Germany's Hyper Scaler Infrastructure Slow Dance

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the three hundred and third episode of the week with Roger, conversation between analysts about things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Entner. Roger, how are you doing?

Roger Entner 0m23s

I'm great. How are you?

Don Kellogg 0m24s

Good. So you're coming to us from Dusseldorf.

Roger Entner 0m27s

Yep.

Don Kellogg 0m28s

Today, you attended the Handelsblatt conference. For folks in The US that may not be as familiar with Handelsblatt, why don't you tell us a little bit about what they do and what the conference is about?

Roger Entner 0m38s

Sure. The Handelsblatt is the premier German daily business newspaper of Germany. It's the equivalent of the Wall Street Journal. We enjoy very good relationships with Handelsblatt. I was just quoted a few days ago by the Handelsblad on a story where they revealed that Deutsche Telekom was still working on the merger, and they quoted me quite nicely in it.

Roger Entner 1m8s

I'm not sure if Deutsche Telekom liked it, but you know, it was the truth, that the value of Deutsche Telekom highly depends on T Mobile US, and without T Mobile US, I called them a widow's and orphan stock, which sounds in German a lot worse than what the British equivalent is, but it basically is like a very reliable, like dividend kind of stock. So anyway, Handelsblatt invited me to come here to the data center conference about Germany as a place to do business. You know, part of the conversation I had with Stefan Scheuer, who runs the technology part of Handelsblatt, was about my impression in the stock differences between The US and Germany. And I said, like, you guys don't know what will hit you. So, for example, all of Germany has, like, three gigawatts of data center, and they expect it to grow over the next ten years by like 70%.

Roger Entner 2m8s

That would be over ten years of growth of one gigawatt. Elon Musk just built two gigawatts in less than a year in Mississippi. It's like unbelievable the differences. They are here looking at it. You know, the approval process in Northern Virginia takes like three months.

Roger Entner 2m27s

Here, the approval process takes like seven years. It's a system set up for stability and slow moving change. And you and I have talked about it. The driver here is AI, and it moves so quickly. Yep.

Roger Entner 2m42s

It's unbelievable.

Don Kellogg 2m43s

Yeah. Well, we're tracking it. Right? I mean, like, we're tracking data center build outs now, and then, you know, it's like a fire hose in terms of the volume and the and the capacity that's getting deployed right now in The United States. And a lot of it's happening in areas like Mississippi that, you know, it's not the big tech centers.

Don Kellogg 3m0s

Right? It's the more rural areas where you can get lots of land and there's power and things like that.

Roger Entner 3m5s

Or they make their own power.

Don Kellogg 3m6s

Or they make their own power. Yeah. There's a lot of off grid generation happening as well.

Roger Entner 3m10s

And you can't do that here.

Don Kellogg 3m12s

The idea of that occurring in in within the kinda EU regulatory regime, I think, is fanciful.

Roger Entner 3m17s

They're so slow, and they're not gonna know what hits them. And at the same time, they're subject to the same constraints. I said, like, in The US, they bought out all the glass fiber for the next three years. Unless you have a contract or you do beat, you can't get glass fiber cables because Corning borrowed up all the glass, literally. And so there are shortages now on window glass.

Roger Entner 3m43s

Right? Mhmm. And glass for cups because Corning buys everything there is. You know, we're working with one of the big hard disk manufacturers. They sold out all the hard disks for the next three years.

Don Kellogg 3m58s

Same thing with memory. Right? I mean, look at what's happening with Micron and everything else. Like, anything that goes into the supply chain around AI and data centers is just getting gobbled up at an incredible rate.

Roger Entner 4m8s

Yeah. And I was just talking yesterday with Hanish who runs our handset group. He presented to one of our carrier clients. He said, like, the spot DRAM prices over the last three months went up by 90%. And that's for the lucky few who can still buy memory.

Roger Entner 4m27s

A lot of people can't buy it anymore for any price. Right? Right. And so how this permeates through lower down in the chain is we, in all likelihood, will see shortages of Internet routers, which will make it a lot tougher for people to switch, for people to upgrade their routers, and things like that. And it's the AI usage that's going through the roof.

Roger Entner 4m53s

And I said to them, you know, in Europe, they are also always talk about, oh, this is a bubble. When will it burst? All of that. And I'm like, these guys prepaid for the next three years. A friend here, you know, is in the enclosure business.

Roger Entner 5m7s

He sold all the sheds that he can make for the next three years, not to his traditional carrier clients, no, to the fiber guys. And, you know, here they always talk about Gigafactory is this and Gigafactory that. And I'm like, guys, Gigafactory would mean you put a gigawatt of power behind it. Here, there was a representative from the city of Dusseldorf, and he said, like, you know, we have somebody here who wants to put up a data center, and he said, like, we want to start with a 100 megawatts, and we want to ramp up to 500. And the guy was just, like, gulping, and he said like, you know, all of Dusseldorf is 500 megawatts a year, so they want to build a data set that is like Dusseldorf, right, the capital of the most populous state, you know, with close to a million million people.

