Global data center building booms

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Three Googleplexes coming to Asia/Pacific

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By Timothy Prickett Morgan • Get more from this author

The Great Recession didn't just throw cold water on server spending, it also slammed the brakes on data center buildouts. While server spending picked up in late 2009 and shipments recovered in 2011 to their pre-recession levels, it takes a bit longer to fund data center projects. But it looks like brick-and-mortar – and sometimes container-and–prefab module – construction for glass houses is starting to pick up.

Google, which doesn't quite have as much money or power as God – yet – is one of the largest data center operators in the world, and the company told the Wall Street Journal yesterday that it would be spending more than $200m to open three data centers to bring its search engines and myriad other services closer to Internet users (the raw material at Google) in that part of the world.

The Chocolate Factory told the Journal that it planned to plunk data centers in Singapore, Taiwan, and Hong Kong, with the data centers being operational within a year or two of the beginning of construction. The data centers will be located on facilities that have a combined acreage of around 20 hectares, with the actual glass houses (or containerized data centers or whatever Google does) ultimately taking up only a fraction of that space. Google has just opened up a chillerless, air-cooled data center in Belgium and another one that is located in an old paper mill and cooled by seawater in Finland. Google has six separate data centers in the United States with varying vintages of server and data center designs, located in Oregon, Iowa, Georgia, North Carolina, South Carolina, and Oklahoma – and never too far from cheap electricity and fat phone lines.

As El Reg has previously reported, after a three-year hiatus, the data center construction is coming back to its pre-recession levels, with construction worldwide expected to reach $45bn in 2011, by some estimates.



To get a sense of what was going on out there in the glass houses, containers, and prefabbed units that are used to give protection from weather and people to servers, storage, and networks, London-based Datacenter Dynamics did a survey of data center operators who collective manage 100,000 faciliites worldwide with an aggregate of 7.7 million racks of gear. The survey was done in June and July of this year, and according to a report based on the survey, data center operators say they expect to add 7 per cent more to their facility count (or around 7,000 new data centers), boost racks by 15 per cent (or around 1.2 million new racks), and draw 19 per cent more juice for running this gear (or around 37 gigawatts all told). Data center investment in 2011 is estimated at around $30bn globally based on this sample, and will grow to $35bn next year.

Ranking the investment in data centers is a bit tricky. In terms of incremental growth in capacity, Turkey is the big grower, with an increase of 60 per cent in data center capacity from 2011 to 2012, followed by Brazil (up 45 per cent), Columbia (up 40 per cent), Argentina (up 36 per cent), Russia (up 29 per cent), and China (up 28 per cent). The eastern US is expected to grow by only 13 per cent, the central US by 12 per cent, and the western US by 3 per cent, according to estimates made by Datacenter Dynamics based on its survey data. The United Kingdom ranked 21st, with 5 per cent growth.

Source: Datacenter Dynamics, Industry Census 2011

But if you look at it by the amount of money that will be spent in 2012 based on what survey respondents told Datacenter Dynamics, then you get a completely different picture. The US rules, with $9.3bn in data center construction investment, followed by the UK, with $3.35bn, China ranked third, with $3.1bn in spending expected in 2012, followed by Germany, with $2.6bn, Australia with $2.45bn, and Brazil with $2.15bn. France, Italy, and Canada are close behind. ®

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Big Four auditors under pressure

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Big Four auditors under legal, EU pressure

 Authorities considering rules to break them up!

By Dena Aubin and Huw Jones NEW YORK/LONDON | Wed Sep 28, 2011

 

(Reuters) - The "Big Four" auditors face possibly their biggest shakeup since the Enron scandal as European authorities consider rules that could force them to break up, while the firms also are confronting multibillion dollar suits emerging from the subprime crisis.

The European Commission, according to a draft law seen by Reuters on Tuesday, is proposing that auditors be banned from providing consulting services to companies they audit, or even be banned altogether from consulting, a fast-growing business.

EU Internal Market Commissioner Michel Barnier is due to publish the draft in November, targeting what he sees as a conflict of interest when auditors check the books of the same companies from which they reap lucrative consultancy fees.

Leading potentially to break-ups, a ban on consulting would be the most punitive measure yet taken by regulators against the world's largest auditors -- Deloitte DLTE.UL, PwC PWC.UL, Ernst & Young ERNY.UL and KPMG KPMG.UL.

