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Brexit: Datacentre investments set to slow as economic stability concerns hit CIOs

As the economic uncertainty around Brexit continues, CIOs may put new datacentre investments on hiatus, warns analyst

The uncertainty blighting the UK economy in the wake of Brexit vote could prompt CIOs to call a halt to their datacentre refresh and consolidation projects until the situation starts to stabilise.

Speaking to Computer Weekly, Andy Lawrence, vice-president of datacentre technologies and eco-efficient IT at 451 Research, said the economic instability caused by the outcome of the European Union (EU) Referendum may prompt CIOs to review their datacentre-related capital expenditure (Capex) plans.

“The biggest issue right now is the uncertainty, which is likely to lead to some CIOs putting the brakes on their Capex investments,” he said.

“There is a real possibility we are going to get a hiatus and a small drop in demand [for datacentre services] in some areas, such as financial services.”

As previously reported by Computer Weekly, the fall in the value of pound against the US dollar since the results of the EU referendum were announced on 24 June 2016 has already resulted in price hikes for cloud users and seen the cost of datacentre hardware rise by around 10%.

While it is likely the economic situation will stabilise in time, as the details of how the UK plans to extricate itself from the EU start to emerge, CIOs should tread carefully in the meantime, said Lawrence.

“I would advise CIOs to at least stop and have a serious discussion about [what this means] and – if they think it’s going to have a serious impact – hold back for a few weeks, but the overwhelming likelihood is that not a huge amount will change in the longer term,” said Lawrence.

“The Brexit camp are of the view that, ultimately, the economy will be stronger. That’s a matter of interpretation, but I would personally say proceed cautiously, and there is a strong possibility that nothing will really change from a datacentre perspective.”

Brexit an opportunity for continental datacentres

Datacentre industry watchers have demonstrated a cautious optimism about what the long-term impact of Brexit will be in recent days, with several pointing out that demand for colocation space tends to go up during times of economic strife.

What is unclear is if the bulk of that demand will be for sites in the UK or in the EU, particularly as the number of enterprises outlining plans to move their operations to the continent in the wake of the Brexit vote grows by the day.

“I’ve spoken to several colocation providers who said they are watching how the situation unfolds carefully. One has set up a formal risk assessment team to keep tabs on the situation, but all said they have had customers calling them to ask what this all means for them,” he said.

“People are definitely wary of what to do next, and the truth is it largely comes down to what your political take is and how optimistic your view of things is.”

While Lawrence said it is unlikely we will see an immediate “lift and shift” of datacentre workloads from UK- to EU-based facilities, over the next 20 years or so there is a chance that could change.

“What you can say for certain is that datacentres in places such as Luxembourg, Norway and Ireland will see Brexit as an opportunity and will go into major overselling mode to lure people away from the UK,” said Lawrence.

“I did a tour of datacentres in Luxembourg and the sales people spent most of their time selling their sites against London, Paris and Amsterdam, and mostly losing for reasons such as latency. This will give them something to sell with.”

Efficiency expectations set to remain same

Much has been made of how leaving the EU is likely to impact on the UK’s environmental policies, but Lawrence doubts the datacentre community will notice any big changes to the way they are expected to behave.

The European Commission has invited datacentre operators since 2008 to commit to taking steps to tackle the collective rise in energy consumption happening in the industry through the launch of a code of conduct.

Participation is voluntary, and UK enterprises and operators currently make up 39% of its members, but those from non-EU countries – including the US, Taiwan and Switzerland – also feature on the list, suggesting Brexit will have a negligible impact here.

“The EU Code of Conduct is a good aspiration, but doesn’t really have anything to do with new datacentres because they are already built to the standards outlined in the code or higher, in many cases,” said Lawrence.

“If you were going to build a datacentre in the UK today, you would aspire to do it as efficiently as you could. You would adhere to legislation [in this area] that would mostly mimic the EU anyway.”

One area operators should be concerned about is what leaving the EU will mean for the future of the raft of datacentre-related research projects funded by the Horizon 2020 initiative.

“I can’t see how that won’t be interrupted in some way over the next two years, which will be a shame for the universities that were able to support quite a lot of research into datacentre energy use and optimisation, as they will probably lose out on some of those projects now,” he added.

Read more about Brexit

  • Industry watchers expect sterling’s position to remain weak against the US dollar, prompting speculation that US IT suppliers may increase prices.
  • The UK IT sector reacts with alarm, tempered by a calm pragmatism, to the British Referendum verdict to leave the European Union. Reporting by the Computer Weekly team.

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