Frost & Sullivan releases the 'Southeast Asia Data Center Industry Research Report'

Source: Frost & Sullivan report

Note: Solid indicates the maximum value, and hollow indicates the minimum value.

Source: Frost & Sullivan report

Source: Frost & Sullivan report

The data center industry is upstream of the internet industry and one of the important infrastructures for the development of the digital economy.

The data center industry is a capital-intensive sector, requiring substantial investment in construction and subsequent operations. The overall cost (TCO) of a data center consists of two parts: CapEx (capital expenditure) and OPEX (operating expenditure).

Construction expenditure refers to the necessary construction investments in the early stages and the reinvestment after depreciation over a certain period, generally referring to one-time inputs. Operating expenditure refers to the actual costs of running equipment each month, mainly including electricity bills, depreciation, rent, equipment leasing, as well as wages for on-site staff. For IDC service providers, power costs account for more than half of the total operating expenditure.

Note:

1) Infrastructure construction refers to the design and construction of buildings, including walls, floors, etc.

2) Mechanical and electrical water supply includes chillers, precision air conditioners, air-cooled air conditioners, etc.

3) The power supply system includes diesel generator sets, high-voltage distribution cabinets, transformers, etc.

4) Does not include soft capital expenditures, such as energy subsidies and external power supply connections.

Source: Frost & Sullivan report

Data center energy consumption mainly includes IT equipment energy consumption, cooling system energy consumption, power supply and distribution system energy consumption, lighting, and other energy consumption.The total energy consumption ratio to IT equipment energy consumption is known as the PUE value (Power Usage Effectiveness).

Source: Frost & Sullivan report

In terms of energy consumption proportion, the refrigeration system is the largest component after IT systems, directly affecting the level of the flat PUE value and overall operating costs..

When selecting locations, many data centers choose areas with lower temperatures, such as the Arctic Circle (Facebook), Zhangbei (Alibaba, Tencent), and the seabed (Microsoft). However, these locations are subject to strict restrictions, making it difficult for general data center operators to replicate them. In terms of conventional energy-saving technologies, air-conditioning units are gradually transitioning from air-cooled to chilled water-cooled types. In terms of airflow organization, the separation of hot and cold channels has become widely popular and has been refined from room level to cabinet level. In the long run, the most revolutionary energy-saving technology is liquid cooling technology, which can reduce the PUE value below 1.2 by immersing the liquid in the system. Combined with other technologies, it can ideally approach 1.0.

Currently, due to adaptability to scenarios, coolant prices, and renovation costs, liquid cooling technology has not been widely adopted. In the future, with the increasing proportion of GPU computing and the continuous increase in server density, liquid cooling will be an inevitable choice to replace air cooling.

Source: Frost & Sullivan report

From the supply-side perspective, data transmission latency includes transmission delay and transmission node latency, with transmission node latency being related to the number of nodes and the latency per node.

From the demand side, based on business sensitivity, it can be divided into high-latency-sensitive services, medium-latency-sensitive services, and low-latency-sensitive services.For businesses sensitive to medium and low latency, cost can be a consideration, leading to the selection of large-scale or ultra-large-scale data centers located in remote areas. For high-latency businesses, data centers situated in core urban areas or edge data centers closer to the user side are preferred.

Currently, if businesses are classified, data centers in core cities and locations can meet the needs of finance and other services. Therefore, the trend of edge computing has not yet truly arrived. Currently, first-tier city data centers are in high demand, mainly due to considerations such as listing, operation and maintenance, resource coordination, and high reliability, rather than just latency. In the long run, with the development of autonomous driving, industrial Internet, healthcare, etc., edge computing has significant development opportunities.

Source: Frost & Sullivan report

The main users of data centers include cloud computing, internet, gaming, finance, government and enterprise sectors, manufacturing companies, etc. Different types of users have different requirements for rental scale, latency, security, and price, as follows:

Note: Solid indicates the maximum value, and hollow indicates the minimum value.

