Public Clouds Are Bright Spot as IT Outlays Slow Due to Virus

Nomura's latest CIO survey signaled that the Covid-19 pandemic has begun hurting IT-spending budgets. But not all types of spending will be hit to the same extent.
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Chief information officers were becoming more cautious about their IT spending plans in mid-March, and chances are they’re even more cautious now.

In its latest biannual CIO survey, Nomura Instinet found 46% of the 50 CIOs it polled said they expected the Covid-19 pandemic to hurt their firms' IT outlays. 

Four CIOs, or 8%, said they expected more than a 10% hit.

With the survey responses having arrived largely in mid-March, it wouldn’t be surprising if a fresh survey turned up higher numbers, given the speed at which the pandemic has wrought economic damage and disrupted everyday activities.

Notably, a Morgan Stanley CIO flash survey taken at the end of March indicated IT spending was forecast to grow just 0.9% in 2020, down from 3.5% earlier in the month. Professional services, software and hardware spending outlooks all fell meaningfully.

A bright spot in Nomura’s survey: spending intentions for public cloud platforms. This is an area that could hold up relatively well during a downturn, thanks to long-term IT trends and the pay-as-you-go nature of a lot of cloud outlays.

More than two-thirds (68%) of respondents said that “migrating to the public cloud and/or expanding private cloud” was a top IT spending driver, up from 48% in Nomura’s September survey. 

And importantly, only 12% of CIOs referred to public-cloud spend as an area where they typically cut spending when the macro environment worsens, down from a prior 16%.

Also, on average, respondents said they expected 38% of their workloads to be on public clouds in 2021, up from 23% in 2019, and for on-premise workloads to see their share drop from 59% to 35%. Private cloud and hybrid cloud deployments were respectively expected to handle 20% and 7% of 2021 workloads.

Public cloud and security spend were strong points in Nomura's latest CIO survey. Source: Nomura Instinet.

Public cloud and security spend were strong points in Nomura's latest CIO survey. Source: Nomura Instinet.

86% of respondents said that they weren’t repatriating any workloads from the cloud back to on-premise environments. Even before Covid-19 began having an economic impact, IT-hardware giants such as Dell Technologies  (DELL) - Get Report, Hewlett-Packard Enterprise  (HPE) - Get Report, Cisco Systems  (CSCO) - Get Report and NetApp  (NTAP) - Get Report were seeing their on-premise hardware sales come under pressure.

In line with prior surveys indicating that Microsoft  (MSFT) - Get Report is gaining public-cloud mindshare, CIOs collectively indicated that 42% of their spending on cloud-service providers over the next 12 months would go to Microsoft Azure. 

Amazon.com’s  (AMZN) - Get Report AWS, still the 800-pound gorilla of the cloud infrastructure (IaaS) market, came in at 35%, and no other provider claimed more than 3%.

As was the case with the September survey, IT security spending was also a strong point: 86% of respondents declared “ensuring network and data security” to be a top IT spending driver, up from 78% in September. Just 2% said they typically cut security spending when the macro environment worsens.

On the flip side, though laptop sales have risen lately, thanks to purchases made by consumers and businesses to support remote-work activities, 68% of respondents said that spending on PCs gets cut when macro conditions worsen. 

Nearly half (48%) of respondents said the same for both AI-related investments and server purchases.