The Big UK Data Centre

Equipment Opportunity
Contents

1 Executive summary 3
2 Introduction 4
3 Market structure 5
3.1 Global and UK market 6
3.2 Global trends 7
4 UK demand 10
4.1 UK specific demand drivers 11
5 Financial service sector — special focus 13
5.1 The role of the DC in financial trading 14
5.2 Financial trading drivers impacting DCs 15
6 UK capability — supply side 18
6.1 Equipment vendors 19
6.2 Component suppliers 19
6.3 Research base 20
7 UK supply-side opportunities 21
7.1 Mega DC opportunities 21
7.2 Location-sensitive DC opportunities 22
7.3 Specific UK technology opportunities 23
7.4 Economic impact 24
8 Barriers 25
8.1 Mega DC equipment barriers 25
8.2 Localised DC equipment barriers 25
9 Recommended interventions 27
10 Conclusions 28
11 Appendix 1 — Financial sector key players 29
12 Appendix 2 — Key sources 30
13 Acknowledgements and contact details 34

2 | The Big UK Data Centre Equipment Opportunity

1 Executive summary

Data is at the core of the modern economy. However, mega DCs are <50% of the global market
Manufactured goods accumulate data throughout and much less in the UK. Instead, the UK is home
the supply chain, money is stored and exchanged to facilities hosting customers who care much more
electronically, performance and services are digitally about the physical location of their data. This can be
monitored. Data uniquely unites the service and because of legal, security or societal restrictions but the
manufacturing sectors — essential to one and all. biggest opportunity is in DCs associated with financial
trading. To the City of London, data location impacts
The growth of the digital economy depends 100% on the speed of trading and thus the value of
accessing, processing and storing data. This generates >£5 trillion financial securities exchanged per year.
a £40bn market in the UK for data centres (DCs) Providing DC technologies optimised for high speed
and the networking, storage, processing cooling and trading, where the time to exchange and process
power equipment they contain. These facilities are data (latency) is equally important as the data capacity,
also major electricity users, consuming the output of is essential to keeping London competitive and keeping
approximately one and a half nuclear power stations. the UK a major international financial centre. The past
decade has seen a move from the physical trading floor
With huge demands for growth, the DC market is to the anonymous DC, populated with generic
simultaneously maturing and fragmenting. As different imported equipment; the next decade will see these
segments from online entertainment to security systems optimised for the unique requirements of
simultaneously reach critical mass, the demands they a DC. This presents a major opportunity for the UK
place on DC equipment are diverging as it becomes to supply latency and security-optimised hardware to
increasingly hard for one product to meet all the local financial services sector and other proximity-
performance and cost requirements. For many sensitive DC markets worldwide.
consumer markets, e.g. online shopping, the DC is
a back office cost — critical but unseen, where costs The UK has a globally leading data, optical
need to be minimised through scale and performance communications and storage innovation base, is
optimisation. Mega DCs have applications in extremely home to the world’s leading financial trading houses
competitive global markets, hungry for next-generation and is the birthplace of energy-efficient computing.
technologies. Open to rapidly adopting innovation, However, there is currently little overlap between these
these present opportunities for UK companies and communities, meaning opportunities are being missed
technologies prepared to overcome in providing next-generation solutions for financial
the barriers of scale, although few of these mega services and other proximity-sensitive DCs. Developing
DCs will be located in the UK. solutions requires bringing these communities together
to create a common understanding of the potential of
UK technology, who is positioned to take that
innovation to market, and how this can be translated
into a competitive advantage and reduce risk.

The Big UK Data Centre Equipment Opportunity | 3

2 Introduction

Data is the new lifeblood of industry and society. ~1.5 nuclear power stations’ worth of electricity,
By 2019 over half the world’s population will be enough to power ~3.8m UK homes or 14% of all UK
online with 3.9bn internet users, connected with households. For both environmental and cost reasons,
24bn devices1. This connected world is generating reducing this energy consumption is essential.
an enormous digital economy covering everything
from banking and shopping to remote healthcare, This report is for those looking to understand how the
security and finance. An intimate part of this new UK can make the most of the DC revolution through
economy is the remote storage2 and processing of the development, manufacture and deployment
data3 in data centres (DCs). By 2019 this will generate of next-generation hardware. This hardware is
two zettabytes of data traffic annually, equivalent increasingly based on optical technology — an area in
to transmitting 250bn DVDs. Making just three which the UK excels — and opportunities where UK’s
pence on every gigabyte of that data would generate technology advantage can be applied to specific local
more income than the entire global GDP in 2014.4 market demands are clearly identified. The objective is
to provide the key trends that frame the opportunity,
This provides a huge opportunity in services and what actions may accelerate UK technology and
in the hardware equipment on which that data is provide a direct link between the service sector
moved, stored and processed. This is not just a economy (whose raw material is data) and UK hardware
capacity, capability and security challenge — moving development and manufacture.
and processing data requires electricity. UK DCs use

The data centre revolution

24bn devices
By 2019 over half the ...generating an enormous digital
world’s population will economy including banking, shopping,
be online connected remote healthcare, security, finance...
with 24bn devices...

...which by 2019
will, through data
processing and
storage in data
centres, generate
2 zettabytes Making just 3p on every gigabyte of
250bn
of data traffic
DVDs this data would generate more income
annually equivalent than the entire global GDP in 2014
to transmitting
e e e
250bn DVDs. ep n ep n ep n
on

on

on
ny

ny

ny

4 | The Big UK Data Centre Equipment Opportunity

3 Market structure

The DC value chain has four key levels indicated in Figure 1.

Users Data centre Equipment External

• Banks operations suppliers Communication
• Financial services • Private • Switches • Leased Line
• Manufacturing • Shared • Servers • Dark Fibre
companies • Cloud • Storage • Private Radio link
• Consumer services e.g. Amazon, Equinix, e.g. H.P., Cisco, e.g. Colt, BT
• Goverment agencies Onyx, MKDC Broadcom, Huawei,
e.g. HSBC, Goldman Seagate
Sachs, Amazon,
Rolls Royce, HMRC

Purchase
Purchase

Figure 1: Top level data centre value chain. Non-exhaustive examples from the UK.