On another front, Deloitte was sued on Monday by a trust overseeing the bankruptcy of Taylor, Bean & Whitaker Mortgage Corp and one of its units claiming a combined $7.6 billion in damages. It is one of the largest lawsuits stemming from the 2007-2009 credit crisis.

Though auditors have been successful at winning dismissals of several crisis-related lawsuits, legal experts said some legal defences used by auditors in the past may have some holes when applied to the Deloitte case.

Deloitte has said the legal claims are "utterly without merit."

The Big Four review the financial books and records of most of the world's large corporations. The firms dodged a bullet during the era of the Enron and WorldCom frauds when U.S. regulators stopped short of an outright ban on consulting.

The 2002 Sarbanes-Oxley audit industry reform laws limited the types of consulting services that auditors can provide to companies they audit, but the post-Enron laws left auditors free to pursue one another's clients for consulting work.



STRICTER MEASURES

The EU has been considering stricter measures since auditors gave clean bills of health to many banks that suffered debilitating losses during the credit crunch.

Auditors, which are privately held, do not disclose their insurance coverage or reserves held for legal awards, though most have been able so far to absorb the legal penalties stemming from the financial crisis.

According to Audit Analytics, the Big Four auditors have been named as defendants in at least two dozen class action cases stemming from the credit crisis through July 2011.

"There is a point at which the reputational damage combined with large judgments can do significant damage to their operations," said Andrea Kim, partner at Diamond McCarthy law firm in Houston.

It is unlikely, however, that any of the Big Four firms would be allowed to fail, given their role in auditing most of the largest companies in key markets, she said.

MONEY-MAKING ENTERPRISE

"You can safely assume that before we reach that level, what you're more likely to see is some legislative action," she said.

Sarbanes-Oxley was enacted after the disastrous meltdown of Enron auditor Arthur Andersen, which had been the fifth of the Big Five audit firms. Sarbanes-Oxley actually helped the remaining four firms by creating more rigid requirements and auditing work for them.

"The biggest beneficiary of Sarbanes-Oxley was the Big Four," Kim said. "It's just a giant money-making enterprise."

The measure being considered in the European Union would be far more stringent. In addition to potentially forcing auditors to split off their consulting businesses, it might include a requirement that auditors be "rotated," or changed, every nine years, forcing them to give up some of their best clients.

Another element of the draft includes the introduction of "joint audits," so the Big Four would share auditing work with smaller rivals.

A ban on consulting would be especially damaging now, as the auditors have been furiously expanding their consulting business to offset slower growth in their core audit area.

"Breaking up the Big Four audit firms would make them more susceptible to be taken over by emerging Chinese firms," a UK audit official said on Tuesday on condition of anonymity due to the sensitivities involved.

Barnier's spokeswoman said he had made it clear that the audit sector displayed clear failings during the crisis, giving banks a clean bill of health just before they were rescued.

Think Twice About Paying Off Your Mortgage, Retirees!

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Retirees: Think Twice About Paying Off Your Mortgage

NEW YORK (CNBC) -- The countdown to retirement is on for millions of baby boomers and, thanks to a lifetime of diligent saving, some have amassed enough wealth to pay off their mortgages and live debt free. 


Conventional wisdom says it's best to pay off your mortgage before retirement, but given the low-interest rate environment, and the need to preserve cash in an unstable economy, that strategy is no longer absolute.

"Paying off your house is one goal, but having a zero-mortgage liability is not the answer for everyone," says Jennie Fierstein, a certified financial planner (CFP) in Westborough, Mass. "If you don't have a stream of resources to replenish it, you might do yourself a disservice by taking money out of the bank to pay off your mortgage."

Retirees themselves, it seems, are equally torn as to the most prudent course of action.

According to the Center for Retirement Research at Boston College, 41% of U.S. households aged 60 to 69 in 2007 maintained a mortgage. Of these, 51% had sufficient assets to repay their loans.

When it pays to borrow
 
While most financial planners agree that owning your home free and clear during retirement is a worthy goal, Elaine Bedel, with Bedel Financial Consulting in Indianapolis, says there are times when it makes more financial sense to keep your money in the market and use the earnings to pay off your loan.

That's particularly true, she says, if you need to invest (however conservatively) for growth.