Source: Frost & Sullivan report

Geographically speaking, Southeast Asian countries include Singapore, Malaysia, Indonesia, Vietnam, the Philippines, Thailand, and other nations. Among these countries, Singapore, Malaysia, Indonesia, Vietnam, Thailand, and the Philippines play an important role in the overall Southeast Asian economy, and their status in the data center industry is relatively significant.

Southeast Asian countries are important fulcrums of China's Belt and Road strategy, playing a role in carrying industrial capacity and economic models from China to other nations. Southeast Asian countries have large populations and vast potential markets for various industries. At the same time, some Southeast Asian countries have relatively underdeveloped infrastructure, thus requiring policies to attract capital for investment in infrastructure development.

Note: The size of the circles represents the market scale of data centers in each country, measured in megawatts, for 2020.

Source: Frost & Sullivan report

The macroeconomic conditions among Southeast Asian countries vary greatly, and the specific situation of the data center industry also differs. However, in recent years, the data center industries in these countries have all experienced rapid development.There are three specific reasons for the summary:

1) In recent years, internet-related industries in Southeast Asian countries such as e-commerce, gaming, payments, and social media have developed rapidly. The usage rate of the internet and social media has increased, generating more data, which has accelerated the demand for data centers. Internet penetration is one of the strongest driving forces in the Southeast Asian data center market. Southeast Asia has the highest mobile phone and social media penetration rates globally, and this trend is continuing. In addition, consumers' use of social media and the digital transformation of vertical industry enterprises are other major factors promoting data center growth.

2) Internet companies from China and Western countries have begun to enter the relatively immature Southeast Asian markets as their domestic internet industries become increasingly mature. They aim to replicate their successful models in their home countries by investing capital, seeking growth, and rapidly cultivating and occupying this emerging market.

3) From the demand for hyperscale data centers in the cloud computing industry, to the development of industries such as IoT and connected vehicles, which require edge data centers, emerging industries across Southeast Asia are also continuously generating demand for data centers.

Considering the situation in various Southeast Asian countries, the development process of China's data center industry, which has gone through a transition from operator-owned data centers to third-party data centers, is also mirrored in the development of data center industries in Southeast Asian countries. This transformation first occurred in countries with better infrastructure.

Countries with good infrastructure construction, such as Singapore, Malaysia, Indonesia, etc., have international and local third-party data center operators investing in the construction and operation of data centers. In contrast, countries with less ideal infrastructure construction, such as Vietnam, the Philippines, etc., still mainly rely on operator-owned data centers.

At the same time, the data center industry in Southeast Asian countries also faces many challenges.

For example, many countries have a low level of infrastructure construction and often face power instability, even power outages, which can severely impact the operation of data centers. In some Southeast Asian countries, social governance is not ideal, with low government efficiency, serious corruption, poor public security, and frequent serious security incidents and organized crime. In some areas, there are even armed rebellions. At the same time, due to their tropical climate, data centers located in Southeast Asia require more electricity for heating, ventilation, and air conditioning equipment than those in China, making it more difficult to reduce the PUE value of data centers. Some Southeast Asian governments (such as the Singaporean government) are closely monitoring data center energy consumption issues and taking regulatory measures to reduce energy consumption, raising the entry barriers for data center construction.

Globally, the financial industry (banks, finance, insurance, securities, trading, etc.) is usually the first to adopt hosting services, and this is certainly true in Southeast Asia. For example, in Singapore, the financial sector has been a key customer segment for every provider there for many years. However, as the market matures, many other segments will follow suit, leading providers to shift their focus to a broader customer base.

In Singapore and Malaysia, this transformation has already occurred. Both countries now see hosting services from many enterprise verticals, especially in technology fields such as IT system integrators, cloud providers, and internet companies.

In Indonesia, this transformation has just begun, partly due to the current regulations in place.

However, as one of the major economies in Southeast Asia, Thailand lags behind the aforementioned countries. The hosting industry is still dominated by financial institutions, and discussions about new cloud computing providers have just begun.In the foreseeable future, financial companies that drive the development of these markets will remain important customers, while cloud computing and IT providers have received much attention due to their development and expansion in various markets.

