Hardware players need software offerings to stay ahead

Hardware companies need to arm themselves with software offerings to stay competitive, even as hardware revenue is likely to contract by 2013 due to 'cannibalization', predicts analyst.
Written by Kevin Kwang, Contributor

SINGAPORE--As data centers evolve toward virtualization and converged infrastructures, companies are less likely to spend on multiple IT equipment with similar attributes and this will see hardware revenue falling, according to an IDC analyst.

Avneesh Saxena, group vice president of domain research at IDC, noted that the hardware market's revenue will fall from the current US$144 billion to US$123 billion due to the "cannibalization" effect of storage systems, networking equipment and server hardware increasingly sharing common capabilities.

Saxena, who delivered a presentation at the IDC Asia-Pacific Directions 2010 conference Friday, added that conversely, there will be a spike in demand for enterprise software needed to manage and secure the data center environment.

This development is why hardware vendors need to start looking ahead and provision for software offerings in their portfolio in order to stay competitive, said the analyst who went on to point out that this is a strategy bigger players such as Hewlett-Packard (HP), Cisco and IBM have already embarked on.

APAC companies still consolidating
In terms of data center transformation within the Asia-Pacific region, the analyst said 55 percent--the majority of companies here--are still at the "consolidation" phase. This is the second stage of a four-stage roadmap toward establishing a private cloud within one's organization, he added.

The features of this stage typically involve companies with 25 percent of their servers virtualized, as well as having some applications running, although these applications are not critical business operations. In addition, Saxena said companies will spend nine months to two years consolidating before moving on to the next stage.

Furthermore, he revealed that 15 percent of companies polled by IDC are at the "pilot" stage, while 25 percent are at the "assured computing" stage and 5 percent have already established their private cloud network within their organizations.

In another survey, Saxena mentioned asking companies in the region what the perceived benefits of establishing a private cloud are and, from the survey, the top reason was the "ability to lower cost by sharing resources across all business units". Coming in second was "ability to standardize IT processes across the organization". Third was when "users pay only for what they use".

"This is distinctly different from the U.S. results, which were focused on business turnaround rather than cost, but the [APAC] results will change over time as the market matures," he said.

Not every company needs cloud
Speaking to ZDNet Asia after his presentation, Saxena called on vendors not to push cloud computing solutions to all customers, despite many already embarking on data center virtualization projects.

"What companies are asking for is an IT transformation that would help them move away from legacy applications that are hindering their growth, but this does not necessarily mean cloud," he said.

Saxena also pointed out that among companies polled, which have a US$25 million IT budget, only 12.5 percent are already using or planning to utilize private cloud. "The remaining 87.5 percent of the companies either do not know [about cloud computing] or know but have discounted it as not suitable to meet their needs," he added.

Security, compliance and "politicking within organizations to stick to legacy applications" are main factors holding back companies from jumping onto the cloud bandwagon, the analyst pointed out.

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