After years of competition with state-owned giants, China’s private data center operators are starting to observe overseas.

data center company

The Chinese data center market is still growing at a healthy rate, but as new private players come in, it becomes increasingly difficult to make money. According to the forecast of CAICT, a Chinese government research institute, China’s data center market will be worth 150 billion yuan in 2021, and will grow to 190 billion yuan in 2022; at the same time, the total number of racks will increase by nearly 30% to 6.7 million this year.

 

China’s data center market is still dominated by the three major telecom operators, who accounted for 54.3% of the market in 2020, with other independent operators accounting for 45.7%. The latter’s market share has been bouncing back between 40%-45% for most of the past decade.

 

Experts say private operators lack strong support compared to large state-owned operators, but they make up for it in terms of flexibility and diversified business models. They also attract big internet customers like Douyin owner ByteDance, as well as small and medium-sized businesses.

 

However, they are still quite small individually, the largest of which is Nasdaq-listed GDS Holdings, which has a market share of just 5%. Backed by investors such as Sequoia China and strategic partner ST Telemedia, the company’s growth strategy has been to acquire a group of smaller companies each year to increase revenue and scale.

 

GDS is targeting Southeast Asia, and it has formed a partnership with Malaysia’s YTL Power Company to jointly build a 168MW capacity. The first center is located in Johor, adjacent to Singapore, with an area of 18,000 square meters and is expected to start operations in 2024. CEO William Huang said on the company’s first-quarter earnings call that it sees “enormous potential” in the region thanks to a population of 600 million and a large number of unicorns.

 

GDS has allocated a quarter of its capital expenditure budget – RMB 2 billion to projects in Southeast Asia, another RMB 6 billion to the local market, and RMB 4 billion to mergers and acquisitions.

 

However, GDS is still at a loss. It posted a deficit of 373 million yuan in the first quarter, and revenue rose 32% to 2.24 billion yuan. EBITDA was RMB 1.05 billion, up from RMB 818 million a year ago, with a profit margin of 46.9%.

 

The company aims to add another 90,000 square meters of data center operating area this year, up from 492,000 square meters at the end of 2021.