As banks and financial institutions become increasingly reliant on technology, the Singaporean government has attempted to raise awareness of data security and standardize risk management practices in the financial industry. Therefore, the Monetary Authority of Singapore has formulated a series of task directives known as 'Technical Risk Management Guidelines', which all financial institutions operating in Singapore must comply with. These guidelines include Threat and Vulnerability Risk Assessments (TVRA) applicable to data centers. Nowadays, TVRA is essentially mandatory to function effectively in the market. Banks are the only industry that is mandatorily required to meet TVRA standards, while many other industries voluntarily adopt them. It is commonly required by suppliers in any business vertical sector to provide this report.

In addition, in June 2015, the Singapore Banking Association issued a set of guidelines on outsourcing service provider control objectives and procedures, including an Outsourcing Service Provider Audit Report (OSPAR) template. Similar to TVRA, the OSPAR template aims to standardize audits for banks wishing to utilize outsourcing. Interestingly, like TVRA, OSPAR only applies mandatory requirements to banks but other industries in Singapore also require self-regulatory audits on issues related to outsourcing.

5G will promote the development of edge computing technology. Edge computing aims to sink a large amount of data analysis functions closer to applications, thereby improving response speed and reducing network and cloud computing costs. At the data processing end, 5G will comprehensively promote the development of edge computing, enhancing the speed of data processing and ensuring the application boundaries of data.

From the perspective of data center development trends, the new generation of ultra-large-scale data centers is characterized by 'neutral open-source' and 'business-adaptive' features. That is, ultra-large-scale neutral data centers that are adaptable to all business scenarios will become the mainstream development direction for future data centers. From a global development standpoint, although the total energy consumption of data centers is relatively high, the energy consumption intensity per instance is showing a downward trend, with overall energy efficiency continuously optimizing and improving. The increasing electricity demand in Southeast Asia, rich solar resources, and favorable policy conditions provide favorable opportunities for the development of its new energy market.

It is estimated that between 2020 and 2025, the new energy market in Southeast Asia will grow at a compound annual rate of 7.3%, becoming one of the fastest-growing photovoltaic markets in the world and one of the regions most promising for global expansion of the photovoltaic industry. The rise of the renewable energy market in Southeast Asia aligns with the current trend of data centers striving for low PUE values.

Lead-acid batteries have long dominated the communication industry for decades. However, they have a short cycle life, take up a large amount of space, require high load-bearing capacity in computer rooms, and their production process can easily cause environmental pollution, leading to a trend of shrinking development of lead-acid batteries in various countries. On the other hand, lithium batteries naturally possess advantages over lead-acid batteries such as high energy density, small footprint, and long cycle life.

With the rapid decline in the market share of lead-acid batteries, the global application of lithium batteries has increased sharply. Almost all 5G sites are now covered by lithium batteries, and large ISP customers in data centers are also beginning to use lithium batteries on a larger scale. It can be predicted that within the next 3 to 5 years, the market share of lithium batteries will approach or exceed that of lead-acid batteries. The environmentally friendly characteristics of lithium-ion batteries will greatly promote the data center market in Southeast Asia.

With the increase in enterprise business types and business scale, traditional simple direct-attached storage (DAS) architecture can no longer adapt to increasingly complex IT environments. Centralized SAN (Storage Area Network) and NAS (Network Attached Storage) architectures have become the main storage architectures for most enterprises at this stage. These architectures can make full use of backend storage resources, enable data flow between single arrays and multiple arrays, and significantly improve storage resource utilization by introducing storage virtualization technology. They also enhance the security of storage architectures and achieve more efficient software features.

With the sudden surge in data volume and the increasing complexity of IT architectures, IO (Input/Output) performance issues with backend storage have begun to emerge and gradually become a focus and pain point for many enterprises. All-flash arrays can provide extreme IO performance metrics that traditional high-end storage cannot match in terms of unit capacity and rack space. It can be said that current all-flash arrays are seeking 'speed' while also gradually improving the 'stability' that is most critical for enterprise-level storage. The increasingly complete features of all-flash arrays will promote the development of data centers.

