Challenging times for technology vendors to tap Chinese data center market

Infotech Lead Asia: China’s data center market is becoming a major destination for big technology vendors.

Some of the analysts’ estimates reflect data center growth and opportunities for technology vendors in China.

According to Frost & Sullivan estimates, China’s data center services market is growing at a compound annual growth rate of 26 percent per year and will reach $3.2 billion in 2017.

Though, the global worldwide server revenue declined for the fourth consecutive quarter in Q3 2012, Asia/Pacific experienced revenue increase in the quarter. The growth in Asia/Pacific was largely driven by strong demand in China, which helped a China-based server vendor – Inspur – into a top 10 factory revenue position for the first time.

In October 2012, Cisco said Asia Pacific will generate the most cloud traffic (1.5 zettabytes annually); followed by North America (1.1 zettabytes annually); and Western Europe (1 zettabyte annually) by 2016.

The Cisco Global Cloud Index predicts that through 2016, the Middle East and Africa will have the highest cloud traffic growth rate, while the Asia Pacific region will process the most cloud workloads, followed by North America.

READ China’s position in Cisco Global Cloud Index HERE

Forrester in a January 2013 says Economic pressures have forced Infrastructure & Operations (I&O) organizations to start architecting automated data centers, which require discrete components to become an integrated set of subsystems. Thus, I&O organizations should use system-level criteria to determine whether the DC network is scalable, secure, shared, standardized, and simplified.

Vendors have responded to the cries of businesses demanding a flexible, agile, and dynamic infrastructure that can serve up services on the fly, but today’s data center networking solutions exhibit traits of a young and awkward teenager who needs a lot of guidance and resources.

Forrester says of the 5 vendors in the Strong Performer arena, Cisco and HP dominated two or more of the S’s while laying out a vision that hits on the five areas of a virtual network infrastructure. Each of the vendor’s vision varies widely between them and can be traced to their pedigree, and their relative strengths are surfaced by looking at the five S’s.

Data center growth drivers

The global data center traffic is expected to grow fourfold and reach a total of 6.6 zettabytes annually by 2016, according to Cisco estimates.

In 2011, North America generated the most cloud traffic (261 exabytes annually); followed by Asia Pacific; (216 exabytes annually); and Western Europe (156 exabytes annually).

SEE Video on Cisco Global Cloud Index HERE

Cisco says the number of workloads per installed traditional server will increase from 1.5 in 2011 to 2.0 by 2016. The number of workloads per installed cloud server will increase from 4.2 in 2011 to 8.5 by 2016.

By 2016, nearly two-thirds of all workloads will be processed in the cloud. Annual global cloud IP traffic will reach 4.3 zettabytes by the end of 2016. By 2016, global cloud IP traffic will reach 355 exabytes per month (up from 57 exabytes per month in 2011).

Global cloud IP traffic will increase six-fold over the next 5 years. Overall, cloud IP traffic will grow at a CAGR of 44 percent from 2011 to 2016. Global cloud IP traffic will account for nearly two-thirds of total data center traffic by 2016.

Regional cloud readiness

North America and Western Europe led in broadband access (fixed and mobile) in 2011 and will continue to lead in this category through 2016. However, all regions will show measurable improvement in broadband access to their respective populations throughout the forecast period. Asia Pacific leads in the number of subscribers throughout the forecast period due to the region’s large population.

Western Europe leads all regions with an average fixed download speed of 11.7 Mbps. North America follows with an average fixed download speed of 10.3 Mbps. Asia Pacific and Central and Eastern Europe lead all regions in average fixed upload speeds of 6.7 Mbps and 5.9 Mbps, respectively.

Western Europe and Central and Eastern Europe lead all regions in average fixed network latency with 58 ms and 59 ms, respectively.

By 2016, nearly two-thirds of all workloads will be processed in cloud data centers.

From 2011-2016, the Middle East and Africa is expected to have the highest cloud traffic growth rate (79 percent CAGR); followed by Latin America (66 percent CAGR); and Central and Eastern Europe (55 percent CAGR). These regions are starting from a smaller cloud traffic base than other regions.

In addition, progress is being made in the IPv6 enablement of web content likely to traverse the cloud, including such popular sites as Facebook, YouTube, and Netflix.

