Data centre specialist GDS tipped to accelerate expansion to meet growing demand from major internet firms

Firm expected to invest additional 1.7bn yuan to ramp up new developments, after forking out 472.3m yuan on current batch of high-performance centres now under construction

PUBLISHED : Thursday, 15 December, 2016, 5:23pm
UPDATED : Friday, 16 December, 2016, 11:03am

Driven by booming demand from China’s three major internet services companies, Shanghai-based data centre operator GDS Holdings is accelerating its infrastructure expansion to more than double its capacity on the mainland by 2018, according to Citi Research analyst Cher Chen, in a new report.

“We expect GDS to expand capacity by a 37 per cent compound annual growth rate in the next two years, from 63,000 square metres to 119,000 sq m in 2018,” Chen said.

Shares in Nasdaq-traded GDS slipped 0.52 per cent to reach US$9.56 at the close of trading on Thursday in the United States.

The company, which raised US$200.7 million from its initial public offering last month in the US, estimated that it has spent 472.3 million yuan on its current batch of so-called high-performance data centres under construction, and expected to invest an additional 1.7 billion yuan to ramp up and complete these new developments.

Data centres are secure, temperature-controlled facilities built to house large-capacity servers and data storage systems, as well as equipped with multiple power sources and high-bandwidth internet connections.

These are largely used to host and manage cloud computing operations. Cloud services enable companies to buy, lease or sell software and other digital resources online, just like electricity from a power grid.

As of September 30, GDS hasd invested a total 2.4 billion yuan on all its data centres in service, and had about 400 corporate clients.

GDS has a high exposure to cloud, with more than 50 per cent of its area [capacity] booked for cloud usage
Cher Chen, analyst, Citi Research

Chen said cloud computing services are growing rapidly on the mainland, as consumption of online content – data, video and games – increases. That means cloud providers need more high-performance, carrier-neutral data centres to meet demand.

“As a premium data centre operator in China, GDS has a strong cloud client base comprising Baidu, Alibaba and Tencent,” Chen said. “GDS has a high exposure to cloud, with more than 50 per cent of its area [capacity] booked for cloud usage."

The China Academy of Information and Communications Technology, a research institute under the Ministry of Industry and Information Technology, has forecast the country’s public cloud market to grow 44 per cent to 14.8 billion yuan this year, up from 10.2 billion yuan last year.

William Huang Wei, GDS’s chairman and chief executive, said last week that “established customer relationships, strategically located data centre portfolio and outstanding operating track record” has positioned the company well “to capture significant share in this growing market”.

Chen, however, said carrier-owned data centres still dominate the mainland market “for historical reasons”, as China Mobile, China Unicom and China Telecom each provide their own bandwidth and proprietary network resources.

Up to 60 per cent of the outside-hosted servers used by search giant Baidu, e-commerce powerhouse Alibaba Group, and video games titan Tencent Holdings are still hosted by China Telecom and China Unicom, she said. Alibaba owns the South China Morning Post.

Founded in 2000, GDS last week reported a 56.6 per cent year-on-year growth in third-quarter revenue to 297.2 million yuan on the back of increased data centre capacity usage.