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Latin America's game of Risk

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This year will be a game-changer south of the Rio Grande, and data centers would do well to play, says Fernando Garcia

The data center industry in Latin America (LATAM) is going through one of the most hectic and exciting transitions in memory. The recent frenzy is due to a combination of forces pulling in different directions, and last year left behind some winners and losers, and successes and failures, redrawing a new playing field for the upcoming year – something like a game of Risk for data centers.

It seems huge technology companies are suffering from a major identity crisis. Some are being split up, some are merging, and some are losing ground to small companies with disruptive business models. The age of cloud computing, big data and the Internet of Things is barely starting out, yet market excitement could not be more intense.

Infrastructure manufacturers are feeling slightly adrift and blame their bad results on the economic crisis. There are those who want to sell complete, integral solutions in competition with their own channels, wearing themselves out and creating unnecessary friction, while others are paying the price for implementing short-term business strategies (feast today, famine tomorrow).

A game of Risk

Source: Thinkstock

There is no longer a clear, well-defined role in the value chain: today, everybody wants to do everything, and few are able to achieve it. Some channels and regional integrators want to redraw the playing field but are failing in their attempt to scale up and replicate business models that only work on a national or local scale.

Roll of the dice

The economic context in LATAM is not favorable and will not be for several more years, according to some industry observers. Rampant corruption in various aspects in the region, the price of oil and minerals, and currency devaluations compared against the dollar have weakened Latin economies.

But it is also certain that investment in technological infrastructure is being a-cyclical; in other words, it does not seem to be following economic cycles. Countries including Mexico, Ecuador, Peru and Bolivia have seen major spikes in data center investments, and public and private enterprises have to play catch-up because their customers and citizens are demanding more and better access to online services.

In 2015, the trend toward tier certification of data centers was consolidated, with an increasing demand for operational certification – and that’s what really counts.

One trend that everyone is talking about, which has yet to pay off as expected, involves prefabricated data centers (not modular, or containers). These can achieve economies of scale and lower prices, and will become more popular over the next two to three years.

Last year was not very prolific for large greenfield projects or new data centers – there were fewer than there were in 2013 or 2014 – and data center providers completed some that had been started a year ago. There are some who will say the industry is in crisis, but that is not entirely true. Actually, what is happening is that the industry is changing and the traditional players are playing a losing game.

However, the market for brownfield projects – in other words adjustments, remodels and updates for existing sites – is bullish since companies are beginning to make common sense investments in infrastructure by capitalizing on the existing infrastructure and optimizing investments.

Playing to win

This year will be a very good year for data centers, despite the economic context, the identity crisis and the defunct business models – and even despite Brazil. That’s why it’s a good idea not to ignore Argentina, Peru, Mexico and Colombia.

A game of Risk

Source: Thinkstock

To sum up, major trends include greater public investment in data centers for e-government and education. Banks will have to invest to implement Basel III, with its operating risk requirements.

It will also be a great year for data center infrastructure management (DCIM), and demand for operational certification will rise. There will also be a substantial increase in prefabricated data centers.

This year will also be a year for inflections, where the playing field transforms itself. Chinese and European companies will take on more relevance, and Brazilian and American companies will lose their starring role.

Investment in PE/VC (private equity/venture capital) in the sector will clearly continue, despite the drop in foreign investment in general due to the dollar’s strength. Thus, PE/VC companies will capitalize on the situation by getting out of purchasing, taking advantage of the low price of assets in the local currency.

These investments will be visible on two key fronts: purchases of real estate assets (data centers) by service providers, and investments in startup and technology companies that offer IT services and infrastructure. Whatever happens, there will be considerable activity in the region – and it’s sure to be exciting.

Fernando Garcia is CEO of Ingenium Engineering.

Fast facts for LATAM data center market

These figures include software, colocation and outsourcing:

•    2015 data center spending in the region was $20.9bn

•    2020 data center spending is expected to reach $34.3bn

•    2015 power consumption 3.2GW

•    2020 power consumption 4.5GW

•    Brazil and Mexico combined made up 65 percent of 2015 spending    

Source: DCD Intelligence

This article appeared in the February 2016 issue of DatacenterDynamics magazine.

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