The "Webscale Network Operators: 4Q23 Market Review" report has been added to ResearchAndMarkets.com's offering.

This report reviews the growth and development of the webscale network operator (WNO) market since 2011. In the most recent 12 months (1Q23-4Q23), webscalers represented $2.37 trillion (T) in revenues (+6.2% YoY), $293 billion (B) in R&D spending (+9.4% YoY), and $192B in capex (-5.1% YoY). They had $679B of cash and short-term investments (+9.8% YoY) on the books as of December 2023, and $562B in total debt (+1.9% YoY). Webscalers employed approximately 4.093 million (M) people at the end of 2023, down from the YE2022 total of 4.194M.

Webscale revenues accelerate YoY growth rate each quarter of 2023

Revenues for the webscale sector experienced significant growth in 2023 after a downturn in 2022. Factors contributing to this turnaround include global economic improvement, a recovery in the digital ad market, backlash against TikTok, continued penetration of cloud services, and the stagnation of Huawei's device business. These elements collectively enhanced revenue growth, as tracked by our webscale metrics.

Throughout 2023, the year-over-year (YoY) growth rate increased each quarter, culminating in annual revenues of $2.237 trillion, up 6.2% from 2022. This growth was widespread, with China’s leading cloud service providers (Alibaba, Baidu, and Tencent) transitioning from revenue declines in 2022 to increases in 2023. Amazon's revenues grew by 11.8% in 2023 (up from 9.8% in 2022), and Microsoft's rose by 11.5% (up from 10.4% in 2022). Meta saw a notable increase, with a near 16% revenue growth in 2023 after a decline in 2022. Alphabet maintained stable growth in the 8-10% YoY range, while Apple faced a slight decline of -0.5% YoY. Oracle performed exceptionally well, growing by 12.1% due to successful acquisitions and its cloud infrastructure platform.

In terms of efficiency, revenues per employee in the webscale sector rose from $539K in 2022 to $584K in 2023. Free cash flow per employee also saw a significant increase, from $73K in 2022 to $109K in 2023, due to rising revenues and profits coupled with a stabilization in headcount. Webscale headcount ended 2023 at 4.093 million, slightly up from the end of 2021 but down from the 2022 total of 4.194 million, with Meta experiencing a significant workforce reduction of 22% due to overhiring during COVID-19.

Tech spending: total capex dipped in 2023 but the tech portion rose 4%; R&D spend remains elevated

Despite a dip in total capex by 5.1% to $192 billion in 2023, the technology portion of capex grew by 4% YoY. This growth was driven by reduced spending on non-tech infrastructure categories at major companies like Amazon, Alphabet, and Alibaba. R&D spending increased to 12.3% of revenues in 2023, up from 12.0% in 2022, reflecting ongoing investments in new markets such as robotics, healthcare, and financial services, and in the development of proprietary technologies for data centers.

The release of ChatGPT in January 2023 marked a significant turning point for generative AI (GenAI), reaching 100 million users by the end of the month. This surge in interest in GenAI led to accelerated investments in data centers and supercomputing infrastructure by major tech companies. While some hype surrounds GenAI's potential, it is clear that it will drive significant data center investments in the coming years.

The US remains the largest market for webscale capex, accounting for over 50% of global expenditures and reaching just over 60% in 2023. This dominance is expected to continue as key GenAI innovators are based in the US. However, increased spending by China-based cloud providers may moderate the US's share in the future.

Compared to the telecom sector, webscale capex has grown significantly, surpassing $200 billion for the first time in 2022. Although it dipped slightly in 2023, the outlook remains strong, driven by investments in GenAI and other advanced technologies. Webscale capex is more concentrated among a few big spenders and focused on fewer product types, often leading the way in innovations that impact other network types.

Looking beyond the 2023 numbers, what is most important is that last year the webscale market found a new lifeforce, a new reason for being.

Looking ahead, key webscalers are expected to increase their capex in 2024, driven by investments in generative AI and regional expansions. Amazon, Microsoft, Alphabet, Meta, and Oracle all have substantial capex plans, with a focus on enhancing their cloud and AI infrastructure. Chinese cloud providers are also expected to increase their spending as they invest in GenAI platforms and accelerate cloud revenue growth.

Our forecast for 2024 and 2025 remains at $203 billion and $218 billion respectively, with significant uncertainty due to potential resource constraints and strategic shifts. However, the data center infrastructure market is poised for exciting growth opportunities, driven by ongoing technological advancements and increased demand for AI and cloud services.

Companies Featured

• Alibaba
• Alphabet
• Altaba
• Amazon
• Apple
• Baidu
• ChinaCache
• Cognizant
• eBay
• Fujitsu
• HPE
• IBM
• JD.com
• LinkedIn
• Meta (FB)
• Microsoft
• Oracle
• SAP
• Tencent
• Twitter

For more information about this report visit https://www.researchandmarkets.com/r/svjbfv

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