Latest developments from Macquarie Telecom
In this video Gary Rollo joins Macquarie Telecom Group (ASX:MAQ) Chief Executive, David Tudehope at their data centre in Macquarie Park to discuss the site plans and the benefits and synergies of one single data centre campus as well as the latest developments from Macquarie Telecom.
Macquarie Telecom Group operates in rapidly changing data centre, cloud computing and cyber security markets. The business has had six years of consecutive profit growth. As cloud trends accelerate, Macquarie Telecom has scaled their data centre capacity with the entire Macquarie Park campus planning to reach 50 megawatts, which reflects their confidence in the growth of the cloud market and the needs of large wholesale customers.
“Our cloud business is really interesting. It’s built around providing services to cloud companies as infrastructures or service as well as to large organisations. So we provide the compute and the storage and the cybersecurity for those customers.” David Tudehope Chief Executive of Macquarie Telecom
Transcript
Gary Rollo:
Today I’m here with David Tudehope of Macquarie Telecom Group talking through some interesting developments in Macquarie Telecom’s portfolio.
Let’s talk all things data centres. We know that you’ve been investing in your data centre here in Macquarie Park in Sydney. Talk to us about what’s been going on and how the future looks.
David Tudehope:
This has been a labour of love for us. We have created this site over the last decade. We bought the land originally and built our first data centre and our plan from the beginning was to create a campus of data centres on one location, which is different to others. This is much more the American model where you have lower risk, much greater certainty around your site, and there’s some real synergies of having a single campus. For us, our plans have really accelerated on this campus thanks to COVID. People are using the cloud more. Clouds all live in data centres, and this is one of the major world-scaled data centres here in Sydney and has benefited from that megatrend.
Gary Rollo:
Now we’re standing in the latest iteration of the data centres here in your Sydney campus. IC2, I think you call it, your first data centre on this site, about six megawatts, and we’re in IC3 East here. So tell us about IC3 East, what its size is and how it fits into the broader ambition for this site.
David Tudehope:
What we realised was that as the cloud trends accelerated, there was an opportunity to scale the campus even further. We’ve got a good footprint, lots of power, lots of telcos coming in and out of the site, as well as our own telecom business that carry a neutral model. The package of those things makes this site so compelling, so we decided to maximise the site which really meant going up. So the original data centre was a two-story building. This one here is a five-story building but because of the high floor plates, it’s actually the equivalent of a 12-story building. This is a completely different scale, and that really reflects what we see as the opportunity. The opportunity to build world-class data centres on this site and what’s become really a bit of a tech precinct here at Macquarie Park.
Gary Rollo:
So from memory, the original site, about six megawatts, this new investment is somewhere in that 11, possibly 12, I saw the last time you guys put out some information about what you’re planning to do here, but eventually taking this entire campus to 50 megawatts. So help us put all that together and also tell us, when does this new site open? Tell us when is it open for business?
David Tudehope:
The story started with IC2. Our original IC2 business case was based around corporate customers, government customers, and we wanted to attract one or two large wholesale clients that would be anchor tenants. And for us that did work out. We signed a very large organisation in the original IC2 that gave us confidence that this was in fact part of a trend. That was some years ago now. And then we decided when we build this particular building, we would allow for these new global cloud companies to be based here as well as corporate customers and government agencies that are so important to the rest of our group. And I am delighted to say that not only did we land our first customers and roughly about a third of the capacity of IC2 as a wholesale. In this particular data centre, our plan was two-thirds would be wholesale.
As it turned out this is exactly what happened. Two-thirds of this site was pre-sold before we even completed construction. And where we are now is just on the floor beneath our large wholesale cloud client, who has built a very large data centre on two out of our three floors. So we’ve sold two out of three floors before we completed construction. We’ve then been fitting that out over the course of 2021 and we’re just wrapping that up right now. We’re delighted with the progress on that, and that leaves this floor to sell to our corporate customers and our government agencies.
Gary Rollo:
Fantastic. So here we are, December 21. The building is finished or as good as I can tell anyway. And we’re at the stage now where the next phase, which is the investment that that leading corporation will put into to build that data centre inside your environment.
And then over the course of the next year or so, that will move from being an investment that the business is making to an operational business where you will be receiving revenue for your services that you’re providing.
David Tudehope:
That’s exactly right. So it’s like kicking through in our financial returns imminently and our mind has now moved forward to IC3 West. Let’s bring that forward.
Gary Rollo:
Help us set the scene with that. How does that fit into the overall picture here?
