DESPITE the dour economic sentiment in the country, one area that seems to promise significant growth is hyperscale data centres (HDCs). These are vast data centres being built using thousands of computer servers and which consume copious amounts of electricity. They cater to the ever growing digitalisation in all aspects of our lives, boosted by the Covid-19 pandemic.
Global giants in cloud computing and hosting are increasingly looking at Malaysia as a place to have their data centres. These include tech giants such as Amazon, Microsoft, Google and Tencent. They also include lesser known but equally big tech firms who have specialised in data centres such as GDS, Equinix and 21Vianet.
It is interesting to note that many of these global tech players already have their data centres in Singapore.
Singapore’s political stability and reliable infrastructure had attracted global tech giants to build HDCs on the island republic.
However, about two years ago, Singapore began limiting approvals for HDCs there. This is because HDCs consume large amounts of electricity and water. Land scarcity is said to be another reason.
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This in turn has made Malaysia a choice location.
Dr James Tee, executive director, G3 Global Bhd, is one official in the thick of such negotiations.
“Malaysia now has a one-in-a-lifetime opportunity. The global market size of colocation data centres is estimated to reach US$92.4bil (RM387.2bil) in 2025. Asia-Pacific alone will account for 50% of the global market by revenue and 40% by MW in 2025 globally,” he says.
MW or megawatts in terms of electricity consumption is used to describe the size of data centres. HDCs are being loosely defined as data centres that consume 20MW or more.
Adds Tee: “Malaysia is in an opportune position to be a part of this growth. Reports indicate that Malaysia can expect a compounded annual growth rate (CAGR) for HDCs of 13% between 2019 to 2025. This is supported by the fact that our domestic data centre industry revenue has been growing at a CAGR of 22% from 2011 to 2020.”
Research outfit Arizton Advisory reckons that Malaysia’s data centre market size will reach revenues of a massive US$1.4bil (RM5.8bil) by 2026.
The state of Johor is becoming one hotspot. Microsoft and GDS are among those building new HDCs there. (See Table 1)An industry player recently told StarBizWeek that 10 global players are now looking to set up HDCs in Johor.
Johor appeals to some large tech players already in Singapore because of the availability of high data speed connections between Johor and Singapore. Lower cost is another obvious reason.
“A number of big firms are scanning Johor to build HDCs on the back of availability of electricity at a cheaper price compared with Singapore. Lower land cost is another advantage,” he says.
But it is not just Johor that is lighting up the HDC space in Malaysia.
Perhaps the most ambitious plan is being drawn up by G3 Global.
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Late last year, the company said it plans to house the country’s largest HDC in the proposed Artificial Intelligence (AI) park in Bukit Jalil, starting with three 10MW hyperscale data centres in the first phase of development. At maturity, the data centres are meant to have a potential end state of 100MW.
“The hyperscale data centre will be scaled according to demand progressively. There are discussions with domestic and regional hyperscale data centre partners on potential collaborations,” Tee had told StarBizWeek then.
Work on this is progressing well, Tee says now, adding, “Our HDC is expected to be housed in the AI City as its cornerstone project fundamentally powering all the other technological innovations and experiences we aim to capture here”.
The AI park is to be located in the Technology Park Malaysia (TPM) in Bukit Jalil, Dzuleira Abu Bakar, the CEO of TPM, tells StarBizWeek: “
“As you’re aware, the AI Park at TPM involving several parties, is earmarked at a total investment of more than US$1bil (RM4.15bil) over the next five years. It is a designated 300 acre plot which will serve as the platform for the development of AI solutions in areas of computer vision, speech recognition, natural language and human/robot. Ultimately, the park will accelerate the development of technology and talent, data management, R&D and commercial ecosystem which could assist the Malaysian government to elevate our AI ecosystem.
There is a huge opportunity for AI to flourish in Malaysia and the government recognises its potential in the nation’s growth. Among the work-in-progress are securing data centre partners, equipping the park with 5G technology and securing strategic investors. We are in active discussion with several partners and are still finalising the plan for these parks soon, and will take it forward for approval by the government.”
Dzuleira points out that there are now about 600 hyperscale data centres in the world – twice as many as there were five years ago, based on the latest tally by Synergy Research Group, adding that more than 100 new hyperscale data centre facilities were built in 2020.
On HDCs coming into TPM, Dzuleira says: “TPM is already working with several global companies to have their HDCs set up here at TPM due to our strategic location and offerings. There is great potential here.”
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She adds: “The plan is to make TPM an innovation centre with a focus on both developmental and commercial outcomes. HDCs will be a core service that will support a host of technologies that will take flight in the coming years such as Artificial Intelligence, IOT, 4IR and others. Data is said to be the new oil and with digitalisation, this is a market that is set to continue to grow.”
Major player Telekom Malaysia Bhd (TM) is also looking to expand its data centre space, based on demand from its client from both the public and private sectors. TM‘s main data centres are the Klang Valley Core Data (KVDT) in Cyberjaya that covers 400,000 sq ft and the Iskandar Puteri Core Data Centre (IPDC) in Johor with 350,000 sq ft.
