Indonesian Data Center Market Study

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Indonesian Data Center Market Study

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Driven by growth in internet and smartphone penetration, e-commerce is expected to continue growing at more

than 20% per annum into 2020. This trend is expected to rapidly increase demand for cloud services, with a

corresponding increase in the requirement for new Data Center (‘DC’) capacity

Indonesia’s DC construction market is expected to grow by 11.4% a year between now and 2020, supported by

the expansion of colocation and managed hosting services provided by key DC suppliers to both large enterprises

and SMEs

Technology companies are racing to deliver more advanced equipment (green data center, modular data center,

high density, software-defined data center), with consequent impacts on overall Data Center design

In terms of total DC market size, telco/DC providers account for 87% of the market, followed by government

agencies (6%) and financial services (3%)

It is perceived that a ‘single point of contact’ together with a strong client portfolio and reliable locally-based

backup are key considerations for DC owner/customer when choosing their main contractor.

EXECUTIVE SUMMARY


THREE MAIN IMPLICATIONS FOR DC CONSTRUCTION VENDORS

Segment Focus – Page #15 for more detail

Different DC solutions –Page #16 for more detail

Project Delivery – Page #17 for more detail

Tier III is expected to be the most valuable market for DC construction. DC construction vendors should be able to

capture this opportunity by approaching DC service providers or government agencies/state owned enterprises

who want to build or upgrade DC facilities. DC construction vendors also need to be able to find the right

partners who have capabilities / experience in building Tier III centers.

There is a clear customer demand for end-to-end solutions. DC construction vendors therefore need to be able

to build capabilities or engage with multiple vendors to provide these solutions.

Although many system integrators claim they are able to provide end-to-end solutions, in fact, the actual

number who can do this is small and mainly comprised of big players such as IBM, HP and Huawei. These

providers are able to provide a ‘full spectrum’ range of services starting from site assessment, design & build, IT

infrastructure, and DC management services and support.

As most customers prefer to engage with a single point of contact, DC construction vendors can act as a DC

consultant/system integrator, having special access to customer. In terms of engaging with other parties, DC

construction vendors might engage with other system integrators who can manage the rest of the suppliers or

alternatively the vendor might directly recruit suppliers for each sub-component. The latter option could

potentially generate better margin as long as the vendor possesses good project management and supplier

management capabilities.


Driven by growth in internet and smartphone penetration, e-commerce is expected to continue growing at more than 20% per annum into 2020. This trend is expected to create new demand for cloud services...

INTERNET PENETRATION, E-COMMERCE, AND DATA CENTER

Source: BMI, Technavio, Trade Interviews, Ipsos BC Analysis

The growing need for cloud services is correlated with the increase in the wider e-commerce market

Surging internet penetration covering 40% of the population as of 2015 and estimated to reach 46% by 2019.

Increasing adoption of smartphones, with users expected to rise from 55 million in 2015 to 92 million in 2019,will continue to support the growth of the country’s e-commerce market, driving e-commerce activity throughmobile devices.

Of the c260 million Indonesian population,

• 39% are active internet users

• 30% are active social media users

• 25% have smartphones

CAGR(‘16 – ’20)

9.5%

11.6%

CAGR:21.7%

8.8%CAGR:46.4%

1,800 2,600 4,610

5,650

12,390

2013 2014 2015 2016 2020F

E-commerce Market Size (USD Mn)


The increased growth of the cloud services market, driven by e-commerce and the demands of SMEs for low-cost storage solution, will in turn drive increased demand for Data Center construction

DATA CENTER MARKET OVERVIEW IN INDONESIA

Source: BMI, Technavio, Trade Interviews, Ipsos BC Analysis

There is an opportunity for cloud solutions to rapidly grow in popularity as the supply of solutions increases

alongside network and Data Center investment

Software-as-a-service (SaaS) is expected to be the largest component of the cloud market over the medium

term due to a large adoption of cost-efficient cloud solutions by SMEs

Indonesia Data Center Market (billions USD)

1.11.4

1.82.3

2.83.2

2015e 2016e 2017f 2018f 2019f 2020f

CAGR: 24.65%

Cloud Computing Spending in Indonesia (millions USD)

