TT-655 -- Datacenter Sector Heating Up, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, March 25 2012, Issue No. 655


- What's New -- Datacenter Sector Heating Up
- News -- Tsunami fishing boat floats to Canada
- Upcoming Events
- Corrections/Feedback
- News Credits

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The datacenter industry is undergoing some major changes
which will make 2012 an interesting year for the industry.
Firstly, the big trend -- reliable high-speed internet,
smart phones, and online applications have made remote
applications sufficiently viable that even conservative
Japanese firms are buying them. It already seems "quaint"
to think of companies rolling out thousands of individual
software packages on PCs one by one all around the company
network. We don't have numbers on the percentage of
companies in Japan switching to web applications, but the
fact that Microsoft is phasing out B2B level resellers of
package software by 2014 gives us some idea.

This trend has created a new generation of companies, of
which is just the advance "scout". There
isn't a business sector that isn't being touched by the
change, and Japanese firms are buying subscriptions in such
diverse areas as accounting, factory automation, FX and
stock trading, internet marketing, medical diagnosis,
online content, SNS, trade, and much more. Almost weekly we
hear of yet another online apps firm selling to major
accounts in Japan and being requested as a result to set up
a support presence here.

Secondly, an accelerating factor in the industry has been
the 3/11 earthquake that struck last year. Yahoo's
datacenter subsidiary IDC Frontier has said that inquiries
on datacenter hosting is up 600% over pre-earthquake times.
MIC Research says that the data center market is up at
least 8% this fiscal year, and will reach JPY1.9trn by
March 2016. Companies have realized that housing one's own
servers is not smart in times of emergency. Indeed, it
doesn't really make sense in normal times, either, now that
you can host company-wide applications from zero manpower
services epitomized by Amazon and provided by many other
data center companies.

[Continued below...]

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[...Article continues]

A direct beneficiary of this soaring demand is the
datacenter infrastructure market, which comprises routers,
switches and other "infrastructure" equipment that goes
into the racks alongside the servers. According to IDC,
this market in 2010 was worth JPY50.564bn, a big 18.4% jump
over the previous year, and is expected to grow another
9.1% in FY2011.

This segment number doesn't include servers, which are the
other big ticket item going into datacenters, and on this
level, we see significant action by the big makers such as
Dell, Fujitsu, Hitachi, HP, and IBM, as well as trading
companies building out their own platforms. It's pretty
clear that rather than wait for large customers to drop
billions of yen with competitor with a better value
proposition, they have realized that they'd better get into
the datacenter game themselves and offer the hardware
as a service.

Dell has done exactly this, announcing just last week that
it plans to set up as many as 20 new datacenters around
Asia. The first of these will be in India, followed by
China. What about Japan? Apparently Dell is planning to
service Japan out of China. This is a common theme by some
other firms as well, with HP saying earlier in the month
that it will open a datacenter in Tianjin later this year
and offer datacenter services for about 1/3 Japanese
prices. Hitachi is doing something similar in Hong Kong
with Data backup, offering storage for 50% discounts.

However we don't know if Japanese firms will be comfortable
buying datacenter space offshore, particularly if it is in
China. Cheap land and labor may result in cheaper prices,
but that doesn't mean much if data is stolen by outsourced
workers, "appropriated" by a government agency, or the
datacenter itself suffers power or building failures from
substandard work. We have heard some disturbing stories
about building failures and lack of security in Chinese
datacenters in particular. Rather, if a firm wants to
store/process data at lower prices, it would make a lot
more sense to do it from the USA, especially if a few
milliseconds of latency are a non-issue.

In the meantime, there appears to be plenty of demand for
local datacenter space, even if the prices are higher than
elsewhere. Here in Tokyo, the largest datacenter that we
know of is @Tokyo, which operates a massive 130,000 sq. m.
facility. The company has no shortage of takers for its
space, partly because it is a primary provider for the
financial sector. Close on their heels is Internet
Initiative Japan (IIJ), which will open a large new
datacenter at Mitaka, in the west of Tokyo, in October.
This will be IIJ's seventh datacenter nationally.

