HS144: Next-Generation Data Centers: The Rules Are Changing, How Should Your Strategy Change?

Jonna Tilth-Johnson (0:03)

Hi, I'm Jonna Tilth-Johnson, CEO of Numertis, here with my co-host, John Burke, CTO of Numertis.

And you are listening to Heavy Strategy, the show that tries to ask the right questions, not give the right answers. And we have plenty of questions for you on this episode about how the rules are changing for data centers. All right. So John, you raised a really interesting question. Given that things are changing, rules are changing, politics are changing the rules, physics is changing the rules, should your strategy have to change as these rules are changing? Maybe kick off by talking about what you mean by changing rules.

John Burke (0:40)

Sure, sure. And the germ of this conversation for me was work I was doing for a different client earlier in the week, researching the administration restriction on the import of advanced robots, that was one part of the new announcement, and power transformers and inverters. Sorry, power inverters. Power inverters was the newest one. And advanced robotics, not really a data center subject for 99.999 percent of companies. But inverters, on the other hand, can be a big issue if your data center is in part powered by an on-premises solar array, and you need inverters to turn the power you get into the power you need.

That got me thinking about how the rules for planning your next data center initiative are different than the rules that you had to work with planning your previous data center initiative. And for a lot of folks, that has been a long gap.

Jonna Tilth-Johnson (1:51)

And just to be clear, let's put this in a little bit of bigger context. John, the research you were doing for our client had to do with US rules about the use of Chinese, in particular, imports Chinese technology inside data centers, and also telecom and SOHO equipment and everything else.

John Burke (2:15)

The bands on routers and stuff are a little older, going back to earlier this year or previous years.

But yeah, they had just expanded their list of restricted technologies to include power inverters. And rumor has it that the United States Federal Communications Commission is also planning on adding new optical transceivers to the list of technologies that can no longer be imported. And yes, that will have significant impact on data centers way below the scale of hyperscalers.

Jonna Tilth-Johnson (2:48)

Which I find absolutely hilarious because just a side note, the US administration has also been suddenly posting things like if you don't want AI data centers in your county, then you're backwards and anti-innovation and want to hand everything over to the Chinese. And I'm like, well, yeah, but you're the ones that aren't letting us use Chinese technology to stay current. So I'm not sure who's backwards here.

John Burke (3:14)

Oh, and let's just take a moment and savor the fact that you have to use Chinese technology to stay current now.

Jonna Tilth-Johnson (3:20)

Yes, yes. But in any event, so the rules here would apply to anyone who is building a data center within US geography, so any place that the US FCC would have authority. So rule number one is, gosh, now you have to run all of your sourcing through a fine-tooth comb to make sure that not only the equipment, the components aren't coming from China, because you might be in violation of US law at that point. So if you happen to be planning to build a data center in the US, that's one way the rules look like they're changing rather dramatically.

And part of the challenge is, I don't know if for some people that actually already have data centers in place, would they apply to existing technology, John?

John Burke (4:09)

It shouldn't. At the moment, it's all about stuff that's not currently approved for sale in the US market. So if you've been populating your data center with stuff that was legally for sale on the US market up to now, you're okay for now. But there's no reason that the FCC cannot expand that ban to include previous generations of equipment. And given that national security is being used as the justification for doing this, that it would be bad if bad actors in other countries, in this case China, could turn off significant parts of the power grid by activating sleeper code embedded in the firmware in those power inverters or transformers or battery packs or whatever.

You can see how they might reach backwards in time a few years as it's just a fact that current equipment is just as capable of being controlled remotely in that scenario. I don't know if it's paranoia or just realism, as stuff that would be on sale next year.