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Are Data Centres Reaching An Inflection Point? That the data centre sector is changing immeasurably is the reality for 2008. With a spate of investments, new data centre build announcements, public flotation and rumours of major acquisition bids, data centres have finally assumed recognition of the strategic importance argued for by BroadGroup for more than three years. What is also clear, and of significance to investors and those engaged in supplying the sector, is that competitive rivalry is shifting from an international to a global dimension, where a company can derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries. Equinix might be arguably the first truly global data centre operator (North America, Asia, Australasia and Europe) but it is likely that more will follow. This comes at a time when surveys reveal an increased blurring of the lines between carrier owned and carrier neutral data centres as end users focus on price and service quality. Cash rich telcos, no longer contending as fiercely with M&A specialists following the recent credit crunch, might therefore be able to capitalise further on their positioning in the lucrative managed services segment. That investment is occurring on an unprecedented scale is not in doubt. Following on from the Galileo Connect announcement of a fund of GBP 540 million to invest in data centres around the globe. Dupont FabrosTechnology has also recently raised USD 641 million. Then the flotation last week of TeleCity Group gave the operator a market capitalisation of around GBP 643 million (as of market close 8th November 2007). Equinix paid a reported GBP 240 million to acquire pan European data centre operator IXEurope and further acquisitions by major companies are rumoured. The geographies are different, but the favourable investment sentiment is common. In a similar vein, the impact of the acquisition by Schneider Group of APC might now be seen as a move that recognises the global nature of competition, and where this now leaves many of its former rivals. So we might also expect further M&A activity and consolidation in the supplier sector. Selling hardware too may now not be as valuable as selling truly tailored services and indeed the entry of hardware vendors into the managed services space has been underway for some time. Network equipment, racks and other intelligent metal work is confronting a period where collaboration, application hosting, the emergence of SaaS, future migration to the new edge of the network, and virtualisation collectively reveal the more focused needs of data centres for partnerships and services. Another factor to consider in the inflection point towards globalisation is the emergence of near-shore competitors to offshoring. The North African zone for example, now under active development with the support of international loans and government investment initiatives, is poised to compete with offshore locations such as India, but equally presents both threats and company a pan-Asian network of data centres to connect to its sprawling network. In South America, Global Crossing has acquired Impsat achieving a similar infrastructure. BT Global Services has said that it foresees data centres providing 20% growth per annum, a high return that it must be considering extending. AT&T has just announced expansion of its data centres in Europe following recent moves in its Asia portfolio. When added together, hundreds of millions of Euros and Dollars are being pumped into data centres globally to sustain the many transformations underway of enterprises. The data centre build programme of giants Google (globally), Yahoo and Amazon also suggest that the appetite for investment is driven by both consumer demand, particularly evidenced in the rise of social networking, and mobile content. Microsoft has also announced the build of a 510,000 sqft data centre in Ireland, and recently suggested that they were looking to copy the Amazon hosted model. Beyond this, and if the pundits are right, data centres are en route for massive further transformation as they enter the Cloud period. Cautious optimism that the data centre economy will bear out the impact of an economic downturn in the US, might be sustained by the increased pressure under which enterprises will fall to reduce costs, and that such a continued downturn would foster. There do remain concerns of over-supply and comparisons to another ‘dot com bubble’ as US investors pump up valuations and property investors become re-acquainted with Data Centres, although we at BroadGroup see very strong fundamentals, there are certain segments where there is a current investment bubble. The implication of all these developments is compelling enough to conclude that an inflection point is being approached. It only remains to be seen whether a harder economic time than wished will blight 2008, and delay the action until the outcome of the US election is known. To hear these topics debated fully, register to attend Investing in Data Centres taking place 22nd November 2007 at the Cass Business School, London www.tmtfinance.com/fiforum.
Have you also seen our other consultant articles? Too Much
Greenwash?
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