188.0239.1

307.5400.0

511.3

637.6

2015e 2016e 2017f 2018f 2019f 2020f

CAGR: 27.67%

1 USD = 13,300 IDR 1 USD = 13,300 IDR


The growth of the Data Center Market will inevitably create demand for DC construction projects DC CONSTRUCTION: MARKET SIZE

Source: Trade Interviews, secondary research, Ipsos BC Analysis

Indonesia Data Center Construction Market Size by square meters (in thousands)

• Indonesia’s DC construction market is expected to grow at 11.4% a year. The growth will be mainly supported by the growing of DCprovider services who provide colocation and managed hosting services for both large enterprises and SMEs. Other industries, such asfinancial services, telecoms, and government agencies could be requiring new DC constructions for reasons of regulatory compliance.

• Most upcoming facilities, especially for DC service providers, are expected to be of Tier 3 or Tier 4 standards, boosting the overallmarket value considerably.

• The figures shown above already include new construction, renovation, and upgrade. Innovations in technology in the DC infrastructurespace will prompt many enterprises to renovate their data centers to make their IT environment more ecofriendly, reducing electricitycosts. These new technologies usually deliver reductions in operating costs significant enough to justify the additional investment.

170197

226259

296337

2015 2016 2017 2018 2019 2020

Indonesia Data Center Construction Market Size by values (in trillions Rupiah)

1.5 1.7 2.0

2.2 2.5

2016 2017 2018 2019 2020

CAGR: 11.4% CAGR: 10.64%


Technology companies race to deliver more advanced equipment, impacting on Data Center designs

KEY MARKET TRENDS IN DATA CENTER CONSTRUCTION

Source: Trade Interview, Secondary Research

KEY TRENDS

Construction of Green Data Center

DC customers are seeking to build data centers that consume significantly less power overall. This requires energy efficient IT, power, and cooling infrastructure. For example, new cooling solutions such as liquid-based cooling technology and In-Row cooling will optimize results while using less power.

High Density

High density data center design will become increasingly important as technology continues to advance

There will be increased demand for infrastructure management (‘DCIM’)software for real-time monitoring and management of DC infrastructure

Implementation of SDDCs

By using virtualization of the physical infrastructure combined with intelligent software systems, efficiency will improve, costs will be lower, availability higher and security will be better.

Modular Data Center

The idea of a Modular Data Center is for mobility and flexibility. Modular Data Centers can be preferable for certain cases, for example, provision in rural areas as part of e-government initiatives, or enabling incremental capacity expansion by Data Center providers.


Multiple stakeholders are involved in a Data Center construction project, but customers prefer to engage with a single point of contact: usually, this will be a system integrator

INDUSTRY STRUCTURE AND KEY STAKEHOLDERS

Source: Trade Interviews, Ipsos BC Analysis

Electric

Owner/User

DC Sub Contractor 1

HVAC

DC Consultant Civil Consultant

DC Implementor(Main Contractor)

Some DC construction projects utilise a tri-partite structure with DC consultant, civil construction consultant, and DC main contractor especially for government projects and new DC ‘green field’ projects.

DC Consultants are a single point of contact for the DC owner/user, and commonly provide DC consultancy and design. Most of the big DC consultants such as IBM and HP often have dual roles (design and implementation) at the same time in a project.

DC implementors act as the main contractor, dealing with several vendors. Critical success factors for this role are excellent project management and vendor management capabilities.

Depending on the project and the vendor, some DC sub-contractors can also independently conduct design in addition to implementation for their particular specialized sub-component of a DC project. This vendor could be the manufacturer or distributor of the relevant product.

DC Construction Ecosystem

DC Sub Contractor 2 DC Sub Contractor 3

Renovation & Architect

Fire Suppression DCIM

21

3

4

1

2

3

4


While there are various versions of project delivery model, the procurement process is mostly needed at pre-construction and construction implementation stage

PROCURE-DESIGN-BUILD


• Develop facilitycriteria and Owner Requirements

Data Center Facility Infrastructure Project

Pre-design Development

Pre-construction DesignConstruction

ImplementationPost

Construction

Key Activity

Key Attributes

Owner Consultant Designer System Implementor

Vendor

Key Stakeholders

• Kilowatts/Rack• Systems Capacities• System Redundancy• Maximum Utilization

of Space• Infrastructure Layout

• Specify all components• Request pricing from

vendors

• Recommend qualified products

• Finalize budgets• Coordinate delivery• List of components’

prices

• Project documentation

• Architectural, Structural, Civil and M&E Construction Documents

• Local Jurisdiction Permitting

• Project Schedules

• Construction Management

• Contract Procurement

• Mechanical Scope• Electrical Scope• Architectural Scope• Fire System Scope• DCIM Scope

• Documentation/O&M Manuals.