The connections within the value chain are, however, or the telecom providers may provide
complex, with two distinct types of relationship DC hosting as a service to its customers.
between end users and DC operators: Alternatively, a client may have a dedicated
private link and have their own relationship
• Hosting — where users pay to have their data with an external network provider with
stored or processed by the DC who operates, the DC promoting itself as independent of
maintains and owns the capital equipment. any individual telecommunications carrier.5
• Renting/remote hosting — where the client
rents floor or rack space in the DC for their These variations create differences in where the
own equipment, with the DC providing central responsibility resides for the provision, procurement,
facilities, e.g. power and cooling. The external maintenance and allocation of hardware — either with
communications can also be provided by the DC, the user or with the DC operator.
with all users inside the DC sharing that capacity,

The Big UK Data Centre Equipment Opportunity | 5

3.1 Global and UK market

The overall global DC market was worth ~$150bn in

2014,6,7 growing at 9–10% per year. Already there is over
1.8bn square feet of DC space in 8.6m DCs worldwide,8
6% of which is in the UK,9 where there are ~250
collocation DCs and 1000s more enterprise DCs within
companies.

Data centre equipment $114bn

Networking Storage Computing Plant

• Switches • Disk drive raid arrays • Hardware • Electrical
• Transceivers • Drive controllers • Blade servers • Rack power supplies
• Copper and fibre • Archive storage • Rack servers • Back-up power
network cabling • Solid state memory • Software supplies
• Cable management • Management • Generators
software • Coolinh
• Software defined • Air conditioning
network • Water cooling
• Client software • Racks

Figure 2 Breakout of key data centre components, with value of most relevant sectors.

The market for equipment in those centres was worth

~$114bn in 2014/15 and forecast to grow by at least
14% annually,10 driven by the replacement of existing
equipment and new DC built. The break down is shown
in Figure 2.11 All of these segments are growing by
at least 10% annually, e.g. networking equipment is
forecast to be worth $22bn by 2018,12 up from ~$10bn
in 2014;13 cloud storage $65bn by 2020, up from $19bn
in 2015;14 and DC servers $44bn by 2019, up from
$35bn in 2015.15

The UK is the leading market in Europe for DC

equipment.16 Over £20bn is spent on DC equipment
each year in the UK, 24% of the EU total and growing
at over 8% annually.17

6 | The Big UK Data Centre Equipment Opportunity

3.2 Global trends

Time, speed, cost, capacity, security and energy to Virtualisation has seen a rapid rise in so called East-
move and process data are all critical in the rapid West network traffic within DCs, i.e. data traffic that is
evolution in DCs, illustrated in Figure 3, leading to a purely internal to the DC as opposed to North-South
number of ongoing market trends. traffic destined for locations outside the DC. For every
byte of data that makes it to the outside world, 60
3.2.1 Virtualisation times more flows around inside the DC. This changes
In a modern DC, computing tasks are no longer the type of network structure, speed and bandwidth
allocated to a dedicated server. Instead tasks are required in the DC, driving rapid change in the DC
allocated to a number of virtual servers connected networking equipment.19 By 2019, DC IP traffic will
with a software-defined network.18 If the load reach 10.4 zettabytes per month or ~4 petabytes per
increases, more computing power and network second, growing at 25% every year.3
bandwidth can be allocated with the required
interconnectivity assigned on the fly. Hardware
utilisation rates in such DCs can be much higher and
enable systems to respond to peaks in demand — but
this is not without cost.

Data Centre Evolution

Localised market Commodity market

• Many local customers • High volume
• Generic needs & specialist niches • Location independent
• Few global customers

Enterprise DC
Remote physical DC DC hosted service
Equipment user
DC hosted & DC owned &
owned, hosted operated, user operated, user
& operated owned equipment specified software

Networked server &

storage, user owned Enterprise DC Global serviced/App
Cloud service DC
hosted & operated User owned, Multi Mega DC
software & operated, owned operate by
interface owned hosted service/
& operated by app supplier
service supplier

Past Future

Figure 3 Growth and progressive segmentation of the data centre.

The Big UK Data Centre Equipment Opportunity | 7

3.2.2 The rise of the mega data centre 3.2.3 The drive for power and cost efficiency
The past decade has seen a huge increase in the use To avoid an energy crisis, next-generation DC
of cloud-based services, e.g. Dropbox, Netflix and technology must offer higher performance without
global consumer platforms such as Facebook, Amazon increasing energy consumption. Therefore, every time
and Google. This has driven a rapid growth in mega performance increases (e.g. network speed) energy
DCs, which are frequently owned and operated by consumption per unit of performance (e.g. fJ/bit) must
these service providers, each containing thousands of reduce at the same rate.
computer servers, storage arrays and data switches.
Google and Microsoft already have over 1m servers in Similar trends are also apparent in equipment cost,
their DCs. with strong downward pressure on cost per unit of
performance. This makes it increasingly difficult to
By 2018 mega DCs will account for 45% of all new recoup the development costs of next-generation
DC space (up from 20% in 2013), equivalent to an devices, in part leading to fragmentation of the market.
additional 30m square feet per year.20 The rapid pace
of technology development also means equipment- However, it is the total energy consumption and
replacement cycles in such facilities are as short total cost of the DC that really counts. Therefore,
as three years. Shipments to mega DCs therefore technologies that are more efficient and produce less
dominate equipment volumes, making them attractive heat or can operate at higher temperatures (reducing
targets for vendors. However, this also means mega cooling costs) may provide overall savings, even if they
DC owners drive the hardest bargains on price and are not individually more efficient.
have significant influence on the roadmap for future
technologies. For example, Facebook has put down Cost reduction is also a greater focus when there is no
the challenge to vendors of producing transceiver direct link between performance and revenue. Many
components at $1 per gigabyte21 and Microsoft is web-based services, especially in the consumer space,
championing the use of single mode optical fibre in are paid for indirectly, requiring a large user base to
internal DC networks. attract advertisers. Maintaining and growing a user
base requires providing ever-increasing functionality to
users but this is only indirectly linked to income as the
network grows, making cost reduction a key focus for
the operators of DCs behind such services.