The outbreak of the COVID-19 pandemic has meant a surge in demand for digital communications, thus driving a sharp increase in demand for data center services that support them.

The impact of the pandemic has led more and more people to switch to remote work, video conferences, and watching videos on streaming platforms such as Netflix in their spare time. Moreover, with schools closed, many students have begun switching to remote learning through Zoom and similar tools. Furthermore, with the increase in social distancing, online shopping for food and other goods is surging, and many supermarket delivery services are operating at full capacity. For self-quarantined individuals, especially those living alone, tools like Skype and WhatsApp can help them stay connected with friends and family.

Internet communication based on data centers also enables governments to share the latest information and advice with individuals, especially those who are isolated. The COVID-19 pandemic has led to a sharp surge in demand for server computing, storage, and network resources, driving the development of the data center industry.

The ongoing high-level technological deployment globally will lead to a surge in data creation, driving demand for data processing and storage capabilities, and facilitating the construction of large numbers of data centers. The increase in investment by data center operators, the expansion and use of IoT and big data, the adoption of hybrid models between cloud and traditional data centers, as well as the robust growth of emerging economies, will all become key market drivers.

The migration of enterprises towards cloud computing and managed data centers will drive the data center industry, as enterprises can reduce capital and operating costs by avoiding investments in hardware or software infrastructure, thereby reducing maintenance and space requirements.

In addition, 5G will increase the deployment of micro-data centers and edge data centers, further driving investment in new-generation data center technologies. Moreover, the rapid development of ASEAN today has also caused major data center countries such as China and the US to focus their attention on Southeast Asia, greatly promoting the development of the local data center industry.

The popularization of cloud computing technology has made cutting-edge technologies like artificial intelligence, which require massive data and significant investment, no longer unattainable. Using artificial intelligence based on cloud computing platforms can greatly reduce costs and make it possible for various industries to apply artificial intelligence technology to the greatest extent possible.

Meanwhile, the maturity and popularization of big data, Internet of Things, artificial intelligence, and 5G technologies have also accelerated the technological evolution of cloud computing and promoted the rapid development of the cloud computing market. Cloud platforms are the foundation for new technology applications such as big data, Internet of Things, artificial intelligence, and 5G. With the popularization of new technologies, higher requirements will inevitably be placed on the technical and service capabilities of cloud platforms, such as greater computing power support and strong security guarantees.

As the business scale supported by cloud computing continues to grow, the integration of software and hardware has become a necessity. Building stronger data center platforms using integrated software and hardware technology will become an important trend in the development of cloud computing.

At present, the social governance situation in some Southeast Asian countries is not ideal, with low government operational efficiency and frequent serious security incidents. In some areas, there are even armed rebellions. Moreover, Islamic extremist ideologies are spreading and proliferating within the region. With the establishment and decline of the physical entity of 'Islamic State', Southeast Asian Islamism has become unprecedentedly active, posing a serious threat to the existing order in the region. Due to the special nature of the data center industry, which demands extremely high security standards, the somewhat turbulent social environment in Southeast Asia can hinder its development.

Currently, a large number of data centers in Southeast Asia are not located clearly. The power-on rate of data centers one year after completion has still not exceeded 40%. There is a lack of cross-operating enterprise data center interaction services, and a complete ecosystem has not been formed. The rack rental rate is low, and the spillover effect to society as a whole is not obvious. Many data centers are experiencing shortages of operation and maintenance personnel, and their operation and maintenance capabilities cannot keep up with the speed of data center construction.

The market scale of the data center industry in Southeast Asian countries increased from 647 megawatts in 2017 to 985 megawatts in 2020, with an average annual compound growth rate of 15%. It is expected that this will continue to grow steadily in the future.

Source: Frost & Sullivan report