• Customer Support.• Routine Preventative

Maintenance

• Inspection, testing, commissioning, and training

Legends


EXAMPLES OF LEADING SYSTEM INTEGRATORS IN INDONESIA

Emerson data center was spun off from Emerson holdings, and is inpartnership with DKSH Indonesia as their product principal.

Formed in the late 1960s, Jaya Teknik is part of the group Jaya Konstruksi which is one of the leading civil contractors in Indonesia.

Jaya teknik distribute Emerson’s Liebert in indonesia

Source: Trade Interviews, secondary research

DKSH – Emerson Jaya Teknik HP IndonesiaAPC SchneiderIBM Indonesia

IBM is one of the global leaders in information technology and services. IBM has designed anddelivered more than 1,000 modular data centers forcustomers around theglobe.

APC by Schneider Electric, a global leader in critical power and cooling services, provides industry leading hardware, software and services, designed to ensure availability and higher energy efficiency.

HP specializes in consulting, design, implementation and assurance services for data centers. They design and build custom or modular, multi-tier datacenters. They havedesigned over 65 millionsquare feet of data center space around the globe.


EXAMPLES OF OTHER PROMINENT SYSTEM INTEGRATORS IN INDONESIA

Source: Trade Interviews, secondary research

BercaHardayaperkasa

TeracomInternational

Daya CiptaMandiri

Prastiwahyu

Packet SystemsBina Data MandiriSiemens IndonesiaMustika Memadata


In terms of total DC market size, telco/DC providers account for 87% of the market, followed by government agencies (6%), and financial services (3%)...

CUSTOMER SEGMENTATION


Data Center Market Size split by Customer Type (in sqm)

Telcos/DC service providers account for the majority of themarket and this is expected to increase in the next couple of years

Colocation and/or IT managed services (i.e. web hosting, mailserver, virtual private server) will attract SMEs to outsourcetheir IT infrastructure to them in order to reduce their capitalexpenditure and eliminate maintenance cost.

Government constitutes the second largest part of the market

Government agencies are leveraging the advances oftechnology to redefine their business and provide improvedcitizen services. All provinces in Indonesia are encouraged toimplement e-government, requiring structures such as datacenters.

Other highly regulated industries such as banking and energy arealso key DC customers

Regulations push these industries to invest and build theirown DC not only for main operations but also for disasterrecovery purposes.

170,000

12,000

6,0004,000

2,0002,500

Telco/DC Provider Government

Financial Services Energy

Manufacturing Other Enterprises


DISTRIBUTION OF THE MAIN DATA CENTER CLUSTERS IN INDONESIA


Jakarta is still the most preferred location for DC facilities since it is the most accessible from a logistic perspective for both suppliers

(vendors/suppliers) and customers (enterprises) and does of course contain a disproportionate number of key headquarters and institutions

DC providers are starting to establish new DCs outside Jakarta or even outside Java for some considerations

Electrical power source is the key for DC facilities. Therefore, they look for the most convenient location where provides stable power (e.g.

West Java such as Cibitung or Bogor are preferable since there are a lot of energy source and close distance with Jakarta

Balikpapan has quite significant DC facilities since the location is considered at very low risk of earthquake

Jakarta: 73,270 sqm

West Java: 20,537 sqm

Surabaya: 14,600 sqm

Balikpapan: 40,606 sqm

Pekanbaru: 4,500 sqm

Batam: 1,300 sqm

Bali: 7,000 sqm

Medan: 100 sqm

Palembang: 100 sqm


Single point of contact together with credible client portfolio and strong local service and support are key considerations for DC customers when choosing their main contractor

CONSIDERATION POINTS

Source: Trade Interviews, Ipsos BC Analysis

Single point of contact Local support team including vendor capabilities (product's

quality)

Having a single point of contact is one of the most important criteria for DC

owners/customers in selecting who will be their main contractor. Customers prefer to engage with the minimum

number of parties possible and tend to choose a main contractor that has strong

project management and vendor management capabilities.

