Years after the pandemic-era supply chain crisis has faded for many economies, data center developers still face equipment shortages and long, unpredictable lead times, bottlenecks that threaten to delay projects amid an artificial intelligence data center arms race.
Equipment shortages remain a source of delays and uncertainty in an industry where developers have struggled to keep up with unprecedented demand. And delays can be costly, with hyperscalers and other tenants writing hefty penalties into contracts for missed delivery dates.
The supply chain pinch is still being felt in nearly every part of the development process, from natural gas turbines and transformers to cooling systems and basic construction materials, industry insiders said in bisnow’s Data Center Investment Conference and Expo: Central in Dallas this month.
Sophisticated developers are finding ways to overcome many of these constraints, the panelists said, but there are also tradeoffs. Strategies like stockpiling equipment or ordering long-lead items before designs are finalized require significant upfront capital and can increase project costs.
And while some panelists expressed frustration that the lack of return to the pandemic nearly seven years ago has remained for data centers for a long time in other industries, there is a general recognition that the procurement landscape will not return to normal as long as the sector continues on a trajectory of stratospheric growth.
“There are discussions about how long Covid will affect us, and I don’t know if we’ll go back to pre-Covid,” said Sam Caddell, CyrusOne’s senior director of facilities engineering and operating systems. “There is still an impact on lead times – from raw materials to drop off.”
The most important lead time is for equipment that gets power to the data center project site, the panelists said.
Gas turbines can take a decade or more to be delivered, a bottleneck that currently contributes to multi-year timelines for grid connections and limits developers’ ability to achieve on-site and meter-end power as an alternative to utility interconnection queues.
Transformer shortages were felt more widely, with panelists citing lead times of up to three years for the equipment required on nearly all large-scale projects. Additionally, backup generators can take more than a year to obtain.
Supply chain pinch extends beyond electricity infrastructure. Chillers and other cooling system components routinely carry lead times of 12 to 18 months, the panelists said, as do switchgear, uninterruptible power supplies, or UPS, systems and other critical electrical and network equipment integral to data center operations.
Manufacturers say they can’t keep up with the flood of demand, even as they ramp up production.
“We will bring a new chiller plant. We will have four chiller plants that can supply this market, but it is not enough,” said Dara Sanii, director at cooling equipment provider Carrier Applied West.
It’s not just complicated equipment that suffers from shortages. Even hardware and basic construction materials are experiencing significant delays. Fiber optics can take six to eight months to arrive, and structural steel about a year. Meanwhile, contractors continue to encounter unexpected delays for relatively simple components like conduits and medium voltage cables.
The same hardware shortages also caused delays in the production of more complex data center systems. Manufacturers say pumps, evaporators, fans, coils and heat exchangers used in refrigeration equipment typically sell out in a year or more, while basic components like circuit breakers can slow production of electrical systems.
“Industrial capacity is taking down outstripping the ability of the entire supply chain to keep up,” Johnson Controls Vice President Matt Kightlinger told DICE: Central. “It’s really an industry-wide problem, right down to the component level.”
Some of the pressure on the data center supply chain has eased due to delays elsewhere, the panelists said. Projects launched by grid constraints or local opposition have freed up allocated equipment, causing rare components to return to the market.
Even so, preventing procurement from becoming a pinch point in projects requires developers to rethink how they purchase equipment and plan construction. Panelists said the ability to manage these constraints has become a key differentiator between companies that can deliver projects on schedule and those that cannot.
One common strategy is to accumulate years of long lead equipment, effectively creating a strategic reserve of transformers and other critical equipment that can be used on multiple projects. It’s an approach that SkyBox Datacenters Executive Vice President Gordon Kellerman compared to “Panic-toilet-paper-buying Covid.”
But the strategy is only open to major developers with deep balance sheets and large project pipelines, who can make capital before knowing exactly where the equipment will be used.
“We are definitely trying to buy a few years out. It’s one of the advantages of having been around for a little longer and have a little more capital,” CyrusOne’s Cadell said. “I also work for a startup data center company, and it’s a bigger challenge there.”
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Bisnow/Ally Araco
Mike Waring of Munters Corp, Matt Kightlinger of Johnson Controls, Adam Saleh of Nortek Cooling Data Center, Sam Caddell of CyrusOne and Drew Donahue of Taco Inc.
Sophisticated developers also share demand forecasts with suppliers up to three years in advance, giving them greater visibility into planning production capacity. It also allows developers to reserve some of that capacity or negotiate priority access without making the same level of speculative capital deployment required to buy equipment directly.
“It’s definitely good for us, because we then know where we really need to invest, because we make large capital investments in both our supply chain and our manufacturing facilities,” Johnson Controls’ Kightlinger said. “Really smart, mature [developers] share more information compared to what they have in the past, and they buy more to make sure they have that reservation so they can build gigawatt sites.
But even the most sophisticated planning cannot eliminate all supply chain risks. Developers and contractors say they are increasingly experiencing shortages of components that were never considered long lead items and therefore not purchased in advance. David Pickett, vice president of engineering systems at McGough Construction, pointed to medium-voltage cables as an example.
Once readily available, this cable periodically became difficult to source over the past year, at times preventing the project from moving forward.
The rapid evolution of AI infrastructure adds another layer of uncertainty. Today’s data center design is revised several times during development to accommodate new generations of hardware or changing tenant strategies. These changes can make equipment ordered months in advance unusable or require new items long after the project schedule has been set.
Developers are responding by designing facilities for greater flexibility, the panelists said, limiting changes to one system from forcing redesign elsewhere and ensuring critical infrastructure can be used with equipment from multiple suppliers. Some operators also install temporary chillers, generators and uninterruptible power supply systems when the planning equipment is delayed, although the panelists said this is expensive, inefficient and leaves the facility operating below optimal performance.
Industry leaders told DICE: Central is the best defense against supply chain uncertainty early coordination across all project teams. Bringing developers, contractors, subcontractors, distributors and manufacturers into the process from the start can find potential deficiencies earlier, ensure smaller components are not overlooked and identify suppliers or contractors with equipment that has been stored.
Early involvement like this has been a key element of past projects for veteran developers that have successfully navigated the rough waters of the supply chain with little disruption, said Decima International’s Senior Director of Construction and Quality Steven Wright.
“We talked about every step of the project, how we want to approach it, how we plan for it, and how we make sure we have the right equipment,” Wright said. “We have to cooperate and work from start to finish. If we don’t, we’re just pushing the problem down the road until it stops.”