Vertiv CEO Rob Johnson On the Pandemic, Supply Chain Woes, and Data Center Tech

Vertiv CEO Rob Johnson and his team were one of the last groups to ring the opening bell on the New York Stock Exchange before the pandemic shut down the trading floor. The company, one of the world’s largest data center infrastructure equipment makers, went public through a SPAC merger near the end of 2019.

On this episode of the Data Center Podcast, Johnson (now back in the office) reflected on early days of the pandemic and shared thoughts on where the company finds itself today in relation to the global crisis – which rages on, continuing to impact the company’s operations outside of the US.

We also talked about the global supply chain issues and their impact on Vertiv and its customers, the company’s strategy for growing in the hyperscale data center market, and which areas of data center technology its hundreds of millions of dollars in R&D spend has been going.

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TRANSCRIPT: Rob Johnson, CEO, Vertiv, on The Data Center Podcast

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Hey everybody. Welcome to the Data Center podcast. This is your Yevgeniy, editor in chief at Data Center Knowledge. We have with us today, Rob Johnson. He's CEO of Vertiv. Rob, thank you so much for taking the time to talk with us today.

Rob Johnson, CEO, Vertiv:
Very excited to be here today and share our story and talk a little bit about Vertiv and the market.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Thank you. You just mentioned you're you're back in the office. What's that like?

Rob Johnson, CEO, Vertiv:
Well, it depends, we operate in 130 different countries. So, it depends on where we are in the world and the vaccination rates. We're kind of watching that closely. But our official return to office for the US is going to be after labor day. And then we'll have a protocol of bringing people back. Those that are vaccinated don't have to wear masks. Those that don't want to share whether they're vaccinated or not should wear a mask for a period of time, and again, till the vaccination rates get to where they'd be.

Rob Johnson, CEO, Vertiv:
So it's people are really, I think, excited to get back into the office and they've been working really hard. Our employees have done a fantastic job during COVID, but engineers need to work with engineers. They need to be in the labs. So it's something that we're just going to, we're going to take safety and employees' health as number one, and then we'll look at the openings as we go throughout the world. But I think it's going to take some places maybe not till mid next year.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Globally, I was curious, how are you feeling today about where we are in the course of the pandemic?

Rob Johnson, CEO, Vertiv:
Yeah, I'm feeling good about us. So we operate, like I mentioned, in 130 different countries. India was hit hard recently as you've seen in the news. We have about a thousand employees there, but we're actually, our employees have been safer coming to the factories and then actually stay at the factories overnight because we're able to feed them, keep them from being exposed. But I'd say globally, we still see hotspots, right? We see where there's low vaccination rates, we continue to see things fluctuate. As you probably read in the news, just recently with Japan, now they're on a lockdown, state of emergency, affecting the Olympics.

Rob Johnson, CEO, Vertiv:
So I would say we're not through this yet, but the vaccination rates are going to dictate when we go back and local law as well. There's a lot of countries right now that just will not allow you to go back in the office. So we'll follow all the laws and we want to make sure that our employees feel comfortable and safe, and that we've got all the right protocols, whether it's daily cleaning that's necessary or those types of things.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Your factory workers in India have been quarantining at the factories?

Rob Johnson, CEO, Vertiv:
They have been. And when we first opened up, one of the things we were asked to do was to provide cots and places for them to sleep, and so we did that. So, some are, and some aren't, as India begins to open up. India went through a couple of phases. First, shut down. And then when they shut down, people weren't being able to get fed. So they had to open back up, so people didn't starve, but then the pandemic got really bad. And so then they had to close back down. So it was a matter getting food to people. So we've got some programs where we've been helping our factory workers feed their families and helping the community where we can. But it's, if you've been to India, it's a difficult place to quarantine people and people are in close quarters to begin with. But I think what we're seeing is the rates are going down. They began to get it under control and we're feeling better about that.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Let's go back about a year or more than a year. Can you just recall the moment you realized the COVID-19 pandemic's here, it's real, and that you'll have to make some big decisions about the company's operations?

Rob Johnson, CEO, Vertiv:
Yeah, great question. I recall that it was actually early February for me, because I was in China in late January doing a kickoff of... I had 300 employees from every providence in China, and we were having celebration early. And I remember beginning to hear right as I got back, as I touched down in the US, that while there's some virus going around in China. And I'm like, oh my goodness. Am I going to get this [inaudible 00:04:07]? Or my employees' going to get this. But, yeah, it was probably early February that began to understand, and it really wasn't until probably late February that we put our plan in action and our global teams, which I'm super proud of, really got to work quickly. As factories were shut down, we had, like I said, we operate in 130 different countries.

