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Q1 2022: Infrastructure Quarterly Report (Sector Overview)

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Executive Summary

The infrastructure services sector continues to demonstrate its resilience amid various macroeconomic and geopolitical headwinds. The war in Ukraine is hampering growth in Europe, supply chains are increasingly strained and inflationary trends are putting pressure on both end users and operators. All this is taking place against the backdrop of an emerging post-pandemic environment that has not yet been clearly defined. The instability is likely to persist and will continue to have an impact on all corners of the market going forward. 

Against this backdrop, it would be easier to take a sceptical view of the market. And the results have shown some slowing in growth from hyperscalers, data centre operators and managed infrastructure providers alike. But the declines are incremental and do not suggest any major shift in the current trajectory. The sector has always been able to handle the ups and downs of wider economic conditions given the inherent stability of the model, driven by the criticality of the Internet medium and its support of mission-critical workloads, and the upside that comes from adding value for customers. This upside has not receded as outsourcing gains more adopters, operators continue to scale and reach critical mass, and investments are made in product and service innovation. 

The pace of expansion underway is pushing the limits of existing Internet infrastructure requirements. Hyperscalers are looking to decentralise out of legacy network locations that are nearing capacity and struggling to add more. The same is happening on the compute side. The first migration saw cloud compute move from city centres to suburban areas. It is now going even further out from suburban to rural areas. And then there is the edge. Providers are pushing into secondary markets in established economies and in emerging markets around the world to reach end users wherever they may reside. 

Across the sector, there is a tension between traditional and next-generation, primary versus secondary, and hyperscale versus edge. It is driving strategic decision-making and will go a long way to defining the future direction of the sector. 

This report takes a close look at the noteworthy trends and developments from the recent 1Q22 period. A more detailed look at the M&A landscape, APAC region, hyperscale and subscale cloud sectors is available to clients in separate quarterly reports.