David Tudehope:
So the vision for the campus was to have three data centres, IC2, IC3 East, where we are, IC3 West. What transpired was that we decided to super-scale IC3 West to effectively build it out over the remaining area, as well as going the same level of height as East. That reflects our confidence in the growth of the cloud market and the very large wholesale customers. So we’ve submitted in August 2021 plans for that site and that’s now going into the development approval process. Part of the state’s significant development stream, and we’re confident about getting development approval in the early calendar year 2022.
Those plans are public now and we are very excited. It really is a very nice fit with what we’re doing here, but we are trying to be smart in terms of creating a low operating cost base. Our land is a significant competitive advantage. We paid $10 million for the land roughly 10 years ago, others have paid up to 10 times that number for half the same parcel of land. So it’s a really significant cost base advantage, but you combine that with the operating advantages of having a single site in terms of all the security and the electronics, you can see that we really are building an asset that has a very competitive cost structure.
Gary Rollo:
And a long life. These data centres last for quite a long time.
David Tudehope:
They are. They’re long-life assets, 30-year assets, typically.
Gary Rollo:
So David, Macquarie Telecom, it does more than just data centres. You have a burgeoning cloud services business. Talk to us about the investments you’ve been making there and the activity that’s going on.
David Tudehope:
Our cloud business is really interesting. It’s built around providing services to cloud companies as infrastructures or service as well as to large organisations. We provide the compute and the storage and the cybersecurity for those customers. It might be for a large corporate like Metcash, which does all its internal IT systems here. In fact, it moved away from AWS to Macquarie because our model was much more certain in terms of cost, as well as being cheaper. It might be a university that has its central student systems here rather than on-campus and in an old facility, or it could be a software company, or it could be a payments gate like BPAY, for example, is one of the customers of our cloud services business, has been for some years. Can you imagine, mission-critical? Everyone uses it every day. If BPAY weren’t to work it’d be very dramatic. So that always-on is accentuated.
Gary Rollo:
So you literally build them a private cloud?
David Tudehope:
We build them a private cloud. We operate it for them.
Gary Rollo:
Using your infrastructure and that technology layer that sits on top of that, the storage and the servers, and you build that and then sell that to them as a service.
David Tudehope:
Exactly. And our staff monitor it 24/7, right up to the hypervisor level and to make sure it’s always on. And that really allows them to focus on their core business and the software and the merchants that run off it.
Gary Rollo:
Fantastic. So David, a very large group of customers that you’ve referenced are your government customers and your government business.
Let’s talk a little bit about what you do for those customers and why it’s so central to what their IT needs are?
David Tudehope:
The government business unit is a core part of our business. It’s a business we’ve been in for 15 years now. It’s heavily focused around cybersecurity and we provide cybersecurity in terms of protecting against viruses and hackers for about 42 per cent of federal government agencies. And our job every day is to ingest around two billion emails and internet searches and try and find the few thousand suspicious, the few hundred malicious in real-time or close to before someone clicks on an attachment and has a problem. So that is a really important part of our business. It’s based around 250 government-cleared engineers who tune that software, look at some of the exceptions that come out of it, and interface with the government’s own systems. Very important business, very complex, a very fast-changing market because the cybersecurity threats are evolving constantly, and all of that raises the hurdle bar.
It’s also a business where you’ve got to have the talent combined with the systems and then combined with the infrastructure, and all of that’s based out of our data centres, primarily our data centre in Canberra, which is IC4 and IC5 Bunker, which is a very secure facility for government clients, as well as here at Macquarie Park, where we have clear government enclaves, especially set aside for government clients only, with cleared personnel only as well as our original data centre at Central Station. So it’s a very focused business built for government agencies and heavily orientated around cyber security. It’s a strong growth business for us, but one which is based around the needs of the Federal Government and to some extent, state government.
The Montgomery Small Companies Fund owns shares in Macquarie Telecom. This video was prepared 21 December 2021 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Macquarie Telecom you should seek financial advice.
Gary Rollo is the Portfolio Manager of the Montgomery Small Companies Fund. Gary joined Montgomery in August 2019 after spending three years at MHOR Asset Management in Sydney as a Founder and Portfolio Manager. Prior to this, Gary was a Portfolio Manager at Renaissance Asset Manager in Sydney for six years. Before moving to Australia, Gary spent five years in London running Morgan Stanley’s Technology Sector Equity Research Team, as well as two years covering technology companies for JP Morgan.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