8 | The Big UK Data Centre Equipment Opportunity

3.2.4 The rise of optical technology Figure 4 Overview of impact of DC Market trends
Optical fibre and light-based data transmission on DC hardware
has long been the technology of choice for long
distance communication networks linking continents, Agile development
countries, cities and metro areas. Copper wires have
a limited capacity to carry high speed data — even in Vendors need to be more agile in the development
connections to the home and cellular mobile towers, of new products as it becomes harder to gain
traditional copper connections are beginning to limit a return on investment for large-scale lengthy
data capacity. As data rates increase, the distance over product development cycles.
which it is essential to move from copper to optical
solutions reduces. Data rates inside DCs have now Open innovation
reached the level that optical fibre and associated
Agility drives greater openness to leveraging and
optical transmitters and receivers are becoming
integrating external innovation, giving a greater
essential for providing connections inside DCs. Optical
role for smaller/newer players.
transceiver capacity within DCs grew by 21% in 2014
and is forecast to grow to >1 petabit per second by
2019, representing a $2.1bn market.22 Product variant proliferation
Products have to be more targeted, with the balance
3.2.5 Fragmentation and virtual
in performance, cost and energy consumption
vertical integration
closely matched to the end applications.
The drive for cost reduction has begun to cause the
DC equipment market to simultaneously fragment
and vertically integrate. The biggest DC operators, New market niches
such as Google, design and manufacture their own
New markets emerge in niches where the volume-
DC equipment to meet cost and performance targets.
optimised solution compromises a key performance
Used exclusively internally, this created the ‘white box’
parameter (reliability, security, size, speed,
market, first for servers and more recently for switches.
bandwidth, latency).
Most recently this has led to the rise in so called
bare metal products,23 an intermediate solution, with
the customer using their own proprietary control Technology platforms
software with the supplier focusing on just the bare
Increased emphasis on technology platforms that
physical hardware.
can support the development of multiple product
lines, e.g. silicon photonics.
More demanding performance at lower prices is
also causing fragmentation in product offerings.
Previously vendors produced a relatively small range Reduced barriers change
of components and sold them to a large number of
Barriers to new entrants are reduced as low
different DC customers. Now the market requires
volume, high value niches emerge but are increased
a tighter matching of product performance to
in highest volume applications.
application. The result is a proliferation of product
variants, each optimised to a different application,
meaning the volume for any individual variant Value chain specialisation
is reducing despite overall growth. This is having Lower down supply chain drives vendors specialise
a fundamental impact on the equipment market in one part of the process, e.g. packaging,
presenting major challenges and opportunities to chip fabrication, building volume over multiple
equipment vendors. product lines.

The Big UK Data Centre Equipment Opportunity | 9

4 UK demand

The demand side of the UK DC market is shown in facilities (e.g. Onyx). Many are major international
Figure 5, illustrating diverse end users from every companies operating DCs all over the world.
aspect of British industry. DCs are vital to For example, Equinix is one of the largest collocation
manufacturing, used everywhere from inventory providers, with ~8% global market share,24 operating
management and accounting to complex modelling and over 100 DCs in 33 cities and 16 countries across
production test and measurement. They are similarly the world.
important for defence, security and public sector
organisations (from the NHS to HMRC) to consumers Alongside DC operators are providers of the
(exemplified by the BBC iPlayer) and are particularly communications links between DCs and the DC user.
important in financial services. These include all of the regular telecommunications
operators (e.g. BT) plus specialists (e.g. in radio links
To supply these end users there are a wealth of DC for low latency). A number of DC operators also provide
providers. Some of these specialise in specific market communications links for their customers
areas such as financial DCs, others in regional DCs for (e.g. C4L), underpinning the importance of strong
corporate clients. Many operate more than one DC, communications in and out of the DC, although
with both large-scale campus facilities (e.g. Global others emphasise their neutrality with respect to
Switch in London E14) and geographic disperse communication service providers.

Data Users

Financial Industrial Defence/Security Public Sector Consumer

Barclays, Morgan Rolls Royce, GSK, GCHQ, Police, NHS, HMRC, BBC, Unilever,
Stanley, Goldman Sachs, BAE Systems Boarder security Dept. of Work all major
JP Morgan, UBS and and many more agencies, and Pensions retail groups
all investment banks armed forces

Knight Capital,
Sun Trading, Jump
trading & specialist
trading houses

Demand Side

UK Data Centre Provider External Communications Network Link

C4L, Cyrus One, Century Link, Equinix, Global Ai Networks, BT, Century Link, Colt Telecom,
Switch, IOmart, Interxion, MDS tech., Microsoft, Custom Connect, C4L, EU Networks, Hibernia,
Node 4, NTT, Onyx, Pulsant, Rackpace, Sungard, Level 3, Viatel, Venus, Virtual 1
Telehouse, UKFast, Virtus etc

Figure 5 Demand side of UK data centre market from the hardware provider’s viewpoint

10 | The Big UK Data Centre Equipment Opportunity

4.1 UK-specific demand drivers

The DC market exists because, in modern

communications, where data is stored and processed
can be unrelated to where data is acquired or used.
This should make DCs an economically perfect market,
where facilities migrate to the lowest cost location.
For some global services providers such as Google,
this is in part becoming reality, with their latest mega
DCs located in colder places with low electrical costs
and plenty of land, e.g. Finland.25

However, there remain costs in both time and money

when moving data. Figure 6 shows a heat map of
~250 collocation DCs in the UK.26 Even these latest
generation multiuser facilities find it beneficial
to be near their customers, often based in or near
large metropolitan areas.

There are technical reasons for clustering. Long-haul

optical fibre networks can carry huge amounts of
data but it is cheaper and faster to move data smaller
distances. Even when less data volume is concerned,
distance can still be an issue. It takes six milliseconds
for light to travel from London to Edinburgh and
back, 55 milliseconds for the round trip to New York.
This is fast, but huge amounts of money can be made
(and lost) in the movement of, for example, stock prices
in these timescales.

Beyond technicalities, proximity to customers still

counts for a lot in building trust and engaging with
customers. Whilst companies are getting more
comfortable with having data processed remotely,
many still like to know it is handled nearby and
certainly in the same legal jurisdiction. Figure 6 Heat map of UK co-location DCs

The Big UK Data Centre Equipment Opportunity | 11

 Financial services Figure 7 Contribution of
£127bn
data to adding value in
Impact of data centre location

Defence key end markets and the

£32bn
importance of data
High

Communications centre location. Bubble

£23bn size and figure indicate
Health & Social Care
£107bn Gross Value Add to the
UK economy of different
Manufacturing sectors (defence = UK
£149bn Retail
HPC £1bn defence spending)
Low

£71bn

Low Importance of data to adding value in sector High

Figure 7 shows the importance of data to a number The demands driving DCs are therefore not uniform.
of key economic sectors in the UK and the relative Although there are many consumer applications where
importance of DC location.27 Almost all markets have cost, energy and speed are the biggest drivers. Figure
some dependency on data these days. Even those 7 shows there are many key sectors where proximity,
industries on the low side in Figure 7, can — and do — driven by the time to process/access data and/or security
leverage DC functionality, and the importance of data needs, is the highest concern of customers. Such differing
and data analysis is rising. In some cases, such as retail needs are driving segmentation in the market. Mega
and agriculture, it is rising very quickly. However, not DCs will make up 45% of the market for DC space by
everyone cares where that data is located. For example, 2018, controlled by a few global companies with location
when online shopping the consumer has no visibility influenced more by energy costs than customer location.
of where the server and database behind that shopping This still leaves the majority of the market remaining,
site is located. We do care about how efficiently our requiring ~$40bn worth of DC equipment by 2020,i
order gets to the warehouse and is despatched but a meaning these proximity-sensitive applications are not
few milliseconds to transmit that instruction around small niches. Clearly some of this market will be addressed
the world are lost in the overall timescale of physically by the same ‘commodity’ products that enter the global
shipping goods. Hence such services migrate to mega mega DCs but even 5% of the non-mega-DC equipment
DCs, often located internationally. market is worth over $5bn globally.

