Friday, September 08, 2006

Data center to feel the effects of mineral costs

This week reported that Emerson Network Power planned to increase prices for its Liebert line of data center infrastructure equipment. Emerson is laying the blame for the price hikes on materials costs. So I asked around and see if Liebert's competitors were experiencing the same pressure.

"Our industry has been dealing with significant increases in commodity prices, particularly in steel, lead and copper, for quite some time," said Chet Lasell, APC's director of public relations, North America. "APC absorbed these price increases and did not pass them along until recently when we increased prices on select products. We are aware that other vendors in the market have also taken similar action."

The folks at Wright Line had a similar take: "Wright Line has also experienced increased costs in both utilities and raw materials. However, we have worked very hard to maintain our pricing levels through cost reduction programs and improved manufacturing efficiencies." Mike Gagnon, VP of marketing.

And earlier this week, Caterpillar announced a 5%-7% price hike on its deisel generators for similar reasons.

Rich Miller at Data Center Knowledge had an interesting take on the topic. Miller said the bust serveral years ago flooded the market with used infrastructure equipment.

"That meant Liebert units could be found at attractive prices, which limited the manufacturer's pricing options. There was chatter at the time that Liebert even bought back some surplus units themselves just to reduce the inventory of below-market CRAC units. Times have changed. Between retrofits and 'greenfields' projects, there's another data center building boom underway. All those data centers will need to be cooled, which means lots of business for Liebert and APC (American Power Conversion) and their competitors."

It's a little like Exxon making record profits on the high price of oil.

But don't think these companies are just cashing in on demand. The commodities prices are actually going up. According to data from the U.S. Geological Survey, Mineral Commodity Summaries, January 2006, the price of Copper basically doubled between 2003 and 2005.


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