For example, in the Czech Republic, 59.4 percent of web pages are available over IPv6, and 52.9 percent are available in Brazil.

Comparatively, France has 49 percent; while the United States has 43.8 percent. Some countries have much more room to grow in terms of IPv6 website availability, such as Russia (28.8 percent) or China (17.8 percent). Obviously these percentages of pages available to users with IPv6 connectivity are delivered from a relatively small number of websites that rank high as most visited. In other words, a small number of websites among the top visited sites account for the majority of the content visited over IPv6.

Chinese data centers expand

Based on qualitative research and more than 100 face to face interviews, a new report by BroadGroup reveals a massive program that will more than double data center capacity by 2016 with an overall investment of $370 billion.

China is constantly building some of the most advanced computing infrastructure in the world. The nation needs data centers to support its exploding online population, which is 500 million and growing. A rapidly inflating internet population coupled with the rise of usage of social networking and mobile applications, the proliferation of online gaming, search engines and content providers are factors that spur demand for third-party data centers. The demand for data centers is outpacing the supply for them.

The Chinese government strongly backs the construction of large data centers. Expanding the national computing infrastructure is a part of China’s latest five-year plan. Local governments are funding the development of vast cloud cities – industrial zones created to provide the foundations to support as many as 20 data centers over time. The Chinese government invests significantly in creating new cloud platforms, software and applications supported by a program of massive cloud data center deployment.

Vendors – Challenges and benefits

The political and socio-economic environment in China present some challenges to global multinationals seeking to participate in the massive data center build out. Governmental policy and regulations pertaining to foreign participation and investment in China, such as ownership rights for data and other assets, challenges with securing adequate bandwidth and power, technical hurdles and issues surrounding carbon footprint are factors that global players have to deal with, to be a part of China’s data center growth story.

Despite all the hurdles that foreign companies have to face, it can hardly be ignored that China is one of the fastest growing markets in the Asia-Pacific region. So it continues to be strategically important for multinational companies that seek to gain a foothold on the mainland. Financial power centers Beijing and Shanghai are experiencing the biggest demand for data center space. Currently, over a quarter of data center infrastructure in China is outsourced.

With a government mandate to keep specific content housed locally, China’s data housing demands are being fuelled by internal growth and development. Global players are keen to operate, engage and enter the lucrative and dynamic China frontier.

India and China will drive video surveillance as a service market growth. The video surveillance as a service (VSaaS) market is expected to touch $2.39 billion by 2017 from $474 million in 2011. Video surveillance and storage on the cloud has many advantages as it reduces the amount of technical resources required to maintain a system while streamlining the security operations in a centralized IT data center.

IDC says software-defined networking (SDN) is gaining momentum within the broader enterprise and datacenter networking industry.

The SDN market for the enterprise and cloud service provider segments is forecast to grow from $360 million in 2013 to $3.7 billion by 2016.

Data center activities in China

Chinese Internet service provider 21Vianet announced has started construction of a new data center in the Daxing District of Beijing. It the largest facility in China as measured by cabinet capacity, holding 5,000 cabinets. Wholly owned and operated operated by 21Vianet, the 42,000 square meter data center is being built in phases.

Pacnet opened a 14,000 square meter Tier 3 datacenter facility in China. The data center is carrier neutral and can support up to 2000 high density power hungry racks.

The province is investing 148.5 billion CNY in the Zhangjiakou Cloud Computing Data Center project –  a key project of Hebei Province, expected to generate 40 billion CNY in operating income, 5.25 billion CNY profit and is expected to generate 108,000 jobs following completion.

The Chongqing Communications Administration revealed that Phase 1 of China Unicom’s Western Data Center, located at the Shuitu Hi-tech Park of Liangjiang New Area of Chongqing, is being built at a cost of 4bn CNY and will be completed later this year.

Equinix, the U.S.-based data center provider, has expanded its footprint in China with the launch of the second phase of our Shanghai data center, SH5-II.

China is emerging as a top data center market for technology vendors. But that country’s regulatory guidelines will be a big block for data center equipment suppliers.

Sangeeta Sudhakaran
[email protected]