In Q4, Data Centers, Not the Cloud, Were the Big Story

1Executive Summary

Of all the infrastructure trends during the fourth quarter, the biggest might be the changing shape of the data center market. An area once comprising separate vendors for separate functions now is full of cross-component partnerships and alliances, most notably that of Cisco, VMware and EMC. The three formed their Virtual Computing Environment alliance to peddle the jointly developed Vblock solution, and Cisco and EMC finally launched their long-awaited joint venture, Acadia. Reactions to this trifecta included alliances between and among competitive vendors like Microsoft, NetApp, Dell, Fujitsu and others.

In the cloud space, the discussion was all about what is and what might be. The soft launch of Microsoft Windows Azure had the cloud community and prospective customers alike discussing – with much anticipation – the merits of a platform and associated features that will not be publicly available until later this year. Likewise, Amazon Web Services’ introduction of Spot Instances for EC2 sparked much discussion about the possibility of a free market for cloud-computing instances. The requisite pieces for such a system are yet in place, but many think it is now just a matter of time until it materializes.

In the ongoing saga that is Oracle’s acquisition of Sun Microsystems, the fourth quarter brought the first signs of progress since the deal was announced in April. Oracle laid out a list of concessions that seem to have allayed European Commission concerns over the future of MySQL, which has been the primary obstacle in clearing the purchase. MySQL creator Monty Widenius launched a late campaign to free the popular open-source database from Oracle’s clutches, but success appears unlikely.

Economic recovery in the IT sector seemed likely when third-quarter results were announced in October, with IT vendors across markets growing revenues and beating Wall Street’s estimates. Additionally, the server market, fresh off the worst quarter since the 1990s, showed quarterly revenue gains for the first time in a year, and VC funding was up 16 percent from the second quarter. Our collective demand for computing resources kept the data center market expanding through the fourth quarter, spurring M&A activity and driving up stock prices in the face of advice to sell data center stocks.

The fourth quarter was not great for everybody, however. Intel was hit with two lawsuits — one by the State of New York and one by the FTC — and settled its existing litigation with AMD for $1.25 billion. And every company associated with “the cloud” suffered a black eye as a result of Microsoft and T-Mobile losing Sidekick users’ personal data. Although the data ultimately was recovered, the incident garnered much media attention and resulted in a class-action lawsuit against the companies involved.

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