Data Center Capacity to Reach 40GW by 2030, Supply Chain Response Poses Challenge [A.T. Kearney]

A.T. Kearney Inc. (Minato-ku, Tokyo, Representative: Takefumi Harigaya) has released an article titled "Are Supply Chains Limiting Your Ability to Capitalize on the Data Center Boom?" which examines supply chain challenges in the data center market.

The article indicates that while data center facility capacity is expected to more than double from the current 19GW to 40GW by 2030, the extended lead times for key equipment, including generators and transformers, are impacting the timing of revenue generation for data center-related players and value creation for PE investees.

Specifically, generator lead times have increased from less than 20 weeks before the pandemic to 40-85 weeks currently, and transformer lead times have reportedly extended from 5 weeks to over 70 weeks. To address these supply constraints, the article points out the need to shift relationships with suppliers from "transactional" to "strategic partnerships" and to manage on a portfolio basis rather than on a project basis.

More Than Double to 40GW by 2030, Construction Market Projected at $359 Billion - Responding to Supply Constraints is the Challenge

The global data center construction market is expected to grow from $218 billion in 2023 to $359 billion by 2030. Facility capacity is also projected to more than double from the current 19GW to 40GW by 2030.

The article mentions that these projections may be conservative, considering that some companies plan to increase their capacity tenfold during the same period. Furthermore, Nvidia anticipates that approximately $1 trillion will be invested in AI-driven data center upgrades alone over the next four years, creating significant opportunities for players across the value chain as hyperscalers and enterprise customers demand large-scale, high-performance construction projects.

However, supply constraints are acting as a bottleneck, limiting value creation for PE investees, the article points out. Therefore, it is recommended that investors such as PE firms strengthen their end-to-end supply chain capabilities and establish systems that can proactively adapt to changing market conditions.

Generators 40-85 Weeks, Transformers Over 70 Weeks - Extended Lead Times Risk Delaying Monetization

The impact of supply constraints is evident in the lead times for key equipment. According to the article, generator lead times, which were less than 20 weeks before the pandemic, now range from 40 to 85 weeks. Transformer lead times have also reportedly extended from 5 weeks to over 70 weeks.

These changes are leading to competition for supply chain resources, prolonged lead times, and high upfront payments in a market with limited financial capacity, the article explains. It also points out that these challenges not only delay monetization but also expose players to risks such as contractual penalties and reputational damage.

Therefore, in a phase of expanding demand, it is crucial to view demand over a multi-year horizon and manage it by category, rather than limiting supplier relationships to individual project transactions.

Transformation Needed Across Five Dimensions, Procurement Bundling Over 14 Projects and 400+ Units Could Enhance Buyer Negotiation Power

The article states that to enhance competitiveness in a market with distorted supply and demand, it is necessary to elevate management from a project-by-project basis to a portfolio-wide approach. Specifically, transformations are required across five dimensions: foresight, procurement model, supplier engagement model, customer engagement model, and internal capabilities.

Regarding the procurement model, it suggests shifting from project-based purchasing to portfolio-based category sourcing. The article explains that by bundling procurement for 14 projects, it could amount to over 400 generators, making it easier for OEMs to have an incentive to allocate additional shifts to meet production capacity requirements.

Furthermore, in terms of supplier engagement, it is necessary to transition from transactional purchasing to global strategic relationships, establishing "top-to-top" dialogues directly between senior executives. Customer engagement should also shift from project-based involvement to long-term joint planning, collaborating with both customers and suppliers on future demand signals and equipment configurations.

About the Article

Article Title: "Are Supply Chains Limiting Your Ability to Capitalize on the Data Center Boom?"

URL: https://www.jp.kearney.com/issue-papers-perspectives/are-supply-chains-limiting-your-ability-to-capitalize-on-the-data-center-boom

- Supervisors

Takefumi Harigaya, Representative Japan, Managing Director Japan / Senior Partner

Graduated from the University of Tokyo, College of Arts and Sciences. After working in sales planning, business planning, and service development at a major telecommunications company, he joined A.T. Kearney. He has over 20 years of consulting experience, primarily with telecommunications, high-tech, and media companies. Building on his experience in cross-organizational business promotion at operating companies, he provides grounded and effective consulting services focused on digital transformation, overseas business strategy, new business strategy, business portfolio restructuring, and business turnaround.

Kentaro Taki, Senior Partner

After graduating from the University of Tokyo, Faculty of Economics, Department of Economics, he joined A.T. Kearney. He has approximately 10 years of consulting experience. Primarily in telecommunications, financial institutions, and consumer goods, he has handled a wide range of management-related themes, including strategy, new business, R&D, M&A, marketing, sales, operations, cost, and HR/organization, with a particular expertise in large-scale, company-wide digital transformation.

About A.T. Kearney

A.T. Kearney (Global Brand Name: Kearney) has been a trusted partner for over 100 years as a leading global management consulting firm, serving more than three-quarters of the Fortune Global 500 companies and government agencies worldwide. With offices in over 40 countries, our greatest strength lies in our people. Upholding "Impact First," we tackle our clients' most challenging issues with original thinking and execution, driving transformation together. We entered Japan in 1972 and have provided consistent support from strategy formulation to transformation execution for leading companies across all major industries. For more information, please visit our website. https://www.jp.kearney.com/