Rob Johnson, CEO, Vertiv:
We had to work with local governments. We had to do special things. For example, in Mexico, one of the ways we got to open up much earlier than others is we were considered the company that needed to operate during this pandemic, because cell towers needed to be up and running, so people could communicate. And so we were essential from that perspective. But came up with an idea of feeding the neighbors and having our employees go home and feed their neighbors and do that, therefore local governments were happy that we were participating and allowed us to open up with social distancing and safe protocols. And I'm really proud of what the team did and really how they mobilized globally from that perspective.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
That's such a contrast. So here in the US we went on lockdown, but not to a point where people didn't have anywhere to get their food. You could still go to the store.

Rob Johnson, CEO, Vertiv:
Yeah, we're a little bit sheltered here, right? And seeing some of the things that are happening around the rest of the world, but we're happy as a company to participate and do what we can, where we can, for not only our employees, but the communities we work in.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
What were the first big decisions you had to make; big, hard decisions?

Rob Johnson, CEO, Vertiv:
There were several, right? We had just gone out and became a public company right before it hit hard here in the US. We were, I think, one of the last people to do the opening bell on the stock exchange before they even shut that down. So I think what we've... First and foremost, it was safety; getting out our safety protocols, determining where we were going to shut down, and really focused on the customers. The customers, but focus on our employees' safety first, but the customers and taking care of them because we serve as hospitals, we serve as critical infrastructure for telemedicine. We power a lot of the world's communication networks. So we had to figure out how to safely and come up with protocols and get the appropriate gear for our service people to get into sites.

Rob Johnson, CEO, Vertiv:
We have about 3000 service people globally, and it was important for them to get in and repair systems, put the new systems in that were necessary, networks were being overloaded. So I think it was taking care of our customers and first the safety of the employees. And again, we quickly mobilized and shut things down where we had to, shut factories down where we needed to till we could bring them up safely. And it was more of a difficult task on that side of it, but we didn't have a playbook for a pandemic, but the team really put one together and we'll memorialize that and pull it together for any future responses that we need. So it was really employee safety first, then making sure we're taking care of our customers, getting the factories back up and running and did all that quickly and dealing with the local governments [crosstalk 00:07:17].

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
So, and it different everywhere around the world, different rules. I imagine it's impossible to make decisions globally from a central location, or how did you handle this how much to delegate to local managers on the ground to make those decisions, what to shut down, what not to shut down and how much was decided at the top?

Rob Johnson, CEO, Vertiv:
That's a great question. First of all, we've got a, the way we're organized, is we have presidents in each one of our regions. So we empower them. Our employees are empowered and they empower down to their managers. So we did let them, it wasn't me at central command making all the calls, close this factory, don't do that. No, we entrust in our employees to do the right thing. And I was really proud of the response globally. And in each country, they had to follow a different set of rules. We had guidelines that we provide them and say, hey, work within this framework. If you can't, we need to talk about it.

Rob Johnson, CEO, Vertiv:
We had a daily, sometimes twice, three times a day, calls, where regions had issues or problems. That's where corporate gave support. And that's kind of how we operate. Corporate's not there to overrule and run everything down to the micro, at a country level. It's really there to provide guidelines, provide support, and be that help.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
And which adjustments that were made in response to the pandemic are you guys keeping for the longterm?

Rob Johnson, CEO, Vertiv:
Well, I think we've as a company really learned how to use the digital tools, right? And that was something that, I would say, would've taken years from a transformation perspective to get everybody to use Teams or whatever your favorite platform is, and that happened overnight, right? And so those types of tools, giving an example in it, happened to be where you just were in Croatia. Croatia's a showplace for us. So it's a really good place to take customers. And we had a situation where we had a very large hyperscale company that needed to get to our facility to understand our capabilities, tour it, tour our products. And we actually used the digital tools to take them on a virtual tour and as if they were there. So we really recognized between using the digital tools that we could be more efficient and more effective.

Rob Johnson, CEO, Vertiv:
So, those types of things we're going to continue to do, and get more customers to our factories virtually and have them have that almost real life experience without having to fly halfway around the world and schedule it six months in advance and spend tens of thousands of dollars in doing it. So I think that's one example of something that we've learned and will continue to drive through this COVID period. From a service perspective, right, being able to have cameras on site, have remote experts, use the digital tools as well, that's something that we just had to do because we couldn't get everybody traveling out there. So we had eyes-

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
What sorts of tools are you talking about?

