The data center operator has forecast 30% revenue growth this
year, but says there's potential for upside as its customers roll
out new data-hungry AI applications
Key Takeaways:
- Chindata has forecast its business will grow about 30% this
year, with potential for upside fueled by the explosion in AI
applications
- The data center operator is the most highly valued among its
Chinese peers, but trails global rivals due to geopolitical
factors
BEIJING, May 10, 2023
/PRNewswire/ -- Go with the flow, and do business with the
heavyweights.
Those are two key takeaways in the latest earnings from data
center operator Chindata Group Holdings Ltd. (CD.US), which
continued to power past its local rivals in the final quarter of
last year, in no small part by syncing with Beijing priorities and focusing on a small
group of big-name internet customers. At the same time, the company
gave out relatively conservative guidance for 2023, at least
compared to its breakneck 60% revenue growth last year.
But CFO Nick Wang told Bamboo
Works there's potential for upside to that forecast, as many of the
company's clients jump on the artificial intelligence (AI)
bandwagon that burst into global headlines late last year with
OpenAI's launch of ChatGPT. That growing movement, which requires
large volumes of data storage and computing power, is likely to
create additional demand for Chindata's services operating a
regional network of data centers in China and Southeast
Asia.
Chindata, whose largest shareholder is U.S. private equity giant
Bain, forecast it would post revenue of 5.88
billion yuan ($854 million) to
6.03 billion yuan in 2023, which
would represent 31.4% growth at the midpoint from last year's
4.55 billion yuan.
The company's second-largest customer is the world's biggest
software maker, which recently rolled out a new version of its
search engine that incorporates ChatGPT capabilities in its U.S.
edition. It hasn't made any similar announcements for its
China edition yet. But if and when
that happens, the U.S. software giant's needs in China could rise significantly.
"This forecast in 2023 growth does not capture anything ChatGPT AI-related in terms of
the volume increase," Wang said. "I will say from that perspective,
(the forecast) is probably conservative."
Chindata's two-pronged strategy of focusing on a small group of
high-powered customers and following government policy has made it
an investor favorite. Syncing with
government priorities is important in China by helping to grease the wheels of
business for everything from getting permits to securing land
rights for new facilities.
Chindata's leading status among its peers is apparent throughout
its operating metrics, which included a profit last year, even as
its two main domestic peers lost money.
The company's latest results released in late March
show its revenue rose 78% in last year's fourth quarter to
1.4 billion yuan, far outpacing the
high single-digit gains for its main
rivals. Its gross margin of 41% was also more than double
that of its two rivals, and its utilization rate of 86% by year end
was well ahead of them.
The company keeps down its sales and marketing costs by focusing
on a small number of customers, which is every company's ideal. It
doesn't name its customers, but the largest - using 75% of
Chindata's capacity - is reportedly one of China's largest unlisted tech companies that
is also the parent of a highly successful global short
video-sharing platform.
In addition, the company reportedly counts another major U.S.
search giant as one of its top five clients, and is in the process
of signing on China's leading game
operator as another.
"We don't necessarily chase the largest number of customers.
We're chasing whoever can produce the biggest data volume," Wang
said. "Essentially, our customers' business is really strong,
growing faster than anybody else. Their growth rate in the past
three years is much faster than their peers."
Aligning with national priorities
In the data center business, Chindata's other core strategy of
following government priorities means setting up its data centers
in China's less developed but
energy abundant areas. Following the government opens the doors for
the kinds of benefits we've previously mentioned, including
low-cost land and, perhaps most importantly, low-cost power that is
one of the top expenses for data center operators.
In the latest move on that front, Chindata is currently
developing a new facility in Gansu
province, in the country's northwest. Beijing wants to develop areas like
Gansu as part of a strategy to
steer investment to China's less
developed areas, while also taking some of the pressure off
overtaxed power and other infrastructure in its more developed East
Coast cities.
The company's general policy of setting up new data centers in
places with abundant supplies of sustainable electricity,
especially from renewables, with a special focus on less-developed
interior regions aligns with Beijing's recent "Eastern Data, Western
Computing" plan for data centers. The company currently has two
main hubs in China based on that
strategy, one in Hebei province's
Zhangjiakou not far from Beijing
and the other in Northwestern
Shanxi province.
Wang said Chindata recently completed a framework agreement with
the local government in Gansu for
a facility that will eventually include up to 150 MW of capacity,
roughly equal to about 17% more capacity on top of Chindata's 871
MW of capacity at the end of 2022. But a number of things must
happen before any building begins, most notably the laying of fiber
cable that would provide the high-speed transmission capabilities
to make the facility attractive to Chindata's clients. Accordingly,
any actual new capacity on the site is still at least a few years
away.
Despite its best-in-class status among its Chinese peers,
Chindata is still quite undervalued compared with global peers.
The big gap may owe at least partly to geopolitical factors
associated with the company's base in China. Those factors were at the forefront
with the company's recent decision to put its expansion into
India on hold, as relations remain
tense between the world's two most populous countries. Chindata
currently has a relatively modest 20 MW of capacity in the
country.
The company continues to expand in its other major global
destination of Southeast Asia,
which is currently home to about 140 MW of capacity in Malaysia, or about 16% of Chindata's total.
Wang said the company is also actively exploring setting up new
data centers in Indonesia, and
could use a recent small acquisition in Thailand as a base for eventually adding more
capacity in that country.
Chindata's high-tech nature also puts it at potential risk of
suffering from fallout if the U.S. decides to limit its access to
some of the high-tech chips and other components used in its data
centers. But Wang said the company has already considered such
outcomes, and should be able to mitigate associated risk, for
example by supplying more power to offset using lower-power
computing chips by its customer if it loses access to the fastest
high-power chips, if the U.S. ever takes such steps.
This article was originally posted by Bamboo Works at
https://thebambooworks.com/chindata-set-to-ride-ai-powered-explosion-in-demand-for-data-storage-processing/.
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SOURCE Chindata Group