Roger Entner 6m3s

It's just like blowing away their mind frame. The other thing that's really interesting also is that data centers, in Germany, they use a lot of what they call Van Werme, which is basically the exhaust heating of power plants, they turn it into hot water, which then goes to the entire city and heats and provides hot water for the entire city. A very efficient use of heat that in The US just gets like evaporated off. And here it heats and provides hot water for hundreds of thousands of people. In my house in Germany, that's how we heat, and that's how I get hot water.

Roger Entner 6m45s

When you look at data centers, electricity comes in, and it can leave only in two ways, either in kinetic energy, and we know that's not happening, or in heat. So what they could do and what they're planning to do and want to do in some places is turn the data center into basically

Don Kellogg 7m6s

A hot water plant.

Roger Entner 7m7s

A power plant that heats the hot water for entire neighborhoods. And the University of Stuttgart did that for their entire campus. They have a new data center on campus, and the data center provides hot water for all the dorms and the entire campus. But then you have the problem that some of the municipalities want to have a twenty five year guarantee, and a data center gives you three. And they're like, but what are we doing?

Roger Entner 7m38s

The Germans are so risk averse that then they don't make a deal because, oh, and I'm like, guys, these data centers are here to stay. They're going to be bigger. What's going to happen is they might need a lot of less real estate, or the server racks are getting smaller and smaller, but with it, the heat exhaust will get larger and larger and larger. And I talked to another gentleman here, they are very sophisticated cooling transfer company. And they're like, we're reaching the physical limits of what and how fast we can dissipate the heat of the the racks and off the GPUs to cool them down, because there's simply not enough surface material from which to dissipate the heat from.

Roger Entner 8m27s

And they don't know what the right liquid is that would that the heat transfer goes fast enough because air is not enough.

Don Kellogg 8m35s

Yeah. You've gotta do liquid cool Yeah. Or other means of doing it. Yeah. I mean, the other thing that's problematic from a European perspective is something like GDPR has, like, really strict data sovereignty requirements.

Don Kellogg 8m47s

Right? So in a lot of circumstances, that compute has to happen there.

Roger Entner 8m51s

It has to happen there.

Don Kellogg 8m52s

If you can't build the can't build the data centers to do it, it just won't happen. Right? It's not like heating oil where you could just change where you import it from.

Roger Entner 8m59s

In The Netherlands, they can't build anymore because they are literally running out of land, and they are literally don't have enough power anymore to do that. And they were talking here about like, oh, yeah, you know, another couple of gigs of data, power, and this and that. I'm like, guys, if you only need a gigawatt of data, you're gonna be in serious trouble because you're condemned to invest in this because the only thing worse that can happen to you is that you don't invest in it, and you fall inevitably behind. So it looks like that the high level business and the high level politicians have gotten the message. The problem is that the regular population has not.

Roger Entner 9m47s

The very strong NIMBY movement, and also they don't connect that what they do on their devices needs actually a data center. It's not the data center that consumes the data. It is your use of AI that generates the data. And so, we talked about that here. We're launching in Germany, we're launching in The UK, and so as we become much more embedded and present here, you know, the differences in mindset and scale, you have to be there to get it.

Roger Entner 10m20s

Right?

Don Kellogg 10m21s

Well, I mean, it's like putting you know, like, you're you're talking about a gigawatt. Right? Like, the Stargate project is 10 gigawatts. Right? And it's getting expanded now into two more campuses.

Don Kellogg 10m30s

Right? I mean, like, the scale of the data center build out happening in The US relative to, like, what's happening Unprecedented. Yeah. It's unprecedented.

Roger Entner 10m37s

We're telecom guys. Right? Mhmm. We're now expanding more out. Telecom used to be so proud about $7,090,000,000,000 dollar CapEx spend.

Roger Entner 10m51s

Data center is now 750. For me, coming back to Europe is always like stepping into the past, and this is like five years in the past.

Don Kellogg 11m1s

Right.

Roger Entner 11m2s

Five years ago, if we would have talked about, oh, yeah, they're gonna be able build a data center with, what, 10 gigawatts of power? We'd have said, like, that's bonkers.

Don Kellogg 11m11s

Yep. 100%. 100%.

Roger Entner 11m13s

And by the way, I used your line. I said that my colleague, Don, said with AI, you either are on the bus and you drive it or you get run over by it.

Don Kellogg 11m24s

Right. Yep. I believe that.

Roger Entner 11m26s

They need to get on it better quick. But, yeah, exciting time. Tomorrow is the second day, and we're meeting all the right people.

Don Kellogg 11m34s

Excellent. Alright. We'll talk to you next week.

Roger Entner 11m37s

Talk to you next week. Thank you.