Rob Johnson, CEO, Vertiv:
Yeah, so more cameras and more video and just more online or just in-time training from that perspective. So if we couldn't get one of our experts, because we were locked by borders, we were locked by, if we couldn't get an expert that we needed to fly in, we were able to do virtual sessions and have those service people work and direct or guide those boots on the ground to do the right things. And we hadn't done that in the past. So was almost a new way for us to think that we can have a centralized super tier four, tier five like support, and not have to have that necessarily deployed everywhere in the region because we can use the tools.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
So it's a lower cost way to provide essentially the same amount of service?

Rob Johnson, CEO, Vertiv:
Yeah, lower cost and maybe probably better service for the customer as well.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
As you mentioned, you guys went public in at the end of 2019, went public through a SPAC merger before it was cool. What's it like operating as a public company? Executives are normally happier when they're private without all the [inaudible 00:11:22] pressure.

Rob Johnson, CEO, Vertiv:
Yeah, well, I've been at both private and public and public does bring a different aspect, but for us, it was the journey that we wanted to go through. And so when I step back, when we started this spin out of [Emerson 00:11:38] about four or five years ago, the whole goal was to be the independent largest digital critical infrastructure company in the world. And we wanted to do that by being public. And the public markets had brought to us... We're an innovative company. That's how we position ourselves; innovation first, taking care of the customer first, of course, through innovative solutions. And when you're privately owned and our partner, Platinum Equity, was phenomenal in investing in the business. They really did in many ways. But we needed access to that capital, we needed to free our debt burdens, so that we could increase our R and D.

Rob Johnson, CEO, Vertiv:
And as I mentioned, innovation is our vector of differentiation. And so we've announced publicly and have been taking up our R and D. We hired thousands of people during the pandemic and continue to do so to boost our innovation side of things. So the public company side allowed us to do that. The SPAC, everybody's like, wow, [inaudible 00:12:34]. SPAC was a very efficient vehicle. And with the SPAC came David Cote, who's my executive chairman. And if you don't know David Cote, he's well-renowned for what he's done with Honeywell. He took Honeywell from about a $20 billion market cap to 120 billion over a period of 10 to 12 years.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
He the executive who's resuscitated Honeywell.

Rob Johnson, CEO, Vertiv:
Yeah, exactly. And so we've learned a lot from him too. So when he and I first met and talked about doing this SPAC thing and going public, and him being the executive chair, we want to make sure there was chemistry there. And we've learned a lot from each other, but I learned more from him and the company has, that things that we're applying today. So I would say all in all, with the exception of part of the public company headache stuff that comes along, it's been a great journey for us and continues to be that way. Our stock is performed in a way that I didn't think it would over the last year, year and a half.

Rob Johnson, CEO, Vertiv:
And we're up about, we were $10 when we came out. We're at $27 a share today; good return for the share owners, and allows us to do things. Our strategy is focused on innovation at first and not innovating just to innovate, but there's a lot of problems to solve in data centers. And secondly, organic and inorganic activity. And we haven't done much of the inorganic we did early on, but we haven't, but now we're in a position to, if there's something that we want technology we need or want to go after, we have the ability to go do that now.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
As you guys were preparing to go public, you said a lot about how this deal would enable you to do acquisitions that you weren't able to do under private equity ownership. So two questions here. What sorts of acquisitions looked attractive at the time? And second question, which is probably the answer is the pandemic is why haven't you done any since the merger?

Rob Johnson, CEO, Vertiv:
Sure. Well, a couple things. First of all, we did do three acquisitions under Platinum Equity. So we were able to buy some companies. And what we learned from doing that was we're not buying, we're not looking for companies just to take market share. We're looking for companies to provide us with additional capabilities that our customers need and want. We've become a very collaborative company, and we have a lot of partnerships. And so what I look for is a technology or a capability that we need as a company. That it's probably better to go and faster to go pick it up than try to organically create it, and find one that then we can put in our global system and really scale it. So whether it was Geist that we did early on, which has been just an incredible acquisition for us. We've taken them globally and grown that business threefold. Our [Eli 00:15:21], another big one that we did. That's what we're really looking for.

Rob Johnson, CEO, Vertiv:
So we've got, and we've talked publicly about this. We've got 50 to a hundred prospects. The types of companies we'll look at probably aren't other publicly traded companies, are typically entrepreneurially owned, and they're gems that are sitting out there that are providing some type of capability that the larger companies can't do. So we'll continue to look, and it is part of our strategy, but we wanted to first get public and take our debt, restructure that, and be able to get our liquidity where we want it. And now we feel like we're in a good position. So if the right thing comes along, we'll continue to evaluate those opportunities. We don't have money burning a hole in our pocket, but we have the, now capability, to do the right acquisition if it comes along.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
I see. So you haven't done an acquisition last year, not because of the pandemic, just because the right one didn't [crosstalk 00:16:26].