Those end markets offering greatest opportunity to UK The UK is not the only country in the world to have
DCs are the largest markets where data access/analysis hotspots of DC activity that are highly sensitive to
and its location are most important. Here financial local demands. New York, Tokyo, Frankfurt and other
services dominate. There are other industries such as financial centres see a clustering of DCs around financial
healthcare where, technically, DC location may be less exchanges. Other nations are sensitive to where their
important but where we are sensitive about having our citizens’ data is held and how it is protected. The latest
data held outside the UK. Similarly, security and defence European Court of Justice ruling has changed the legal
capability increasingly depends on vast amounts of data basis for the transatlantic transfer of personal data,
that, to maintain sovereign capability and ensure the illustrating how regional attitudes to data protection
very highest security, must be processed in the UK differ.29 This means the same factors driving demand for
(for example, in 2015 Microsoft announced a UK hosting proximity-optimised DC equipment in the UK exist in
of Office 365 for the Ministry of Defence28). many locations, providing significant export opportunities
for solutions first developed for the UK market.

i Assuming equipment is distributed approximately uniformly across data centre space and a total equipment market of
$72bn, as noted in section 4.

12 | The Big UK Data Centre Equipment Opportunity

5 Financial service sector — special focus

The value of financial securities traded on the London In all cases data is critical to buy/sell decisions and the
Stock Exchange (LSE) in a single month is ~£100 bn,30 pricing of securities. Some forms of trading (e.g. retail,
with the total value of all securities traded on the LSE31 pension funds or traditional traders) take a long view,
equivalent to ~14% of global GDP. In addition, 41% of assessing the strategic strengths of a company and
global currency trading takes place in London.32 These its prospects for growth, with trading decisions based
securities are not traded physically but as data. A sector on a highly diverse range of information and the
that contributes £124bn in GVA to the UK economy33 expert assessment of the trader. In relative terms,
is therefore critically dependent on DC performance. the data volume required is large and variable, and the
timeliness on which it must be delivered matters —
This analysis focuses on the role of DCs in the but only on the timescale of human deliberation,
secondary market of the trading and resale of financial i.e. seconds to minutes.
securities — a value chain illustrated in Figure 8.

Investment Banking

Corporate Asset/wealth
Equities Fixed income Commodities Currencies
Finance management

‘Primary Market’
Issuance of debt & ‘Secondary Market’ Advisory & investing
securities, mergers Trading of financial securities for high net-worths
& acquisitions (e.g. shares)

Primary Trading/
market making
Arbitrage News
Financial markets

Market
Momentum
data

Data Flow

Proprietary Hedge/mutual Quantitative High-frequency

Retail trading
trading funds trading trading

Impact of information/Data speed

Figure 8 Schematic of financial markets, indicating different types of trading and the importance of the
speed of data

The Big UK Data Centre Equipment Opportunity | 13

In contrast, in high-frequency trading the decision However, the value of that data is extreme. Considering
making is mostly automated, embedded in a trading only the LSE UK stock trading order book, every digital
algorithm. The underlying assumption is that other one or zero transmitted in trading is worth ~£6 per bit
parties, slower to make the same analysis, will also or £57bn per gigabyte. If it were moved physically, this
purchase the asset, thus inflating its price and allowing would make a very valuable memory stick!
the fastest purchaser to sell at a profit.ii Such strategies
depend on obtaining live market trading data and its
derived information34 and thus the time to obtain data
— down to the last millisecond — is critical.

These two types of trading and the multiple

intermediate possibilities are not independent of
each other. Trading with a long-term outlook is often Figure 9 Illustration of the monthly data
facilitated and delivered through high speed trading, volume of the UK stock order book on LSE
which provides significant liquidity in the market.
In contrast, the data traffic generated in providing
information for making trading decisions is huge.
Placing a trade is the end result of asking many
5.1 The role of the DC in questions from many places. One of the most
financial trading effective methods of getting market data is to request
a quotation from an exchange. The rise of high-
The role of DCs in secondary markets is twofold: frequency trading strategies has seen a huge rise
in quotation requests, with high speed algorithms
1. T
 o act as the infrastructure on which financial sending out millions of such requests every second to
institutions trade securities. At the heart of every multiple exchanges. The result is increased computing
securities exchange is an order-matching engine requirements in the exchange-matching engine and
where algorithms (depending upon the type of trade an explosive growth in the volume of data initiated by
executed) match buyers and sellers.35 The matching obtaining quotes from multiple exchanges. In the US,
of trades at the LSE has been completely electronic the capacity for Consolidated Quote Systems across
since 1986,36 meaning modern trades are completed all exchanges has been in excess of one million quotes
on a computer server in a DC based in, for example, per second since 201138 with similar figures for the
Basildon37 — not on a trading floor in London. UK. Again, assuming each quote requires a one line,
100 byte text string to be transmitted and received,
2. T
 o provide the information on which trading this amounts to five terabytes of data per day or one
decisions are made on, e.g. quotes, volumes, petabyte per year.
market activity and trends. While there are several
feed types for accessing live market data, there The volume of quotation data is equivalent to almost 1%
are broadly two ways in which data can be accessed: of all UK mobile data traffic39 and becomes a significant
via a direct feed from the matching engine or fraction of the load on the network infrastructure.
through the Securities Information Processor (SIP). Not only does this drive demand for higher-capacity,
low latency links — as the return time to request a
The total quantity of data required to complete security quotation and receive a response can be critical to
trades is not large. The 200 million trades completed the trading decision — it also causes exchange DCs
on the LSE each year equate to only ~200 gigabytes of to cluster around key access points on the core fibre
data,iii no more than the capacity of a small hard drive. network and where local network capacity is greatest.

ii Excluding market making and some arbitrage strategies, while the predictive strategies employed by some may be
different (for example, quantitative, technical, and fundamental analysis)
iii Assuming each trade requires the transfer of one line of text at 100 bytes per line, ten times around the system.

