Bernstein: Data-Center Labor Bottleneck Is Driving a Shift to Modular Construction
Bernstein says a shortage of skilled tradespeople is forcing the data-center industry to shift from traditional on-site construction to modular construction.
Bernstein says a shortage of skilled tradespeople is forcing the data-center industry to shift from traditional on-site construction to modular construction.
The report expects the modular share of construction to rise from a 20/80 split between modular and on-site construction in 2020 to 60/40 by the end of the 2020s. It says modular construction could reduce build times by as much as 60%.
Non-hyperscale customers, including colocation providers and neocloud companies, are expected to increase their share from 45% to about 80%. These customers are more likely to delegate engineering and procurement decisions to contractors and original-equipment manufacturers.
Bernstein identifies Eaton (ETN), Schneider Electric (SU) and Vertiv (VRT) as the OEMs with the strongest vertical-integration capabilities. It identifies Legence (LGN) and Quanta Services (PWR) as the most vertically integrated contractors.
The report says modular construction offers four economic benefits: faster growth, a larger share of customer spending, higher margins and higher barriers to entry.
Bernstein's one-line conclusion is that the data-center labor bottleneck cannot be resolved quickly, making modular construction the only solution, in its view. It says vertically integrated electrical and thermal-management OEMs and contractors will be the biggest winners.
The report is bullish on Eaton, Schneider Electric, Vertiv and Legence, and bearish on competitors with limited product-line breadth. It says the modularization trend is already reflected in the share prices of some companies, while the structural benefit from a rising share of non-hyperscale customers has not yet been fully priced in.
The report identifies three catalysts to monitor: progress in the shift to 800-volt DC architectures and changes in MEP labor hours; bidding activity for data-center construction by non-hyperscale customers; and data on the actual penetration rate of modular construction.
The report expects the modular share of construction to rise from a 20/80 split between modular and on-site construction in 2020 to 60/40 by the end of the 2020s. It says modular construction could reduce build times by as much as 60%.
Non-hyperscale customers, including colocation providers and neocloud companies, are expected to increase their share from 45% to about 80%. These customers are more likely to delegate engineering and procurement decisions to contractors and original-equipment manufacturers.
Bernstein identifies Eaton (ETN), Schneider Electric (SU) and Vertiv (VRT) as the OEMs with the strongest vertical-integration capabilities. It identifies Legence (LGN) and Quanta Services (PWR) as the most vertically integrated contractors.
The report says modular construction offers four economic benefits: faster growth, a larger share of customer spending, higher margins and higher barriers to entry.
Bernstein's one-line conclusion is that the data-center labor bottleneck cannot be resolved quickly, making modular construction the only solution, in its view. It says vertically integrated electrical and thermal-management OEMs and contractors will be the biggest winners.
The report is bullish on Eaton, Schneider Electric, Vertiv and Legence, and bearish on competitors with limited product-line breadth. It says the modularization trend is already reflected in the share prices of some companies, while the structural benefit from a rising share of non-hyperscale customers has not yet been fully priced in.
The report identifies three catalysts to monitor: progress in the shift to 800-volt DC architectures and changes in MEP labor hours; bidding activity for data-center construction by non-hyperscale customers; and data on the actual penetration rate of modular construction.