Rob Johnson, CEO, Vertiv:
Yeah, right. We're always constantly talking to companies. And sometimes, especially when you're looking at entrepreneurial-owned companies, it's emotional for them. Do they want to sell now? Is it the right time to sell? And there's usually a courtship, right? They want to get to know you. And a lot of these companies we'll partner with first, we get to know each other, and then they say, oh, it'd be great to be part of the Vertiv family. And that's kind of how we look at things, and the culture fits got to be there. So, I assume in the future, we'll be doing some things there.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
I wanted to ask you about the supply chain issues that everybody's experiencing now. You've said that the current issues have had an impact in Vertiv, but that you guys have been able to mostly mitigate them so far. Can you just give us a few examples to illustrate some of the... What were those impacts and how you've been addressing them?

Rob Johnson, CEO, Vertiv:
Sure. So there's the supply chain's been affected in a couple of different ways, I would say. One, just the COVID side and two, the growth. We posted in Q1, we haven't posted our Q2, yet we disclosed. But in Q1, we were over 20% year over year growth in both orders and in sales. So we've seen an increase in demand while we've had supply constraints because of factory shut downs in COVID. So there's that two punch hit going on right now. And I really like our team, our supply chain team, they got ahead of it early on and went out and bought things, gave purchase orders, even through 2022. That being said, things like, for example, fans. There's a few really, really good fan suppliers in the world.

Rob Johnson, CEO, Vertiv:
And we use a lot of fans in our thermal management units. And so those are constrained today. And again, we work through that on a day-to-day basis. It's no new news to anybody that the whole semiconductor space is just underserved and it takes a while for a few [fabs 00:18:26]. There's several of them from TI to TSMC have all announced new fabs going in, but it's going to take time until they come online. So there's been a chip shortage as well. The automotive electrification sucking down a lot of chips. Lithium-ion batteries have been an issue, and then you fight all that, and then you've got commodities going up; steel, copper, everything like that. So it's kind of a market's red hot, people want the products, prices are going up and you can't get that stuff, and it's a perfect storm.

Rob Johnson, CEO, Vertiv:
So what we've done is really communicated with our customers and people understand that. Concrete, trying to get concrete plastics. There's all kinds of issues. I've actually been under construction at home since COVID, and it's just and I'm going to be there for another year just trying to get plywood or things like that. And so, but I think we're managing well. It's a day-to-day thing and it's working with our customers and it's ordering ahead. It's being smart. It's adding second suppliers, which we've done as well. Engineers work really hard to get alternate parts put in our product so that we can keep our customers happy and up and running. But for anybody to say it hasn't impacted their customers or still isn't going to for a while, they're fooling themselves because it's globally you can see it happening.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
And so in addition to longer lead times, I think you mentioned the cost has gone up. Also, you said you would look for ways to pass that cost onto customers, if I understood it correctly. Can you give us some examples of products that have gone up in price or will as a result of all this and by how much? What sort of cost increases are we talking about?

Rob Johnson, CEO, Vertiv:
Yeah, well, I would say in general, our customers and partners are pretty good about understanding what's happening in the market. So, across the board, you would look at certainly distribution and I think there's been some things publicized that distribution prices in the IT distribution channel have gone up. And distributors and our resellers, they like that in some ways, but we follow the market. I don't want to say follow, we follow and lead. Where we have a lead position in a product category, we'll lead on price, where we have not so strong position, we'll take price, but we'll monitor.

Rob Johnson, CEO, Vertiv:
We're pretty sophisticated and even prior to the pandemic in how we get price and we use some tools, analytics to be able to understand, hey, if I'm a salesman in this part of the country, I'm selling at this price, and I've lost at this price, and compared to this part of the country where somebody's selling. So our sales people that can actually go into our systems and say, okay, here's the suggested price that I want to give the customer. And it will say, well, at that price, you'll probably lose the order. At this price, you're too cheap. And so using tools. So I think in general, the customers, they need the product, but we're not one of those [inaudible 00:21:30] companies that's out there gouging people.

Rob Johnson, CEO, Vertiv:
We're just trying to recover what our costs are that are going up, so that we can take care of our share owners. And so we've done it pretty methodically, and it's been across the board. We have a big backlog and those things are hard to reprice. But one area that I think all companies look to is freight. Freight has gotten very expensive; shipping containers, if you can get one. Over-the-road freight, bought freight. And so those are things that customers understand, that, hey, the price goes up, they're paying for raw materials in other places that... They kind of expect that. But I think it's something we do pretty precisely, and we try to do it in the spirit of partnership, so that we're not taking advantage of our customers at this time. And I've seen other people do that, and I've seen suppliers do it to us as well.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Sounds like you take it at a case by case by case basis and manage it on that level.