14 | The Big UK Data Centre Equipment Opportunity

5.2 Financial trading drivers impacting DCs

5.2.1 Trade execution speed: Key Drivers of Change in Financial Trading DC’s
The impact of trading speed varies according to
trading strategy. High-frequency traders looking
Execution speed
to engage in forms of arbitrage or take advantage
of an exchange’s liquidity rebating system will
have a much higher demand for high speed data. Data speed/latency
As of December 2012, high-frequency trading firms
were active in approximately 27% of the trading
volume in UK-listed equities.40
Location between exchanges

However, the ability to trade faster also means High speed data as a service
more trades can be completed per unit of time.
This encourages the lowering of financial spreads,
making markets more efficient, reducing everyone’s Quote volumes
trading costs. Thus competition for the fastest
trade execution speed remains an ongoing trend Latency volitility
throughout the industry and is a significant driver in
the development of a new trading infrastructure.41
Regulation and time stamping
5.2.2 Data Latency
The largest factor affecting the overall speed of
Figure 10 Key drivers of change in financial
trading is the communication route between trading
trading DCs
parties. Whilst the design of the software and the
servers on which matching engines and trading
algorithms also has impact,42 trading cannot take
place faster than the information flows. Importantly,
this is not the volume of data in megabytes per
second — it is the time data takes to get from a to b,
known as ‘latency’ and measured in milliseconds.

Thus there has been an increase in demand for low

latency links in the past five years, with many DCs
targeting financial industry clients marketing the
latency of links from their location to key exchanges.
Firms and institutions trading with high-frequency
strategies will have the greatest demand for such
links as it is a primary factor in their performance.
Examples of such specialised firms include Knight
Capital Group, Sun Trading and Jump Trading.
However, the secondary impact on market efficiency
means low latency trading systems and links are used
by nearly all major financial institutions for making
markets and/or proprietary trading in highly liquid
markets.

The Big UK Data Centre Equipment Opportunity | 15

5.2.3 Location of the exchange If one provider can deliver this information to many
The move to electronic trading has seen the heart of subscribers, e.g. within one DC, it can be delivered
the financial exchange move from the physical trading over a single low latency link. This reduces demand for
floor to the DC. Alongside this there has been a boom the proliferation of low latency links — at least
in the number of exchanges enabled by the MiFID to access market information, if not for the
(Markets in Financial Instruments Directive) in 2007 actual quotation and placing of trades. However,
which paved the way for the decentralisation of trading a data supplier needs to appeal to as many
venues. There are currently 154 Market Identification subscribers as possible and be flexible to their
Codes (MICs) for potential exchanges within London customers’ data requirements. This increases the
where the transaction of specific financial securities data capacity required on such links, which is relatively
can take place.iv As a result of the need to accurately limited for the current lowest latency
price assets across multiple exchanges, this has meant radio and microwave systems.
that the importance placed upon low latency systems
has increased. 5.2.5 Latency volatility and monitoring
The consistency of latency data is essential for
As latency is linearly dependent on distance, there is a the accurate running and development of trading
strong incentive to collocate high-frequency trading algorithms — in extreme circumstances variations risk
systems within the same DC as the exchange or get turning profit-making strategies into loss-making ones.
them as close as possible. Hence exchanges have a Monitoring systems throughout the trading process
habit of clustering around each other, i.e. the distance helps protect against such risks, ensures consistency in
between DCs active in trading between multiple trade execution prices and allows for the development
exchanges is normally a maximum of 30–35 miles.43 of overall faster trading routes. Azul Systems Vice
This is why there are so many DCs clustered around President of Technology and Chief Technical Officer
London (Figure 6) and why financial trading is the most Gil Tene has stated: “Being fast consistently and being
important proximity-sensitive DC market in the UK. able to predict consistency is just as important as
being fast on its own.”44
5.2.4 High speed market data as a service
In the early days of high speed trading there was a The measurement of trade execution and quotation
rush to leverage low latency links to exchanges to get times and their volatility is a major trend within the
the fastest market information. However, recently investment banking industry. Globally many of
there has been a rise in the provision of low latency the larger exchanges now offer latency monitoring
market information as a subscription service to for their matching engines45 but the sophistication
compliment data generated directly from quotations. is yet to reach a level where all of the major routes
Many of the exchanges that allow for the presence of can be monitored in tandem.
high-frequency traders will sell subscriptions to live
data feeds, creating a significant source of income for Latency monitoring is especially important for the
the exchange. accurate testing of potential strategies. Most new
algorithms are tested on simulated markets before
being released but the accuracy of the simulation
requires matching the modelled latency with that
encountered in the real world.

iv Excluding data centres working in conjunction with the operation of clearing houses and including open access
Recognised Investment Exchanges and those with restricted access (Dark Pools).
http://www.iotafinance.com/en/ISO-10383-Market-Identification-Codes-MIC.html

