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Latin American analysts from major consultancies such as IDC and Gartner expect overall IT growth in the region to ease this year. Still, on closer examination, there are certain solution areas that will buck that trend. BNamericas caught up with Gartner research vice president Jeffrey Hewitt, who analyzed the status of Latin American infrastructure build-out, server market drivers in 2011 and the impact of challengers such as Cisco.
Latin American analysts from major consultancies such as IDC and Gartner expect overall IT growth in the region to ease this year. Still, on closer examination, there are certain solution areas that will buck that trend.
BNamericas caught up with Gartner research vice president Jeffrey Hewitt, who analyzed the status of Latin American infrastructure build-out, server market drivers in 2011 and the impact of challengers such as Cisco.
BNamericas: How has Latin America server demand evolved from last year?
Hewitt: In general, Latin America's growth patterns have been quite strong. In shipments in Latin America in 2010, we saw almost 21% growth. That was driven by several countries that have led the charge. Brazil has been a growth engine in the region for a while, even if you go back five years. You've got Mexico and also Argentina. Those are the three powerhouses in terms of volume growth, and the same is true about revenue growth. Even countries like Chile had good revenue growth.
BNamericas: Many forecasts show the IT industry in Latin America slowing down this year in comparison to 2010. Is that something that's also expected for servers?
Hewitt: It is on a worldwide level. Still, in spite of that, Latin America is still a high-growth region. Part of that is because we've had a major refresh. Whenever you've got the economy the way it was in a constrained fashion, we had lifecycles of servers extend for a while. And then we had some new servers come out based on new processors including Xeon from Intel and Opteron from AMD, and those processors encouraged a refresh cycle. You also had the implementation of virtualization going on, even with the constrained economy. People are now leveraging that, and they want richer configurations on servers to run more virtual machines.
BNamericas: What about average server purchase size? What are the trends that Gartner is seeing there?
Hewitt: In Latin America, there are a couple of things going on. We still see implementations of the scale-out architecture, which would be the growth of the small servers used in aggregate. You'll still see significant growth there. This would refer to the x86 servers that are Intel based, and also some AMD based.
If you look at mainframes, then you still see a little bit of growth over time. There's still some infrastructure being built out there.
Then, if you look at Unix servers, Latin America has a little bit more growth. It's because the infrastructure hasn't been built out there. Those servers are typically used in online transaction processing databases and business intelligence solutions. While build-out in other places like the US and Western Europe is more mature, in Latin America that part of this infrastructure is still being built out to a degree.
BNamericas: But does Gartner have any concrete statistics on average purchase size and how that's evolved?
Hewitt: These companies tend to be spending more over time on their server budgets. But if you are looking at per server spend, it looks to be relatively stable. They are definitely buying more servers over time, with an 8% compound annual growth rate [through 2014]. You can also see that revenues are about a 6% compound annual growth rate.
The average selling price goes down just a little bit. They tend to buy more servers that are less expensive, and they are shifting to scale up. But overall, the server spend is increasing for these organizations.
BNamericas: What will be the main server growth drivers in Latin America this year?
Hewitt: Brazil, Mexico and Argentina and, to a degree, Chile will grow. In Brazil, you've seen some government spending. Where would I expect Brazil to grow? You have energy and utilities.
I would expect some growth in sectors such as finance in those countries. The other question is whether we will see some internet business grow, such as service providers. Yes, that would be a natural extension.
BNamericas: On the other hand, where is Gartner expecting a slowdown?
Hewitt: In Latin America, there are countries that aren't necessarily going to be as strong at the moment, like Venezuela and Colombia. But they are also a lot smaller, so they will be a little bit more volatile in terms of volumes and revenues.
A lot of this growth is a lot more tied to the GDP of each individual country. If there is going to be a slowdown, then we will generally be looking at GDP expectations. We've found really strong correlations between server spend and GDP over a long period of time, no matter what country you are talking about.
BNamericas: You mentioned Colombia…
Hewitt: It hasn't been as strong in 2010. But could there be a rebound in 2011? It's possible. It could be a little bit stronger as momentum gains and there occurs a spill-over from other economic areas.
BNamericas: But is Gartner seeing any traction like that in Colombia?
Hewitt: I can't say in 2011 I have a good handle on what's happening there yet.
BNamericas: The main server vendors on a global scale include IBM, HP and Dell. Is Latin America, is that trend the same?
Hewitt: There is some consistency there. Companies like HP and IBM have a very strong, global reach and penetration. But there are some local providers that benefit as well.
BNamericas: Can you provide an example?
Hewitt: IBM, Dell and HP have pretty strong presence in Brazil. But there are a couple others that come out. There's Itautec, which is smaller, but they're a localized provider. Brazil is a little bit different in that they do have a bit more of their own, localized market that is pretty strong.
BNamericas: So Brazil stands out from other Latin American countries in that sense?
Hewitt: Yes. Through regulation and their own, internal economic infrastructure and also government-encouraged infrastructure, they have nurtured some of their own providers.
BNamericas: Is Gartner expecting any significant market share shifts in Latin America?
Hewitt: I don't know of any major shifts. The one company we'll watch will be more relative specifically to blades, and that is Cisco. How well will Cisco be able to do in some of these countries? They've already shown a presence in some of them, such as Mexico and Brazil. I expect Cisco to grow a little bit.
BNamericas: Will Cisco give some of the other companies like IBM, Dell and HP a run for their money?
Hewitt: I'm going to fall short of "run for their money." They will definitely be a challenger. It remains to be seen. They are already in datacenters.
BNamericas: How do you see some of the companies with larger market share continuing to grow, taking into account the large chunk they already have in Latin America?
Hewitt: They're leveraging channel partners for sales, and also their service and support presence. They have to be focused on technology evolutions and where those technologies are in their maturity levels in those countries. This is a highly competitive space.
BNamericas: How prevalent are Linux servers in Latin America?
Hewitt: Relative to the Latin American market, you have a strong Linux presence in Brazil, Mexico, Argentina and a number of other countries. Linux is pretty well established, and will continue to grow in those countries as they leverage more of the open source capabilities.
BNamericas: What are the main Linux providers?
Hewitt: If you look at those countries, then you would have a strong presence of HP and IBM. In Brazil, there are some of those localized providers.
BNamericas: Is it possible to put a growth figure on that?
Hewitt: Latin America is going to have 9% growth this year for shipments of all server types, and 17% for revenues. We've revised that upward.
BNamericas: And how does that compare between the different types of servers?
Hewitt: For shipments in Latin America, Linux will increase at about 8.2%, and Windows will increase at about 10%.
BNamericas: What are the main business risks that could potentially slow overall server growth in the region?
Hewitt: They're all relative to economics. The standard economic risks to any of these regions can be of global impact. A lot of times, if there are financial shocks, and you've got the impact of cost and credit availability, those can have impact.
BNamericas: Do those economic risks include inflation?
Hewitt: Yes, absolutely. The spending power and banking capability can have an impact.
About Jeffrey Hewitt
With more than 30 years of IT experience, Jeffrey Hewitt is currently part of the Data Center Transformation and Security team at Gartner. Prior to joining the consultancy, Hewitt served as director of product marketing for Unisys.
The executive has a degree in advertising and mass communications from the University of South Florida, as well as an MBA from the University of Phoenix.
About the company
Gartner is an IT advisory company offering research and analysis of trends in the worldwide IT market. Headquartered in Stamford, Connecticut, Gartner has 4,400 associates, including 1,200 research analysts and consultants, and clients in 85 countries.