Rob Johnson, CEO, Vertiv:
Absolutely.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
I'm interested in the hyperscale versus enterprise data center dynamic nowadays. How would you characterize the mix of revenue you guys get from enterprise data center sales, versus hyperscale today? I know maybe even a year ago it was heavier. You had a lot more revenue coming from the enterprise than hyperscale. What's it like now?

Rob Johnson, CEO, Vertiv:
Yeah. So if you break down our company, we're about 70% in what we call the core data center space. We're about 20% in the telecom, which is different than a lot of our competitors that you might know about. And then we're 10% in commercial industrial. So of the 70%, typically it was around 70, 80% that would be kind of enterprise/Edge, if you will. And then the other portion would be [Colo 00:23:24] and hyperscale. And we intermingle Colo and hyperscale just because there's a lot of hyperscale people using Colos in other parts of the world to build their data centers out. So that's an area. So I would say, what we talk about in the market are certainly the hyperscale and Colos growing much faster than the enterprise.

Rob Johnson, CEO, Vertiv:
Enterprise, we don't have the data for 2021 or 2020 yet. But just from what I've seen, it shrank in some areas, was flat, maybe up a percent in some others, depending on the parts of the world. Colocation and hyperscale, we see growing at double digits. So our mix is probably of the, call it, a hundred percent data center business, probably 30% of it's now Colo-hyperscale and maybe 70% of it's still core enterprise. There's a lot of data centers out there as you know. A lot of service revenue coming from those data centers. And while a lot of people have said death of the data center, we see the data center, we really call it reconfiguration and going to hybrid. And that plays really well to us. But we like the growth we see in the hyperscale and the Colo. We think that continues globally.

Rob Johnson, CEO, Vertiv:
And that's where Vertiv really plays a great position because unlike the early days where people wanted to build snowflakes, different data centers, different equipment, different parts of the world, people really wanted to standardize now, and Vertiv's one of the few choices that can provide the entire suite of products and do it in 130 different countries. And so we're getting a lot of traction with that. The modular stuff, as I mentioned to you, was something that is really picking up both on the enterprise and in the Colo and hyperscale, and our route to that came out of Croatia, but we've now expanded the capabilities in the US and Asia Pacific. So we'll continue to see that modular [prescaled 00:25:12], prefabricated built in the factories and then shipped on-site.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Because hyperscale and Colo is growing so much faster, what sort of things have you guys done to align your products' business strategy to go after that sector more aggressively?

Rob Johnson, CEO, Vertiv:
We had two parts to our thesis when we acquired this company, when I was with Platinum and we acquired the company from Emerson. One was we've got to grow in the hyperscale and Colo space. We got to continue to take share in enterprise, and we've got to grow the IT channel. That was really our simple strategy, that we continue to talk about it publicly all the time. That's what we're doing. It's no secret. But how we've done it is a little bit of the magic. So, by increasing our R and D spend, and like I said, we're going from 3% of revenue to 6%, so doubling that. We've been able to drive what we call collaborative partnerships. So, for example, with a hyperscale or we work with them, or Colo, on their unique needs and put... not instead of in the past, it would have been we just tried to sell them a widget, right?

Rob Johnson, CEO, Vertiv:
Now it's let's collaboratively design what you need two to three years from now. And by the way, I'll put special R and D resources on it to make that come true. That seems to really resonate with our customers, because typically a hyperscale or even some of the large colos, they want their cake the way they want it, right? They don't want all chocolate or all vanilla, they want it done special and they think they have some sauce and they do. So we've expanded that, put more and more application engineers and really driven that collaborative partnership to help them accomplish their needs.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
So you're talking about custom power or cooling systems that you guys help them design. And then who owns the IP after that?

Rob Johnson, CEO, Vertiv:
So typically, what's our IP is our IP, what's their is theirs. Some of these partnerships, when you come together, there'll be some joint IP, if there is IP developed there, there'll be some joint IP. And so we just work through it case by case, because they're not a specific case. It's one better than the other. But I'll give you an example. Outside the US, it gets more and more difficult to finding data center experts and talent, even general contractors, to install this stuff. So we'll find ourselves creating modular solutions that can ship anywhere in the world and be assembled with the skilled labor that they have that maybe is trained on doing data centers.

Rob Johnson, CEO, Vertiv:
So we've got to foolproof it, and that causes us to really do more modular, more pre-integrated, prefabricated systems. And then so that's been done through a partnership. But I wouldn't say we're going to make anything anybody wants any way. We typically have a base building block of a power system that then if somebody wants it done this specific way, or this type of firmware, it to be grid interactive, those are things that we'll do. We'll make software and firmware changes within our products to accommodate their potential needs. But we've grown to that collaborative partnership, and it seems to have worked really well for us.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Has there emerged a sweet spot project hyperscale project for you guys? What do hyperscalers come to Vertiv for today?

