Description
This year the sector moves into a holding pattern of sorts. A lot of the trends we saw last year around supply chains, macroeconomic weakness and geopolitics will still be in motion and continue to impact demand and overall sector growth. And in the case of the macroeconomic environment, things have arguably gotten worse, with inflation wreaking havoc across the global economy.
Despite the conditions, and the slowing in growth across all Internet infrastructure categories, the sector still demonstrates remarkable stability. Renewal rates are high, churn is low and customers are still being added, albeit at slower rates. The sector has always been able to withstand slower periods by growing the installed base, and these days, they are far more equipped than ever before given the level of innovation exhibited by the public clouds and the investments and creativity of independent operators. The infrastructure service provider operating model is working.
Disruptive events have always created conditions for the sector to flourish. This was the case after the dotcom bust and the 2008-09 financial crisis. While it may not appear as obvious this time around, the COVID-19 pandemic lay the groundwork for something similar. Growth has slowed, but there are various dynamics pushing forward and even accelerating, and they position the sector to take advantage once conditions change. Outsourced infrastructure is set to be, or already is, the dominant model for infrastructure deployment. This is a generational shift that is not losing momentum, and in tougher times, there is always a focus on how to do things better and more efficiently. Outsourced infrastructure provides a clear answer.
These long-term trends are in place, but given the wider context, our outlook for the coming year is best described as cautiously optimistic. Operators and investors are being conservative and looking to wait things out. Meanwhile, customers and end users are being cautious, but not fundamentally altering their plans. They are in many ways, accelerating those plans, and the sector will start to benefit once the wider environment changes.