16 | The Big UK Data Centre Equipment Opportunity

5.2.6 Time stamping 5.2.7 Regulatory change
Time stamping requires embedding data on precisely The potential impact of regulation on high frequency
when a trade took place. With the expected application trading is significant,49 especially on those using trading
of the Markets in Financial Instruments Directive II strategies in arbitrage or electronic front running
(MiFID II) Act across the European Union in January between exchanges.
2017, the accurate time stamping of trades is expected
to become more significant.46 Currently the time In conjunction with this, there is debate as to whether
stamps applied to data can be contradictory due to providing live market data on a subscription basis
small difference in the reference clocks used between (see section 5.2.3) to only some members of the
different DCs and parts of the network. An article secondary market community creates an imbalance
published by the UK’s National Physical Laboratory between participants.50 However, the steps being taken
(NPL) states: “in some cases, data can appear to through MiFID II to gradually implement an improved
travel backwards in time when sent from one location level of transparency within the lower latency levels
to another”.47 of trading, mean that the overall concerns amongst
institutions and firms has subsided recently with
To provide accurate time stamps MiFID II will require regards to live data subscriptions.
firms to synchronise their DC servers with Coordinated
Universal Time (UTC). Trades deemed to be high Further regulatory change could be expected within
frequency in nature will need to be time stamped at the next five to ten years in the implementation
microsecond intervals, with a maximum divergence of additional circuit breakers in the trading of equities
of 100 microseconds from UTC.48 Obtaining such and derivatives. Individually, such circuit breakers only
synchronisation between DCs is not trivial, considering have limited impact on high frequency trading as their
that it takes more than 100 microseconds for data to constraints are rapidly built into the trading algorithms.
travel 20km along the optical fibre, meaning variation However, there is little information on the efficacy of
in distances from the reference time standard cause circuit breakers across a market made up of multiple
variations in the time stamp. exchanges.51 Given the trend for high frequency trading
to use quotes across multiple exchanges and the
Improved time standards are an important part of the proliferation in exchanges, further regulatory interest in
solution. NPL has been leading the way here, providing the area is likely.
NPLtime — a UTC traceable time stamping service to
trading organisations.47 This provides a basis for further 5.2.8 Risk and volatility protection
network and latency monitoring solutions. In financial markets the amount of low latency
data required in normal trading may be moderately
Circuit breakers: any measure used by exchanges high but in highly turbulent markets, or when volumes
during large sell offs in markets to prevent spike in response to external events, limited network
further panic selling. e.g. if a stock falls by >10% capacity can compound — or even increase — the
in a five-minute period, trading of that stock is volatility of the market. In the 2010 ‘flash crash’, lag in
temporarily paused. the delivery of market data created a sudden increase
in trading volumes and is thought to have compounded
Arbitrage: Taking advantage of a price the scale of the crash.
differential between related financial securities
on different exchanges. Having more low latency links with much higher
capacity reduces the risk of lag-induced pricing
variability, helping to alleviate the potential of
technology-induced market events.

The Big UK Data Centre Equipment Opportunity | 17

6 UK capability — supply side

The supply side of the UK DC equipment market is illustrated in Figure 11.

Equipment systems

Network Server Storage Power & Cooling

Polartis, Cisco, HP, HP, IBM, Oracle, Cisco, EMC, HP, Oracle, Schneider Electric,
Arista, Avaya, Brocade, Dell, NEC, Fujitsu NetApp, Seagate Emerson, Eaton,
Dell, Extreme, Juniper, (Xyratex) Geist, Rittal
Networks, Huawei, Lenovo
First Mile Networks

Components

Transcelvers Packaging & Test Semi-conductors

• Oclaro, Huawei, Fujitsu, Finisar, JDSU, Infinera, Cisco, • Optocap, Bay & sub-component
Ciena, Alcatel-Lucent, Neophotonics, Sumitomo photonics, Yelo • CST, IQE, Seagate,
electric, Effect, BB photonics, TeraOpta, PureLiFi, Oclaro, aXenic,
Rockley Photonics Gooch & Housego

World Leading UK Research Base

Communications High performance computing

• University of Aston • University Nottingham •H  artree Centre
• University of Bristol • Queens University Belfast • Archer
• University College London (UCL) • University of Sheffield • Hector
• University of Southampton • Cambridge University • Core
• HPC Wales

Figure 11 UK data centre equipment supply chain. Companies with a significant UK presence are in bold.

18 | The Big UK Data Centre Equipment Opportunity

6.1 Equipment vendors 6.2 Component suppliers

DCs require both hardware and software and, At the component level the UK has multiple suppliers,
although trends to virtualisation have increased the especially in DC network equipment components
role of software, ~77% of the market by revenue and storage. These range from the latest transceivers
remained with hardware in 2015.52 Expenditure is manufactured by Oclaro in Caswell to semiconductor
evenly split between networking and server equipment components manufactured at wafer scale (e.g aXenic,
with slightly less spent on storage. In the UK, almost Oclaro and CST) to semiconductor wafers from IQE.
all of this equipment is currently imported, as shown 30% of the world’s read/write heads for hard drives
in Figure 12, with HP, Cisco and Dell the leading used in DCs start life at Seagate’s manufacturing site in
providers. However, different vendors lead in different Springtown, Northern Ireland.
types of equipment. Cisco dominates the market for
DC networking equipment by a substantial margin, The strength of the UK in network and storage
with over 50% market share in some Ethernet system components is not reflected on the server
switches,53 whilst HP has the dominant position in side. Currently Intel holds ~95% of the market
the server market.54 for DC server processors55 and the UK is not a base
for server processor design nor silicon manufacture
A notable number of the leading players host significant (the exception is in low power processors).
development centres in the UK, including Huawei,
Fujitsu, HP and Seagate. The UK also has a number of The root cause of this difference is in the type of
specialist network equipment suppliers, e.g. Polartis semiconductor used. Networking equipment
supplying optical switches and Geist and Rittal frequently uses compound semiconductors,v in which
supplying power solutions — all supported by a number the UK has considerable design and manufacturing
of specialist civil engineering firms involved in DC capability (and in which a new Catapult centre
construction across Europe. was announced in 2016). Processors and memory
are currently based on silicon semiconductors,
manufactured in a few large-scale foundries outside
UK data equipment suppliers the UK.

The UK also maintains significant expertise in ultra-

Cisco high-speed silicon design, e.g. at Fujitsu Basingstoke.
14% Such designs are particularly important in the highest
speed networking components where the high speed
IBM processing is used before and after data is transferred
8% to the optical domain for transmission.
HP
7%
Other
41% Dell 6%

EMC
4%

Figure 12 Current suppliers of UK data centre Figure 13 Oclaro 100G QSFP28 CLR4 Transceiver
equipment (source Catdor 2014). (source Oclaro)

v Compound semiconductors are critical for the conversion of light to electricity, and vice-versa, and are at the core of any
optical communications link. Such conversion is not possible in silicon and thus modern communications combines high
speed silicon electronics with compound semiconductors and optical fibres.

The Big UK Data Centre Equipment Opportunity | 19

6.3 Research base

The UK has a particularly strong research base The UK also has significant expertise in high
in technologies that are critical to the development performance computing, including multiple
of next-generation DCs. Much of this expertise has high performance computing facilities in universities
been built up over four decades of research into (shown in Figure 11), the Hartree Centre and
optical communications and data science. As illustrated a new £97m super computer at the Met Office.57
in Figure 14, this expertise is embedded in multiple Supercomputing facilities have much in common
universities across the UK. with high-end DCs — with high speed, low latency
networking being key to linking the thousands
As a reflection of the UK’s leading position in of computer processors they contain. There is also
communications research, the Engineering and a move to deploy more optical technology to link
Physical Sciences Research Council (EPSRC) has the processors, opening opportunities to the UK’s
invested substantially in the area over many decades. optical communications knowledge base.
EPSRC is currently supporting at least 111 grants in
the broad area of communications with over £158m One of the key challenges in supercomputing is how
invested.56 UK research expertise extends throughout to formulate complex problems to make best use
the technologies from optical fibre and compound of their computing power. This is increasingly an area
semiconductors to integrated photonics, data storage, of UK expertise and one that can be applied to the
high speed electronics, encoding, data transfer processing core of DCs, such as the matching engines
protocols and magnetics. This research also extends in financial exchanges, if the relevant networking,
throughout the value chain from next-generation processing architecture and user communities are
materials to critical components to systems. brought together.