Rob Johnson, CEO, Vertiv:
It's changed so much over the last four years. I would say they certainly they come for the integrated power solutions and the thermal management. We are one of the few companies of our size, I'd say the only one that has thermal management [inaudible 00:28:52], for example, globally, which you'll find is niche players in certain parts of the world. But my traditional competitors, our larger competitors would not have that. So, the integration of our thermal management. And what makes ours special is the ability to not use water with one of our systems.

Rob Johnson, CEO, Vertiv:
It's a patented system. And water, as you know, is a scarce resource in parts of the world. So being able to ship that type of product and have that available is something that's super interesting because the whole ESG thing that's going on, people are very concerned. It's also very efficient and effective. So, that would be one. I think where we really went out and what they like about Vertiv is our service organization. We have over 3000 field service people working day in and day out, and this equipment's going to break at some point in time. It's going to have an issue. And I think that's where Vertiv really shines in the ability to take care of them, have people local and get them back up and running when something does happen.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
So even hyperscalers or Google or in Amazon, even though they like to do a lot of things on their own, they still like to be able to call somebody to come fix their cooling system or something?

Rob Johnson, CEO, Vertiv:
Absolutely. And there are certain things they can do themselves on maintenance and there's certain things that the manufacturer would have to do. I think what's happening right now, which is pretty exciting is as cloud continues to build out globally, and there's a lot of growth left there, the advent of the edge is really happening now, and that's where you can get really innovative. And you've got to, we're finding that the Edge, in some cases, is more critical for uptime than we do see some of the cloud stuff where they just fail over from one cloud to another or one data center to another. The Edge because of latency and so on is become really a big topic and we'll see that next wave. We've been talking about it for a while, but we're actually doing deployments.

Rob Johnson, CEO, Vertiv:
And our thermal management, our complete system approach here works out perfectly because we can give you an example for a large telco. It's [inaudible 00:30:56] name, but we would provide them in the past just some gear and they would go out and assemble it onsite at the cell tower. Now, we ship entirely integrated thermal management power, securely, all the radios get inserted. And so when it arrives onsite, it's literally a day, hook it up and they're done and go. So those are some of the types of things that are changing and more demand for a complete system rather than just the parts.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
As you mentioned, you've been spending a lot of money on R and D. I think last year, was it 230 million?

Rob Johnson, CEO, Vertiv:
Yes. [inaudible 00:31:27].

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Which technologies did that investment focus on?

Rob Johnson, CEO, Vertiv:
So we focused really on all of our core categories. So, from thermal management, continually looking at new systems, new designs. You've heard and seen some about emerging cooling, chip level cooling, certainly spending time in those areas. We've talked about that publicly. Additional more efficient systems. So thermal has had a lot of attention, but the power side as well; power distribution, busway systems and how we distribute the power. One of the most innovative things we have is our rack Mount PDs. We have a patent around our universal power distribution unit that you can buy one type and use different cord to plug it in anywhere in the world.

Rob Johnson, CEO, Vertiv:
So continue to try to simplify, standardize the software and services is another area that we continue to invest in. So it's a combination of things. Grid connected UPSs is really important. When I say grid connected, the ability to operate that within a micro grid or be able to put power back on the grid. Those are things that are very public and things that they expect us to be doing, and continue to squeeze out efficiency as we go through it. But those are some of the things that we've been spending our R and D dollars on.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
I did want to talk a bit in more detail about the grid interactive UPS. What's the opportunity you guys are seeing there? I know you featured, it was one of the featured products on your last earnings call along with the immersion cooling. Just talk to me about the grid interactive UPS. It seems like something that's only now most people are just starting to talk about or recently started to seriously talk about. It seems like there's more momentum behind this in Europe than here in the US. Just give me an overview of where you see things there.

Rob Johnson, CEO, Vertiv:
Yeah, it is something that... You're absolutely right with the momentum in more so in Europe. And as people think more and more about getting to their carbon neutral or carbon negative, they've really got to look at a variety of things and how they can save energy. And so with the grid interactive UPS, the first step is just the ability to select, turn off the grid and use battery. So you could either do it during peak shaving or just use less electricity. Now, the advent of lithium batteries have really made this possible because with lead acid batteries, you'd wear those batteries out too quickly doing that.

Rob Johnson, CEO, Vertiv:
So a couple of things have happened. Lithium has become pretty prevalent in the data center today, and then the ability to interact and go on battery for a period of time during peak sessions and so on, and not have to pay those heavy spot rates for electricity and, or do their part in conserving and using it at the right time of the day, especially some of the data centers that are integrated with renewables.

