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Happy New Year! This always marks an opportune time to look back and reflect on the previous year and make predictions for the upcoming one. Possibly the only thing certain about 2023 is it’s to be filled with uncertainty. After two years of Covid-related lockdowns, the world appears to be fully open with China lifting Covid restrictions in early 2023. Supply chain constraints, although still present, are easing. At the same time, the global economic outlook remains uncertain as central banks around the world raise interest rates in an attempt to reduce inflation. But before we dive into our 2023 outlook, let’s review our 2022 predictions.

Last year, we made three predictions for 2022:

  • Plans to Reach Long-Term Data Center Sustainability Goals Begin to Materialize

This absolutely occurred, as sustainability became the number one topic for the data center industry in 2022. Energy efficiency, heat reuse, and water consumption were publically discussed topics, with regulators and industry stakeholders all getting heavily involved. At Dell’Oro Group, we published a whitepaper on Achieving Sustainable Data Center Growth and identified sustainability as one of the leading drivers of growth in our July 2022 5-year data center physical infrastructure forecast. The topic of data center sustainability won’t be going away anytime soon.

  • Liquid Cooling Adoption Momentum Continues as POC Deployments Proliferate and Early Adopters Begin Larger Roll Outs

Momentum for liquid cooling did not continue, it accelerated, with revenue growing an estimated 54% to $259 million in 2022. Most importantly, the ecosystem of IT equipment manufacturers, system integrators, and data center end users are understanding the high-level value proposition and need to plan for liquid cooling solutions in the near term. This means a growing ecosystem of products and solutions to be born in liquid are quickly coming down the pipeline.

  • Supply Chain Resiliency and Integrated Solutions Drive Mergers, Acquisitions, and Partnerships

This prediction didn’t turn out as expected in 2022. Supply chain constraints and inflation outpaced nearly everyone’s expectations. This has led to rising interest rates and economic uncertainty, with DCPI vendors focusing on internal operations and execution. Legrand’s acquisition of USystems to add thermal management infrastructure to their portfolio came the closest to the M&A activity we expected to see more of. Where we did see significant activity in the M&A space was from private equity (PE) acquiring ownership in data center colocation providers to help finance their capital-intensive data center expansion plans.

Now, looking ahead to 2023, Dell’Oro Group is predicting the following for data center physical infrastructure in 2023:

Prediction 1: There will be no data center physical infrastructure recession in 2023

As a result of increasing inflation throughout 2022, central banks around the world have been raising interest rates, leading to macroeconomic uncertainty in 2023. This resulted in tech-related layoffs in 2H22 which have continued into early 2023. However, these have primarily correlated to the consumer-linked segments of these tech companies so far. There have been a handful of data center construction jobs canceled or rescoped, but we believe record low data center vacancy rates and historically high DCPI vendor backlogs will ultimately drive market growth in 2023. Currently, our preliminary forecast for 2023 is an estimated 9% Y/Y DCPI revenue growth.

Prediction 2: Power availability will force a rethink of data center energy storage and on-site power generation architectures

Data center sustainability has largely been focused on the topics of energy efficiency, reducing water usage, and enabling heat reuse so far. The topic of power availability has been discussed to a certain extent, but we predict it will become increasingly discussed in 2023 as power constraints in key markets inhibit new data center construction. We predict this will materialize in altering data center power architectures in three ways.

The first way this will materialize is in long-term energy storage deployments, namely lithium-ion batteries in the duration of 2 – 4 hour runtimes. Historically, backup energy storage for data centers has been in the runtime of 5 – 10 minutes. However, with increasing renewable energy deployments and grid-interactive UPS capabilities, the benefits of long-term energy storage are becoming clear.

Second, the conversation on hydrogen fuel cells will continue to evolve. The “EcoEdge PrimePower” (E2P2) project, led by a consortium of seven organizations including Equinix and Vertiv with funding from the Clean Hydrogen Partnership, is due for a major milestone, and test, in 2023. Vertiv is expected to release a proof-of-concept fuel cell solution, combining a 100 kW fuel cell module, a UPS, and lithium-ion batteries.  The potential success, or lack thereof for this project, will have a major impact on the timeline and potential use of hydrogen fuel cells in the data center industry.

Lastly, a new entrant into the power availability conversation for data centers, SMRs, or small modular nuclear reactors, with power generation capabilities from 50 – 300 MWs will garner increasing mind share. SMRs can theoretically generate an appropriate amount of reliable electricity for data centers, in a relatively small footprint with zero scope 2 carbon emissions. This makes their development intriguing for the data centers industry, where they could potentially evolve into the holy grail of sustainability-minded on-site power generation. We won’t see any deployments until the end of this decade at the earliest, but the data center industry will start laying the groundwork for what that will look like.

Prediction 3: A major hyperscale will make the plunge with a 10+ MW immersion cooling deployment

Our 3rd and final prediction for data center physical infrastructure is related to liquid cooling. We’ve seen significant momentum for direct liquid (coldplate) and immersion cooling technologies in 2022. The one thing missing for immersion cooling and what we are predicting we’ll see in the second half of 2023, is our first public, large-scale immersion cooling deployment from a top hyperscale cloud service provider. This will serve as a breakthrough moment for immersion cooling and help set the stage for mainstream adoption in the years to come. This doesn’t mean that momentum in direct liquid cooling will slow, or that air cooling is going away anytime soon, but the transition to liquid cooling will certainly get underway.

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What’s next for Data Center Physical Infrastructure market in 2023?