University of Strathclyde University of St Andrews

University of Glasgow Heriot-Watt University
Glasgow Caledonian University University of Edinburgh
Queen’s University of Belfast University of Sheffield
University of Manchester University of Leeds
University of Bangor University of Oxford
Aston University University of Cambridge
University of Cardiff University of Essex
University of Bristol University College London
University of Bath Imperial College London
University of Exeter University of Surrey
University of Southampton

Figure 14 Key academic centres of data communications research in the UK

20 | The Big UK Data Centre Equipment Opportunity

7 UK supply-side opportunities

The increasing fragmentation of the DC equipment

UK Capability
product offerings and the strong demand for localised
DCs in the UK, especially from financial services, Mega market Localised market
gives rise to two divergent streams of opportunities, Highest volume Localised customised
as illustrated in Figure 15. Mega data centre products for proximity
customised products sensitive DC’s
7.1 Mega DC opportunities

There are opportunities in supplying storage, network Power Servers Storage Network
and power solutions to mega DCs globally. This is a
high volume, focused market where cost and energy
per unit of performance are absolutely key. The market
is also extremely competitive, attracting all global
IT equipment suppliers, significantly reducing
Low Single High High Low
the opportunity for making sustainable high margins. energy mode reliability security latency
Additionally, few if any of these mega DCs are located
in the UK due to the price of land and energy, meaning
few local mega DC customers. Figure 15 Divergent supply-side opportunities for data
centre equipment and services manufactured and/or
In the storage segment (via Seagate) and network designed in the UK.
equipment (via Oclaro) the UK has companies of
significant scale and globally leading capability already
addressing opportunities in mega DCs. There are also
a number of start-ups, e.g. BB Photonics and Rockley
Photonics, developing solutions.

The UK also has world-leading design capability in

low energy computing at ARM. Pioneered for mobile
devices, applying this expertise to the most energy-
sensitive DC computing requirements could have a
significant impact.58

The Big UK Data Centre Equipment Opportunity | 21

7.2 Location-sensitive DC opportunities

In contrast, fragmentation of the DC equipment Location-sensitive applications will have lower

market and strong demand for localised DCs provides a volume demands, a higher focus on performance and
new generation of opportunities for products targeted local customers, and in some cases (e.g. high speed
at specialist, high performance, proximity-sensitive DCs. trading) a more direct link between performance and
income. This creates opportunities for many more UK
Products that meet the low cost, high volume needs of companies to enter the DC equipment market if they
mega DCs will not meet the needs of specialist, high can be connected to local customers and understand
performance, proximity-sensitive DCs. The days of one their specific needs. There may also be more than one
DC product working for all applications are fading. Any location-optimised market, depending on the balance
surplus functionality, reliability or security will inevitably between latency (e.g. for finance users) and security
be engineered out of mega DC products, making room (e.g. for health, defence/security users). It is notable
for the high value, higher engineered products in which that the ability to securely make real-time decisions
UK electronics and photonics manufacturing excels. is a common feature for all of these markets, leading
to common technology drivers despite the diversity
This is not an established market but one that is rapidly of proximity-sensitive end users.
emerging due to trends in DCs and the divergent
needs of users, providing the opportunity for the UK The extensive UK academic knowledge base identified
to benefit from the start. It is also not a market that in section 6.3 is well positioned to supply solutions for
attracts significant analysis because it is geographically specialist localised DCs. The UK has pioneered methods
localised. However, it does fit well with UK capability of expanding optical communications capacity in the
— as a high value, high performance niche that builds core network. Whilst challenges in this domain remain,
upon a significant local knowledge base and where the market has matured and, unlike the 14% growth in
there are high impact UK end users. optical DC networking equipment,59 revenues in long
haul and access equipment are flat to declining,60
As befits any new emerging market, there are few with no system suppliers remaining in the UK.
suppliers who would identify existing products Capacity and latency are closely interrelated and the
specifically engineered for location-sensitive knowledge base built up developing the former could
DCs. Current demand is being met from existing have significant impact if applied and connected to
international suppliers by generic equipment. However, the emerging needs of low latency and other location-
UK DCs are already selling services based on location- sensitive DC requirements.
sensitive parameters such as latency, driving purchasers
to look for improvements in these areas through better
equipment. UK suppliers who focus on meeting these
requirements and work with end users to understand
the impact it has on them (e.g. enhancing trading
volumes and profits) will be able to differentiate their
products and gain market share.

22 | The Big UK Data Centre Equipment Opportunity

7.3 Specific UK technology opportunities

Some specific UK technology opportunities, especially those related to proximity-sensitive DCs, are indicated in
Figure 16.

Low latency Latency High speed Enhanced High speed High speed
high capacity monitoring / exchange security integrated high capacity
networks measurement matching networks photonics stroage
engines

• Optical • Leverage • High • Latency • Compound • Compound

switching time performance optimised semi- semi-
• Low latency, standards computing encryption conductor / conductor /
high capacity • Real time silicon silicon
encoding in-service integration integration
formats monitoring • On board, • On board,
• Hollow core close to close to
optical fibre processor processor
transceivers transceivers

Figure 16 Specific technology opportunities of relevance to proximity-sensitive data centres.

Many of the technology opportunities in Figure 16 Adding encryption for security is not without
relate to latency, as the time to exchange information performance costs. It takes time to encrypt and
is a key factor, driving localisation and the clustering decrypt, increasing the time to transfer data. This can
of DCs. However, local data capacity, including low be a particular problem for securely transferring high
latency network and processing capacity, are still vital bandwidth data such as video. Similarly, methods
components and solutions to deliver higher network of maximising bandwidth often involve complex data
capacity over long distances may not be appropriate encoding and error correction. This is most often
when they compromise latency. Security is also high performed by high speed digital processing in the
on the requirement list for many location-sensitive transceivers at either end of a communications link.
applications — but again the priority is delivering However, it also slows the transmission of time-critical
security without delaying data delivery. data, causing the lag between input and remote system
response bemoaned by players of computer games and
other real-time network users (e.g. remote surgery).
Therefore some DC hardware is now sold without
forward error correction for time-critical, low lag/
latency applications.