Rob Johnson, CEO, Vertiv:
Solar's great during the day, but doesn't work so well at night. Wind tends to blow more at night than the day. And so interacting and getting the right source. We announced a partnership with Honeywell in doing a controller that would allow you to select the best source for fueling your... powering your data center, whether it was a fuel cell or using the wind or using the solar... or using the grid itself. And I think you'll see more and more people's willingness to use their system in that way. Early on, people said, no way, this is my insurance policy. It's going to keep my data center up and running. I'm not going to mess with it whatsoever.

Rob Johnson, CEO, Vertiv:
And I think now people are saying. I can't get to where I need to get to, unless I think creatively and think about different power sources, thinking about using my system for more than just if the power goes out, I'm going to keep everything up and running. [inaudible 00:35:30] how can I interact and save and be more efficient and effective. So we're seeing, this is just early stages. I think that the whole energy storage, which is an area I played in for the last 10 years plus back to my [inaudible 00:35:44] days.

Rob Johnson, CEO, Vertiv:
And I think that that's early stages, but as lithium prices come down, as new battery technologies come out, we'll see the replacement of things like peaker plants, right? You don't need a peaker gas-driven power plant when you can utilize batteries and inverters that we make that allow us to connect there. And so that's no different than us powering, let's say, a data center. So a lot more people thinking about the alternative energy, the green energy, and then multiple energy sources. So there's a lot of work still to be done there.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
And what sort of timeline are you envisioning here? So you already have the product, if it does become a mainstream approach, when do you think that's going to happen? And also, I assume this is hyperscalers that are mainly interested in this kind of thing today.

Rob Johnson, CEO, Vertiv:
Yeah, well, no, I would say it's more open to more than just hyperscalers. I think Colos are definitely interested in that as well. They've got a [ESG 00:36:41] initiative as well. Like anything, some customers, first movers, move quickly. People watch that. They talk about it. I think it's going to take several years, but we've seen some certain customers spec this now; hard spec and say, "I've got to have a grid interactive UPS capability." And if you don't have that, they may not be using it, but if you don't have it. So they're, future-proofing their infrastructure by making sure they at least have the capability, whether they use it or not, that's dependent. So I think it's going to take several years like anything does in order to see kind of a full adoption of this, but it will happen over time for sure.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Now, immersion cooling, which is another new thing you guys introduced recently. This is where you put a server inside a tank full of engineered fluid. If the solution has been the idea and the solution has been out there for a while by other companies, smaller ones, what was it that made you guys decide, this is the time to do this, and also not just buy another company, but roll out your own?

Rob Johnson, CEO, Vertiv:
Yeah. So we've done some partnerships here. So, and that's one thing that I was talking about earlier, that not always do we have the technology, so we'll partner with other companies, and then we'll do what parts of it what we do best. Immersion cooling is in its early days, right? But if you can drive in more efficiency and effectiveness for high density computing, it makes a lot of sense, right? It just it does, and it's just a more efficient system. And part of our thoughts are, and people [inaudible 00:38:27], but Rob you do air cooling systems, and now you're doing immersion. Is this going to disrupt and destroy your other [inaudible 00:38:34]? Immersion's going to happen over time. There's so many data centers out there that aren't physically set up and capable of doing immersion today.

Rob Johnson, CEO, Vertiv:
And we're looking at how do you retrofit a current data center with those immersion blocks. I think you're going to see a lot of it, it started really, got popular with Bitcoin, because they're running such high densities. So, that's kind of where we really began to pick off. And then when you did the high density or high performance compute, it began to make sense there. There's been... I got to back to the early days and I'll date myself in IBM and mainframes were liquid cooled back in the day. So it's not a new thing, but it's something that I think as people look to build out data centers and depending on the application and the compute that they're working on, if it's super high density, it makes sense to maybe make that part of the data center with immersion cooling.

Rob Johnson, CEO, Vertiv:
And there's two types. There's a single phase and a two phase. We're involved with both. I would say that the key thing is that we need to make sure that the process to make this fluid is environmentally friendly, and traditionally it necessarily hasn't, but I think a lot of the providers of fluid have come up with alternative ways to make it more friendly. Because last thing you want to do is say, yeah, I'm saving efficiency over here, helping the environment, but the process of making the fluid is 10 times worse. Well, you're not doing the right thing for a carbon neutral or negative.