It is important for any DC contractors to have adequate and strong local execution team since DC constructions require long term relationship between the owner and the

contractor. By having sufficient local support team, requests and communication could be accommodated faster and easier. In addition,

owner choices tend to be driven more by product brand than by vendor brand.

i

Company’s Portfolio

The company’s client portfolio is considered to be an important factor in assessing the right partner for the DC customer. A credible portfolio helps

showcase their real world experience and capabilities.


Tier III DC construction market is the highest among the four different tiers

MARKET OPPORTUNITY


1,532 377 38

Total Tier I Tier II Tier III Tier IV

2.48%

24.61%

64.82%

8.09%

993

124

In billions IDR

The Estimation of Total Market Size by Values for Data Center Construction in 2016

Tier III DC construction market is estimated to contribute

the most to the overall market size, accounting for almost

65%

Most Tier III DC owners are DC service providers who provide

colocations and IT managed services to enterprises

This estimation includes new DC construction, DC renovation

and Tier upgrade. It is expected that many DC service

providers who currently have Tier II will upgrade their facilities

to Tier III due to competition in retaining their customers or

even appealing new customers

Apart from DC service providers, other type of customers who

require and build Tier III Data Centers are government

agencies or state owned companies that might have more

budgets and requirements

The overall Tier II DC construction market might be lower

than Tier III but in terms of number of DC facilities, Tier II

would be still higher than Tier III since many customer types

would still prefer to build Tier II DC rather than invest more

billions just for Tier III DC


Many suppliers offer different solutions depends on their capabilities and partnership with other parties

MARKET OPPORTUNITY


Data Center Assessment

Site Assessment

Infrastructure Assessment

Operational Assessment

DC Consultancy

Design and Development Consultancy

Business Continuity Plan

Disaster Recovery Plan

Auditing - Operational and Procedure

Training - Disaster Recovery Institute (DRI Indonesia)

DC Design and Development

Building, Data Center and Utility Design

DC Infrastructure Design and Implementation

IT Infrastructure (Server, Storage, Network)

DC Operational

DC Collocation/Managed Services

Project Management

Different suppliers/vendors have different DC solutions

depends on their capabilities

Most of the suppliers/vendors only provide solutions limited to

particular sub-components of DC. For example, vendors such

as Dwi Mitra and Lapaslindo only provide M&E related

solutions. They partner with other vendors together to build

DC facilities.

Other vendors such as IBM can offer end-to-end DC solutions

to their customers. Although they only have relatively small

local teams they engage closely with their partners/suppliers

to provide their solutions

IT infrastructure hardware supplier expanding their services to

being a full spectrum DC supplier is more likely than the

reverse. For example, many DC facilities system integrator

(e.g. Packet System, Dimension Data, Berca) started their

business from IT infrastructure such as servers, storage, or

network and now act as a main contractor for DC facilities

constructions

end-to-end DC solutions


Most of the customers prefer to deal with a single point of contact to minimize communication complexity

MARKET OPPORTUNITY


Electric

Owner/User

DC Sub Contractor 1

HVAC

DC Consultant Civil Consultant

DC Implementor(Main Contractor)

Example Project Delivery Model

DC Sub Contractor 2 DC Sub Contractor 3

Renovation & Architect

Fire Suppression DCIM

Many suppliers or vendors can act as a main contractor

or sub-contractor depending on project circumstances...

Suppliers who can be a main contractor/project manager

for a relatively small DC construction might be just a sub-

contractor for the larger project

Suppliers who have small number of technician or run out

of execution team might need to outsource their additional

team from their partners

Large DC construction projects normally invite product

principal (e.g. Emerson, APC Schneider, IBM, HP) to

participate in the tender. Many small to medium system

integrators or distributors can find it difficult to be part of

the tender process.

Most of the customers prefer to deal with single point ofcontact

Many IT infrastructure vendors, as trusted existingsuppliers of IT services, will often be the first preference oftheir customers for supplying their DC facilities, even whenthey might not have such capabilities.


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