Because of the earthquake, there is also a demand for
datacenters in Western Japan, as companies try to spread
their risk -- particularly with the recent predictions of
a big quake hitting Tokyo in the next few years. This week,
STNet, part of Shikoku Electric, announced that it will
spend JPY30bn to build a 36,000 sq. m. datacenter in
Kagawa. With new racking systems, this is sufficient space
for about 80,000 servers. The facility will take at least 5
years to complete and will be the largest in Western

All this activity, and there are new facilities
announcements almost daily, means we're probably entering
another bubble in datacenters, although probably smaller
than the one experienced in dotcom bust which left
many datacenter operators bankrupt. The inflating interest
can be confirmed by the fact that property investors are
back in the game. Mitsubishi has just announced that it has
started a real estate fund that invests solely in
datacenters. Invested in by various domestic institutional
investors and pension funds, the fund has already raised

Happy days are here again?

...The information janitors/


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+++ NEWS

- Ishinomaki records large RE price increases
- Tsunami fishing boat floats to Canada
- Warmer weather on the way?
- Land prices to keep falling?
- Pension funds pay out more than earnings

-> Ishinomaki records large RE price increases

Even as Japan's average land prices dropped another 2.6%
nationwide, Ishinomaki and other areas hit by the 3/11
earthquake recorded strong price increases. The Land
Ministry's annual land price report shows that inland and
higher-ground properties in Miyagi-ken and particularly
around Ishinomaki sold for an average JPY22,500 per sq. m.
over the last year compared with 2010. This comprises a
surprising 61% increase and contrasts with a 1.5% decrease
in prices for Tokyo, Osaka, and Nagoya. (Source: TT
commentary from, Mar 22, 2012)

-> Tsunami fishing boat floats to Canada

A Canadian national defense airplane has spotted a crewless
Japanese fishing boat floating 150 nautical miles from the
coast of British Columbia. The vessel appears to have come
from Hokkaido and a Notice to Shipping has been issued
identifying it as an obstruction to navigation. The boat is
the first evidence of a massive junk pile believed to be
floating towards Canada. Apparently about 5m tons of debris
were swept into the sea from the Tohoku-hit areas. (Source:
TT commentary from, Mar 24, 2012)

-> Warmer weather on the way?

The Japan Meteorological Agency has issued a long-term
forecast predicting a 30%-40% chance that the nation will
have warmer than normal weather for the April-June period.
Although it's not known whether this means a
hotter-than-normal summer as experienced in 2010,
apparently power companies are anticipating this, and are
expecting a repeat of 2010 when power consumption during
the hottest periods was 2% higher than normal. ***Ed: If
you are able, it may be a good idea to book a longer then
normal summer holiday this year and avoid the worst of it
in August.** (Source: TT commentary from, Mar
22, 2012)

-> Land prices to keep falling?

Interesting commentary from the Nikkei this last week, if
somewhat simplistic. They posit that Japan's land prices
will continue falling even if the pace of those falls has
slowed recently. In essence the Nikkei reckons that
foreigners and foreign companies fleeing Japan have had a
specific local effect on real estate in the Kanto, while
off-shoring movement of major Japanese firms and a
shrinking population of workers (15-64 years) in general
are having a longer-term effect on demand and therefore
prices. (Source: TT commentary from, Mar 23,

-> Pension funds pay out more than earnings

A report from the Welfare Ministry shows that over 50% of
the nation's 578 major private pension funds, i.e., mostly
those run by major companies for their employees, are
paying out more cash in benefits than they are receiving in
income. Furthermore, of these 314 companies in negative
territory, 16 of them will run out of money in less than 10
years. The Ministry says that those funds in trouble will
either have to reduce benefits or increase fees, to stay
viable. ***Ed: Not something that millions of big company
employees will want to hear.** (Source: TT commentary from, Mar 24, 2012)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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What’s new in 2012?
Broader marketplace outlook
Chief Finance Officer spotlight
Chief Information Officer spotlight
Chief Human Resources Officer spotlight



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