Tier 1: Oversupply Fears Are Unfounded

antonio-piraino

Antonio Piraino, Research Director at Tier 1 Research, gives the keynote presentation at the Hosting and Cloud Transformation Summit.

LAS VEGAS - Are we in the midst of another Tech Bubble?  And is there too much data center supply?

Antonio Piraino said those are two of the most frequent questions he hears about the data center sector, both related to memories of the severe industry downturn of 2002-2003. Piraino, the Research Director for Tier 1 Research, had reassuring answers to both questions in his keynote presentation Monday at the Hosting & Cloud Transformation Summit (HTCS) event at the Bellagio.

"We keep being asked this question: are we in oversupply?," said Piraino. "The short answer is no. There has been a large amount of supply coming online, (but) we still see demand outstripping supply. We do not see oversupply in this market."

Longer Sales Process

Piraino said data center inventory in some markets is being affected by the pace of customers' process of evaluating space. "We are finding it's because enterprises are more elongated in the decision making, but it's not because they don't want to (lease space). "

Many data center analysts have long memories of the overbuilding and data center glut from the dot-com bust of 2001-2003. In recent months, some industry watchers have expressed concern about growing inventory in areas like New Jersey.

That data center glut grew out of the bursting of the dot-com bubble in 2001-2001. Recent valuations for social media properties have led some pundits to conclude that there's another tech bubble on the horizon. Piraino says there's a reasons to be cautious about a tech bubble, but that doesn't translate into big problems for the data center sector.

Less Debt, Smarter Building

"There's a fundamental difference from 12 years ago," said Piraino. "Yes, we are in Tech Bubble 2.0. A lot of this tech bubble is driven by social media.

"Back then, people were buying companies based on PowerPoint presentations," Pirano noted. "Companies were incredibly leveraged. Now people are tightening their belts."

Piraino also noted that data centers are now built differently. Improvements in phased construction, along with limited access to capital, have limited the prospect for overbuilding. That discipline, he said, adds up a very different level of risk exposure to a downturn in the startup and social media sectors.

Perhaps the best expression of Tier 1's confidence: it projects that spending on Internet infrastructure will grow from $44 billion this year to about $58 billion in 2013.