Backlog Release, DX Initiatives Keep the European Server Market Afloat

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Despite concerns about the general economic and geopolitical climate, the European server market continued posting strong growth in the third quarter of 2022 according to the Worldwide Quarterly Server Tracker published by International Data Corporation (IDC).

The server market in Western Europe (WE) grew year on year by 27.9% in Q3 2022, while spending in Central and Eastern Europe (CEE) increased by 40.7% (Russia not included in the CEE market).

There are a number of factors driving investments into digital among European organizations. Some emerged as a result of the pandemic and include labor shortages, global supply chain disruptions, and component shortages. More recently, inflationary pressures and power costs and supply disruptions in Europe have been drivers of spending. In the longer-term, EU green-focused financing and investments will also lead to switching from old and inefficient infrastructure for newer systems that can deliver much more performance for less energy.

“Backlog release and digital transformation initiatives were the two major drivers behind the strong growth of the European server market in the third quarter,” says IDC’s Pavel Roland. “Supply chain constraints are easing, and server manufactures are able to build and meet customer demand more predictably. We see a significant backlog in the market, so demand will remain robust for the upcoming few quarters, and the backlog should normalize after that.”

Initiatives such as digital transformation and modernization of datacenter infrastructure continue to be significant drivers of spending among enterprises. Despite the overall general economic pressure, many organizations will invest in servers and other infrastructure technology to support their business growth, meet sustainability commitments, and increase energy efficiency in their datacenters. Currently, cloud service providers and key verticals as retail, automotive, and oil & gas are leading in terms of investments into servers and datacenter infrastructure in Europe.

The war between Russia and Ukraine continues to impact the market directly and indirectly. In the most direct way, system sales in Russia and Ukraine contacted in Q3 2022. Indirectly, the war exacerbated already rising energy prices and transportation costs, with a ripple effect on the IT industry, especially in regions that historically relied heavily on energy from Russia.

Although all major vendors have stopped business operations (sales and service) in Russia, new routes to other markets are being established, and small quantities of servers and other infrastructure tech are being imported into the country. However, supply is very tight and limited to less advanced products/configurations, so enterprises will be focusing on how to best utilize the platforms they already have.

European server market spending is expected to contract in 2023, posting a five-year compound annual growth rate (CAGR) of 4.3%, according to IDC. The macroeconomic environment will continue to be a key factor for market performance in the short term. In the longer term, continuous investments in infrastructure modernization, fast-growing workloads like AI/ML, and cloud and edge deployments will drive growth.