A Brief Understanding of the Different Stages in a Construction Life Cycle and the Supply Chain players involved.

For most buildings, the bulk of the construction process is quite similar to one another... whether you're building residential units, warehouses, factories, or even Data Centres, the general processes along the way follow the same paths.

Since everyone wants to ride on the data center theme lately, and with all sorts of companies making various announcements related to DCs, I would just like to share a bit about the various stages involved in the construction process and some supply chain players at each stage.

Since DC is of interest, I'll take it from the perspective of a potential DC player.


1) Land Acquisition and Approvals

Before a building is built, there has to be land ready for it to be built on with the proper title. Meaning, you can't build a factory on residential land, and conversely you can't build a condo on agricultural land and so on.

Location, infrastructure availability and so on are of key importance for potential buyers.

At this stage, land deals would draw attention and we see it already with the likes of $CRESNDO / 6718 (CRESCENDO CORPORATION BERHAD) selling off huge batches of land to DC players. I won't be surprised if there are plenty of other land deals ongoing that aren't making headlines. Those on the ground might be able to sniff some out. Land title changes, zoning, etc.

2) Substructure, Superstructure, and infrastructure construction

Substructure works basically involve underground works. Piling, foundational, geotechnical, earthworks and such fall here.

Superstructure is above ground works. Most construction companies would be able to tender for this kind of works and it's nothing really special as long as you follow a pre-defined spec. This is a wide scope and typically make up the bulk of the cost of a building, but generally have the lowest margins.

Infrastructure works include power stations, cabling, roads, utilities, street lighting, and so on. Connecting to the mains, testing for power quality, backup power, overheads, and the like.

Typically, and depending on complexity and size, a building can be built within 12-18 months to VP (or faster if the owner has a lot of cash and can expedite works).

Most players in this space will recognize revenue in stages as construction progresses and I won't be surprised if many start to do fund raising to enable them to take on more works, as there are lots of tenders and contracts being awarded right now to build DCs as fast as possible.

During this time, a lot of building material producers will also see increasing demand, for products such as cement, steel pipes, valves, roofing, tiles, wiring, etc etc. Many famous construction companies would be involved here; and you can just read announcements to see how many have secured DC jobs already such as $GAMUDA / 5398 (GAMUDA BERHAD) and the like.

3) Finishings and fittings

These would be the bells and whistles of a building. Lighting, windows, shutters, cable trays, fire doors, and so on.

Generally, these are rather niche products that are small in terms of the whole building costs, but tend to have higher margins. These companies normally come in at the tail end of the construction and can finish their works within a month or two.

In more modern buildings, these would also include networking infrastructure such as bridges, repeaters, mesh, data points, and so on. (and this can be another huge industry altogether)

4) Hardware, ancillaries, and others.

Once 1-3 above are completed, this is where DCs start to differ substantially from other buildings. Unfortunately, I am not too well versed in this area and can't offer much further comments other than what I know from hearsay.

Generally these tend to be the more specialist stuff, and the core items include the servers, GPUs, HDDs and SSDs and so on. Normally and typically, the items will come from the asset owner directly (from original country) or sometimes they might enlist a local EMS company to produce these items for them.

Another aspect would be the cooling systems, as DCs require a huge amount of power and that generates heat. If you've ever used a high spec computer, you know that typical processor fans alone won't cut it. Insulation and the like are also of key importance in this aspect.

5) Software?

This is also an area that I am not well versed in and unfortunately don't know much :(
At the minimum, cloud services, cybersecurity? How do they fit in to the grand scheme of things? Would they operate as part of a CAPEX or OPEX?

6) Consultants

These guys would be involved in all parts of the design and build, specifying certain specs and brands required, liaising with local authorities and so on. It could be local companies, it could be foreign, or a mixture of both.


And generally, that's briefly it on the whole process of building a DC! How do data centers earn money? Essentially they function something like a REIT, providing "rental" of "memory space" to corporations in exchange for a recurring fee.

As with all (or most) recurring income businesses, they will have to incur large upfront CAPEX before they get their recurring income and capital back down the line.

Did I miss any other parts of the supply chain? Have you done work on a DC before? Which companies in Malaysia still have legs to run and not yet priced in the full impact of the booming DC industry in Malaysia yet?

**image from AKCP