Data centers and the supply chain: Challenges on the horizon?

The global supply chain crisis has had a devastating impact on industries worldwide, but one sector that has remained seemingly unscathed for the most part is the data center industry. The building boom has continued, but now, as the crisis drags on, experts are trying to gauge whether this will continue to be the case or whether the industry will start to experience the same delays and barriers as other sectors. 

Back in November, at the company’s Q3 earnings call, Equinix’s CFO, Keith Taylor, outlined that there had been “no major delays” when delivering new capacity despite circulating general market concerns, and this appears to be the general consensus. Many companies managed to mitigate supply chain risk by ordering required materials ahead of time, maintaining a larger inventory in warehouses, expanding their supplier base, and making spot purchases. Switch, for example, averted the crisis by raising its capital spending to $25 million in the last quarter, which meant it had the resources to order more power and cooling equipment for future projects without disruption. Meanwhile, CyrusOne diversified risk by expanding its supplier base to include three to four providers of a particular equipment. 

Commentators have also pinned purchasing power as another big reason as to why larger data center companies have managed to continue unimpeded - of course, this also encouraged smaller companies to think outside the box. As reported in BisNow, Switch turned towards custom equipment to avoid competition. 

Yet, while these strategies helped companies avoid shortages and delays, the CBRE 2022 forecast warns that the situation will likely be a bit rockier going forward. The report outlined: “As uncertainty looms amid pandemic-related restrictions for markets outside of the U.S., particularly in Asia-Pacific, material shortages and increased shipping delays into U.S. ports have the potential to delay new facility developments and impact refresh cycles of data centers. These delays could drive up costs, potentially raising rents in affected markets 4%-6%.”

Indeed, the situation around shipments and downstream supplier availability has worsened since October and there are a number of data center companies that have expressed concerns about being unable to deliver on their 2022 commitments. 

Looking further ahead, commentators have suggested that these difficulties could go on to shape the industry more broadly, with M&As becoming more and more frequent as companies try to enhance their purchasing power. 

So, for the time being, the future seems uncertain, and only time will tell if data center companies have sufficiently prepared to weather the storm.