The Hidden Collateral Benefits (and Risks) of Data Centers
The gold rush in data centers is creating once-in-a-lifetime opportunities for manufacturers and service providers of all sizes. But trying to capture that business comes with risks.
Optical fiber. Modular turbine generators. Prefabricated cable trays.
These aren’t the first things that come to mind when people think about data centers, but—in a little-noticed but big development—they’re the literal building blocks of a multitrillion-dollar race. The gold rush in data centers has created many negative headlines, but it is also creating collateral opportunities for manufacturers and service providers of all sizes, from S&P 500 firms to private-equity-funded midsized companies to small, family-owned contracting firms. At a conference recently, one major manufacturer projected revenue of $500 million this year from cable, insulation, and other equipment related to data-center construction, with sales of those products growing by double digits annually.
Dustin Ogden, leader of the Industrial and Specialty Distribution practice at Korn Ferry, says leaders in field services, facilities maintenance, logistics, and other businesses across the spectrum are faced with a once-in-lifetime conundrum. “There are billions of dollars in capital trickling down from data-center construction for them to capture,” he observes, “but there are also billions of dollars in costs at risk.”
The risks come mainly in the race to source centers. Right now, for example, demand for steel racks and HVACs is at an all-time high. But sourcing those products, and the materials for them, is harder than ever. Supply-chain distribution has elevated steel prices and pushed out HVAC-equipment deliveries to as many as 40 weeks. It’s the classic scaling-versus-managing-costs tension at its most extreme, notes Ogden.
He says leaders are rushing to put in orders to secure material and contracts, but “costs could get quickly out of whack if you are on the wrong side of those deals.” The risks include the closing of a major international trade route, regulatory changes intended to slow data-center construction, or suddenly having the majority of revenue tied up with one client, all of which can change a firm’s entire financial calculus. “You have to know what you are getting into,” says Ogden.
One of the biggest challenges downstream infrastructure firms face in managing the data-center boom is finding enough skilled people to carry out the work, says Scott Bae, a senior client partner who specializes in industrial tech within the manufacturing practice at Korn Ferry. “There’s huge demand for thermal-management leaders, electrical-engineering leaders, and other professionals with on-site capabilities to build systems out,” he says. He points out that integrated racking systems for power and cooling make data-center construction fundamentally different from other types of infrastructure: These systems “require a complete tech pivot,” he says, involving such things as moving from dry cooling to direct-to-chip liquid cooling.
Neil Collins, global industrial market lead in North America for Korn Ferry, agrees. Firms are looking for leaders from other large-scale infrastructure projects—like ports, airports, and energy and oil plants—to build teams, he says. Pointing to the increase in mergers, acquisitions, and joint ventures across every link in the data-center construction chain, he notes that firms are partnering with other organizations to fill gaps around talent and operations. “Demand surges don’t last forever,” he says, “and firms need leaders who can capitalize on them to create durable businesses.”
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