"There are a few of my clients who feel like if they don't take the risk to get the growth, they're not going to be able to meet their retirement objectives and live the lifestyle they want," says Bedel. "If you take a big chunk out of your nest egg and the income it was generating was being used to meet your mortgage payments, as well as additional living expenses, that may not be the right thing to do."

CFP Fierstein agrees, noting most retirees are advised to withdraw no more than 4% from their nest egg each year to ensure they won't outlive their income.

Thus, if you take $200,000 out of a $500,000 portfolio to pay off your house, your income based on that 4% drawdown rate would drop to $12,000 from $20,000 per year. (The $20,000, of course, would have had to help pay for your mortgage.)

"It's very dangerous to tie up all your money in your house, because your house is not going to generate
income," says Fierstein. "It's nice security, but you lose flexibility and depending on how conservatively you invest your remaining portfolio you may not have enough income to live on."



What's your rate?

When determining whether to pay off or keep your mortgage, you should also consider your interest rate.

If the average after-tax return on your investments is greater than the after-tax cost of your mortgage, it may make sense to keep your money invested, says Fierstein.

Don't forget to factor in the effect of the mortgage-interest tax deduction.

If you're in the 30% tax bracket and you're able to claim the full deduction, a 5% loan is really only costing you roughly 3.5%.

Thus, you'd only have to earn 4% on your investments to make it worth your while. (Given the low interest-rate environment, however it's nearly impossible to achieve that rate of return on more conservative, fixed-income products such as bonds and certificates of deposit.)

"It's hard to find comparable risk-free investments, so you have to be able to stomach a loss if you want to go that route," says Jean Setzfand, AARP's vice president of financial security. "You can't get a plain vanilla CD anymore, because those rates are too low."

Getting close
 
If you're nearing retirement but haven't yet quit, the case for keeping your mortgage and continuing to invest is more clear -- at least until you part ways with the boss.

According to a 2007 study by the Federal Reserve, directing extra money towards your low-interest mortgage loan at the expense of continued contribution to your 401(k) is a costly mistake.

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Some 38% of the U.S. households that are accelerating their mortgage payments instead of saving in a tax-deferred account, such as a 401(k) or traditional IRA, are making the "wrong choice," it concluded.

For those households, reallocating their savings towards a tax-deferred account instead would yield a mean benefit of 11 cents to 17 cents per dollar, depending on the choice of investment assets in the account. In all, the study notes, "those misallocated savings are costing U.S. households as much as $1.5 billion per year."

When to pay it off

Despite the limited scenarios in which keeping a mortgage during retirement might make sense, AARP's Setzfand and financial planners Bedel and Fierstein agree that most retirees would be better off eliminating debt (however low the interest rate) for the peace of mind it affords.

Money, after all, isn't just about the math.

"I think for the general population our guidance is still the old adage of paying off your mortgage before you retire," says Setzfand of AARP. "There isn't anything as safe as being rid of that mortgage and that burden before you hit a period of your life where you're not bringing in a paycheck."

Indeed, mortgages consume 20% to 30% of the typical household's fixed expenses.

While some maintain that using savings to pay off one's mortgage is unwise, as it leaves you less cash on hand for unexpected expenses, such as medical costs and home repairs, Anthony Webb, the research economist who authored the Center for Retirement Research study, believes that argument lacks validity.

Households "need to consider what they would do if the bad event actually happened," he writes. To wit, how they "would maintain their mortgage payments once their financial assets had been spent."

Remember, too, says Bedel, you can always take out a home equity line of credit on your paid off home, which can satisfy the need for cash reserves.

If you can't pay off your mortgage in full without depleting your nest egg, says Fierstein, at least shoot for a more manageable monthly payment.

"I strongly advocate trying to pay down your mortgage, so when you reach retirement you're not faced with a standard of living crisis," she says. "There is some wisdom to paying off a portion of your mortgage so you have minimal payments and some left over in an emergency fund."

A generation ago, retirement planners often started with the premise of a paid off home, using Social Security, company pensions, and other income sources to help their clients cover living expenses.

Today, however, with interest rates at historic lows and many retirees chasing returns to offset losses incurred during the market meltdown, a mortgage-free retirement is not necessarily the long-term goal.

Deciding what makes sense for you depends on your financial profile, interest rate, and your ability to stomach risk.

-- Written by Shelly K. Schwartz, special to CNBC

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