Webscale Network Operators: 2Q23 Market Review

Webscale Network Operators: 2Q23 Market Review

This report reviews the growth and development of the webscale network operator (WNO) market since 2011. In the most recent 12 months (3Q22-2Q23), webscalers represented $2.28 trillion (T) in revenues (+3.3% YoY), $285 billion (B) in R&D spending (+18.2% YoY), and $196B in capex (+1.3% YoY). They had $669B of cash and short-term investments (+5.8% YoY) on the books as of June 2023, and $546B in total debt (+5.4% YoY). Webscalers employed approximately 4.07 million (M) people at the end of 2Q23, unchanged from June 2022 but up substantially from the 2.96 million employed three years prior, in June 2020.

In 2Q23, webscalers spent $44.1B and $72.3B on capex and R&D, respectively. For capex, the result represents a 9% YoY dip, and the second straight quarter of negative growth. Growth rates are likely to turn positive in the second half, based on official guidance and economic trends, but the sector does have some capacity to digest. For R&D, spending was up 8.1% YoY in 2Q23, which is a slowdown relative to recent quarters: the previous 6 quarters saw YoY growth of at least 20%. R&D as a share of revenues has climbed as a result, to 12.5% (annualized). Some of this growth in R&D intensity is due to weak revenues, but some due to webscaler interest in exploiting advances in AI, both across their operations (e.g. by redesigning data centers) and in services (e.g. generative AI tools).

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