Rob Johnson, CEO, Vertiv:
So things are changing involving there and it's going to happen over time. We've seen people playing with water-cooled racks, not full immersion, but water-cooled for years. And it's got its own pluses and negatives as well. But I think over a period of time, I won't see data centers all immersion or all chip level cooled. I think you're going to have a combination of zones within a data center, unless it's just a high performance data crunching data center and they say, okay, I want to do full tanks everywhere. But that's what we're seeing today. People are in the early stages.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Yeah. It's just it's a really small niche today. Bitcoin [inaudible 00:40:43] Bitcoin is not small, but in terms of traditional computing, it's a pretty small niche, especially immersion; full immersion. So, do you think it will remain a niche maybe perhaps bigger than it is today? But how mainstream do you think it will be?

Rob Johnson, CEO, Vertiv:
I think it will be a mainstream offering. Again, I don't think everything goes that way, but I believe that it becomes more mainstream for various applications and compute instances that people want. So, but it will take time, right? First fluid spill on the data center floor and then people are going to be okay. Some of that single phase stuff, it's pretty messy to clean up if there's a spill or if there's a problem. So I would say that it's as anything happens, it's going to take time, but I think that it'll be an area that we'll participate in and we'll see it grow over time.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
And last question around software, what are you guys doing on the software front, namely analytics? You can collect a lot of operational data from data center facilities, make it available to people. You guys have been doing that for a while. You've been doing some basic analytics. What's your strategy maybe long-term or medium-term for making that data useful for customers using the more advanced, more modern things like AI and things like that?

Rob Johnson, CEO, Vertiv:
Sure. Yeah. Great question. And our focus, you're right, we've been collecting data for a long time. We've got a lot of connected sites, tens of thousands of them, where we collect that data and bring it in. It wasn't until last, probably a year or two, that we began to think about AI and, okay, how can I... There's two things that have to happen. I've got to censor my equipment properly. So we started a couple years ago and looking at, okay, where can I put sensors within equipment to get the data I need to do predictive failure analysis? How do I know a fan's going to fail? Right. Well, fans make certain noises potentially that you know the bearings are going bad or they're going to fail at some point in time.

Rob Johnson, CEO, Vertiv:
So getting the product censored upright is the first and foremost, and being able to get that data back to a data lake somewhere securely is very important as well, especially with all of the stuff that's going on out there around security. Once we have that data, really taking that and utilizing that to really optimize how we look at things from a particular failure analysis, but also how we optimize the actual running of that equipment. We've been doing AI within the data center thermal management space with our iCOM-S product for a long time, where we have all our units hooked up through this software.

Rob Johnson, CEO, Vertiv:
It's actually on the side. It begins to learn the data center and understand when things turn up and when things turn down. And so we've been using data like that for a while. And you'll continue to see more of that, whether it's with powertrain in how we do things. So what we don't necessarily talk about and advertise, but when we do talk to our customers, we are taking data and utilizing that to be able to really better service them. And we think there'll be more and more analytics rather than just doing preventive maintenance, arrive onsite with the part, knowing exactly what you got to go fix, and data can certainly help there. So, make the system more efficient and allow us to do really predictive failure analysis and fix things before they break.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
So you guys have, I don't know, a strategy formulated around this, around building predictive capabilities over time?

Rob Johnson, CEO, Vertiv:
Absolutely. Absolutely do. And we've though, let me just give you one example, just an extreme amount of data on batteries and understanding the different manufacturers and how they perform, how these batteries performed over the last 10 years. So that's an area. First and foremost, batteries are a problem in the data center. So understanding those and taking that pain out and knowing, hey, [inaudible 00:44:46] replace them every three years, we're going to replace them when they need to be. Maybe it's two years or maybe it's five years. So that's an example of data and things we've been doing for a while. And those are the types of things we can do, I think, going forward and we've certainly invested, and we stood up and I think we announced we hadn't had a CTO, right?

Rob Johnson, CEO, Vertiv:
It's been like the office of the CTO, but Stephen Liang became our recent CTO about a year ago. And we've through our side of things really have stepped up our spending around analytics, data, cooperation with universities around the world, and building those partnerships and we continue to do that. And so I'm really excited about the things that are going to come out of our software strategy. We've also, one of the things we did announce as we were working with Honeywell, we announced one thing that we're working on them, but I've talked publicly that a broader partnership there. They've got a lot of big analytics and software capabilities. And through that partnership, we'll collaborate and work on things together that will drive more value to the customer and drive their systems and make them more efficient.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Rob, thank you so much. That's all I have. Thank you for talking to me for such a long time.

Rob Johnson, CEO, Vertiv:
Yeah, no, that's great. No, it's great to talk to you and glad you had a good trip to Croatia and look forward to catching up with you. I really appreciate your time today.

Yevgeniy Sverdlik, EIC, Data Center Knowledge:
Thank you.