to 1 TB of storage and 32GB of RAM.
Also, more modular PCs are waiting in the wings. One prominent example is Dell’s Concept Luna. Revealed last year, Rahul Tikoo, general manager of Dell’s client computing group, discussed Project Luna at the company’s Dell Technologies World conference in May.
Last week, Dell shared an update on Concept Luna.
“Project Luna is our NorthStar vision for product design,” Tikoo said at the time. It calls for a more modular design of mobile PCs with a motherboard that’s 75% smaller using 20% fewer components. Besides offering a significantly reduced carbon footprint, Tikoo said Project Luna would provide much easier access to a laptop’s system internals.
“We’re going from hundreds of screws down to four building a modular design so you can very easily disassemble it,” he said. “You can very easily get to the parts that you need to o repair, reuse, refurbish and finally, we’re making a lot more intentional material choices in our products.”
Foldable phones may still be a niche market, but Samsung recently claimed that demand from enterprise customers has doubled during the first 10 months of this year. According to Samsung, enterprise purchases of its phones this year have grown 105% over 2021.
Samsung cited a forecast released by Counterpoint Research estimating that 16 million foldable smartphones will ship this year, which is 73% more than in 2021. Also, regarding Counterpoint’s forecast, Samsung stated that 26 million foldable smartphones will ship in 2023.
Foldable phones may still be a niche market, but Samsung recently claimed that demand from enterprise customers has doubled during the first 10 months of this year. According to Samsung, enterprise purchases of its phones this year have grown 105% over 2021.
Samsung cited a forecast released by Counterpoint Research estimating that 16 million foldable smartphones will ship this year, which is 73% more than in 2021. Also, regarding Counterpoint’s forecast, Samsung stated that 26 million foldable smartphones will ship in 2023.
Demand for client computing hardware and data center infrastructure in 2023 will likely continue moving in opposite directions. However, growth will depend on the state of supply chains and the ability of suppliers to navigate continued anticipated disruptions.
This year, semiconductor manufacturers made significant moves to reduce their reliance on China by expanding into North America. But it will be years before those facilities are fully operational. Meanwhile, the recent abrupt shift by China’s government from its “Zero COVID” policy could create continued supply chain disruptions.
Supply chain disruptions are one of several factors that have fueled inflation this year. Also driving inflation are rising interest rates and the Ukraine war, all poised to weigh on the economy next year. According to a recent survey of 830 CIOs, three-quarters believe we are in a recession or one is imminent.
The statistics varied depending on the region. In the U.S., 40% of CIOs said we are in a mild recession, but it will be short-lived. CIOs in Europe believe a recession is imminent but that it will be moderate or severe. In Asia, CIOs don’t think there is a recession, but a mild or moderate one is likely in 2023.
IDC’s Rick Villars
“The challenge for the IT industry is that in this space, perception is reality. CIOs today are starting to plan and think that their companies are going to be in a recession, and they need to start making their investment and technology plans based on that assumption,” said IDC analyst Rick Villars, speaking during a webinar.
As-a-Service Impact
However, unlike previous economic downturns, Villars noted there’s a new factor.
“We are actually now in the first recession of the as-a-service era,” he said. “Over a third of all global IT spending is as a service.”
During the last prolonged recession over a decade ago, customers predominantly purchased IT hardware as capital expenses.
“This new way that you are consuming services is changing all the rules,” Villars said. “Now we see CIOs saying, ‘We know we’re not going to get that sort of short-term capital savings; we have to focus on long-term operational improvements.”
Consequently, instead of making random IT spending cuts, Villars said CIOs will prioritize their budgets on IT projects that provide business value over the next 12 months. Villars added: “Rather than just random cuts in different budgets, networking versus compute versus ERP, it’ll be about what projects are going to give us the business’s biggest benefit.”
In the slideshow above, we share various predictions for PCs, mobile devices, servers and other enterprise hardware.
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