Azizi A. Hadi, chief operating officer of TM, explains: “The upward trend of cloud adoption is increasing as businesses undergo digital transformation and find ways to increase scalability, business continuity and cost efficiency. This creates huge demand from cloud providers for HDCs that provide high density power. The MyDigital blueprint from the government has also been a driving force for the uptake of cloud adoption, especially from government agencies. This demand will continue to heighten as the need for AI, IoT, big data analytics and 5G are expanding for enterprises. Furthermore, the explosive growth in digitalisation, ecommerce and digital banking that require huge data storage and processing, adds to the demand for HDCs.”
He adds that TM already serves “several key hyperscalers in the market” and that its data centres meet such demands.
“Our state-of-the-art data centres in Cyberjaya and Iskandar Putri, Johor are the first Tier-III certified data centres in Malaysia. They are well connected via our vast and diverse fibre network to serve capacity demands in Malaysia and globally,” he says.
Competition in the region
But Malaysia is not alone in trying to woo such investments. Aside from Singapore, which is the data centre hub in the region, Indonesia and Thailand are also in the running for this business.
A recent research report notes that the Indonesia data centre market was valued at US$1.5bil (RM6.28bil) in 2020, and it is expected to reach a value of US$3.07bil (RM12.86bil) by 2026, registering a CAGR of 12.95% over 2021 to 2026.？ The report indicates that the potential for data centre growth in Indonesia is significant as the country is witnessing a growing digital economy, coupled with the rapid growth of startup companies and an ever-growing population.
In 2016, the Thailand Board of Investments announced tax incentives for data centres that include an eight-year tax privilege, and favored electricity rates, for data centres built in an area of at least 21,500 square feet. A recent report also highlights that Thailand’s data centre market is expected to grow at a CAGR of close to 8% from 2020 to 2026. Growth is coming from its banking and financial services, automotive, retail, and content sectors, along with hyperscale service providers.
The Thailand data centre market includes about 14 unique third-party data centre service providers, operating more than 30 facilities. In addition, there are also several on-premises or dedicated data centres owned by local enterprises, reports indicate.
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Adds G3’s Tee: “Given the attractiveness of HDCs’ growth opportunities, this has attracted many leading DC players and operators to this region. Depending on how the competitive environment stacks up, these players have a lot of options to choose where they want to locate their data centres and who they want to partner with. Global players can bring in their expertise and partner with local data centres that creates a holistic suite of services building on global experience and local know-how.”
However, he adds: “Regional competition to become a HDC hub is intense, with significant challenges coming from markets such as Singapore and Indonesia. The window of opportunity for Malaysia exists within a very short timeline and there is a need for accommodative policies, continuous improvement to infrastructure and closer collaboration across all sectors, if we are to take advantage of this opportunity to build up the HDC industry.”
Tee also says that opportunities should be given to local players who are positioned to “offer options that suit the regional demographic. Additionally, this will play a part in advancing local workforce capabilities, talent and intellectual property”.
TPM’s Dzuleira echos that view on talent issues. “We recognise that managing HDCs require highly skilled talent and there are gaps locally. We are evaluating agreements which go beyond the classic tenant - landlord relationship. For example, having a co-operative industry funded by these HDCs which can be used for local skills development, environmental restoration and other forms of capability and capacity building. This way, there is continuous reinvestment to allow Malaysia to move up the value chain, while preserving our environment.”
Environmental concerns
Detractors caution that simply opening up Malaysia’s shores to large foreign tech giants to set up their HDCs here brings questionable value. These detractors who are from the local data centre industry, worry that Malaysia would end up becoming a “HDC sweatshop”.
They point out that HDCs do not hire many people, due to the highly automated nature of the systems that run the computers on HDCs. Another concern is a huge amount of the investment actually goes out of Malaysia as the HDC would be purchasing computer hardware and software that isn’t made in Malaysia to be placed into the HDCs here.
But G3’s Tee has a different view of the booming HDC sector in Malaysia.
“The participation of tech giants will accelerate the growth of the data centre and cloud computing industry. HDCs can bring a catalytic impact to other industries by bringing in large global and regional enterprises as well as their expertise to the market. ？？For the public sector, HDCs can help to facilitate the country’s efforts in migrating data onto hybrid cloud systems which is anticipated over the next two to five years.”
Tee points to other advantages. Smarter services from the cloud as when servers are located in Malaysia, there will generally be lower latency and better response rates to support online activities such as financial transactions and online education.
“Having more cloud service providers in the country reduces the outflow of trade in services and creates the opportunity for a new industry, new jobs and a local workforce that grows the digital economy. And when content is housed outside of Malaysia, we as a country will have to pay for the bandwidth to access that data. With more HDCs in Malaysia, we will save on this bandwidth cost and capacity,” adds Tee.
On concerns of HDC’s heavy usage of electricity, Tee says: “HDCs actually empower improvements in the capabilities and efficiency for energy grids, water, and telecommunications, which also means better infrastructure for Malaysians to benefit from. New generations of HDCs will tap into the use of renewable energy which is in abundance in Malaysia.”
Another point is that Malaysia is now seeing a spike in renewable energy production. It is understood that G3 Global is in discussions with a renewable energy firm to power their HDC projects.
Adds TPM’s Dzuleira: “While HDCs boom serves as a good pull for foreign direct investment, we are cognisant about the environmental impact HDCs have, through the manner in which they consume energy and emit heat. In this regard, we are considering emerging innovations and renewable energy solutions as well as closed loop systems and photonic chips which can tackle excessive heat generation”.