The Big UK Data Centre Equipment Opportunity | 23

7.4 Economic impact

Exploiting these opportunities in the UK could have On the flipside, if the financial services sector and other
a very significant economic impact. Just a 10% share proximity-sensitive data can be connected to next-
of the UK DC equipment market would be worth generation UK technology it would give businesses
£4bn and have a direct impact on the balance of trade, a physical, hardware-based reason to be in the UK.
as much of this equipment is currently imported. Whilst others could deploy such equipment in the
future, it would give London’s financial sector a
However, this is eclipsed by the potential impact on the hardware-based, first-mover advantage. This could
financial services sector. As DC equipment currently attract more financial business to the UK, in turn
deployed in London is generic and links to next- feeding more local demand for customised hardware,
generation technology are poor, there is little from a creating a positive upward demand spiral. This would
hardware perspective to keep current trading volumes create a fundamental link between the previously
in London other than the clustering effect. Should separate financial services sector and the
better DC facilities become available at other trading UK manufacturing sector — to the benefit of all.
centres, there is the real risk that some forms
of trading, e.g. high speed trading and FX trading, Although the greatest economic impact for the UK is
could move offshore, putting at risk a significant likely to be within the financial services sector, there is
fraction of the £21bn the UK receives in tax receipts significant additional potential impact in defence and
from the financial sector and the 2.1m jobs in the security, especially areas requiring high security and/or
financial services and related industries.61 This risk the real-time assessment of data. There could also be
is more acute as there are ~£2.2 trillion of foreign impact in other areas where time-to-decision is critical,
assets under management in the UK (35% of the e.g. remote healthcare.
total assets under UK management62), which have
no physical link to the UK.

24 | The Big UK Data Centre Equipment Opportunity

8 Barriers

The barriers to market penetration in DC equipment are underpinning technologies are requires further
changing rapidly and increasingly differ depending of consultation and collaboration amongst
the type of DC targeted. the following communities: silicon photonics,
compound semiconductors and nano/metamaterials.
8.1 Mega DC equipment barriers To have impact, innovations in these areas need
to be rapidly scaled to volume production. Therefore,
There are a small number of high profile global manufacturability and fit with volume production
customers with extensive purchasing power demanding throughout the value chain is key. Innovation that is
high volumes at low costs with exacting performance based on a volume-scalable wafer technology but lacks
requirements and rapid product development cycles. or inhibits volume packaging is unlikely to succeed.
Even for billion-dollar companies, entering, supplying
and maintaining a product pipeline into these markets
has been difficult. Global powerhouses such as Intel 8.2 Localised DC equipment
have looked at new architectures built around supplying barriers
complete racks rather than individual servers to secure
greater value and return. There are many drivers that favour the emergence of
unique solutions for this sector but significant and very
This does not mean the UK should abandon these different obstacles remain, as indicated in Figure 17.
markets to others. The rapid development time cycles The biggest barrier is the lack of connection between
in this market make it highly receptive to buying the end user and the hardware innovators and the
in new technology solutions. The UK should focus its associated lack of understanding of the advantage new
investment on the underpinning and enabling platform technologies can bring to the end user.
technologies. Identifying in detail what those

Barriers

Link tech Confidentiality Monitoring Lack of Complexity of Regulation

performance if financial/ of tech common who specifies impact/change
to financial security performance language what
return models

Figure 17 Barriers to entering and developing solutions for location sensitive data centres typified by financial
services but also applicable to defence, security and other location sensitive data centres.

The Big UK Data Centre Equipment Opportunity | 25

The time to gather data, make a decision and act on it is To accelerate advanced technology deployment,
determined not just by the optical fibre used but how its impact on performance needs to be quantified.
the data is processed, decisions are made, signals are A lack of independent characterisation techniques
encoded and how the network is constructed, requiring for parameters that matter to location-sensitive
input from multiple players. In high-speed trading DCs, such as latency, remains a barrier to the
the detailed algorithms used are also a closely guarded development of new solutions for these markets.
secret, as are the decision-making processes in other Without parallel development in measurement and
proximity-sensitive markets such as security and characterisation, new DC hardware cannot be
surveillance. The impact of a technical improvement, differentiated from existing generic solutions.
e.g. on reduced link latency, is therefore hard to judge:
to some it may be significant, to others irrelevant. The DC user and operator relationship can also present
It is certainly information that is unlikely to be barriers. Where equipment is owned by the client
shared, making it difficult for innovators to quantify and hosted by the DC, the equipment owner might
their impact. be assumed to take the lead on adopting hardware
innovation but this can be constrained by the
The introduction of regulatory framework in 2007 capability of the DC host. However, DC operators
— MiFID — the fragmentation of secondary market often differentiate themselves on their connectivity,
activity and proliferation in the number of financial security, power and cooling capacity and therefore
exchanges63 has also created an environment where could drive the earlier adoption of innovations before
there are few individuals who have the understanding they are required by the end user.
to bridge the gap between technological advances
and the areas they may have impact in the finance In financial markets there are also risks in the
industry.64 implementation of changes to the existing
infrastructure. For example, low latency trading
In other markets, end users often seek out technical environments may magnify price volatility due
innovations that would give them a market edge, to the increased volume of trades per unit time.
reaching into the innovation and knowledge base Moreover, an unstructured upgrade of the secondary
for future competitive advantage. In financial trading, market infrastructure would allow the short-term
the value of data is so significant, small differences progression of minimally legislated and occasionally
in performance can yield major gains but degradations sensitive trading strategies that are active in certain
can lead to substantial losses, resulting in a cautious stock exchanges.64
approach and a bias towards standard solutions.
Coupled with the aforementioned lack of deep
technical understanding, this fosters the classic
“nobody ever got fired for buying IBM” approach to
equipping DCs. This, in combination with an industry
culture of infrastructure secrecy, means that the
uptake of new technology is slow and there is little
direct investment in next-generation technology from
those who might benefit most from its early adoption.

26 | The Big UK Data Centre Equipment Opportunity

9 Recommended interventions

The UK has many of the key elements necessary to be a

key global player in the DC equipment market — major
end users, a strong research base, a billion-pound DC Operators
specialist local market, core supplier capability and Equimix, Onyx,
etc
capacity for substantial supplier growth. However, the External
Regulator
market has failed to generate the necessary links Comms
financial
between these core elements to create a market-driven BT, Colt
development and uptake of UK technology.
UK DC
Resolving this market failure requires bringing the hardware
relevant parties together, as illustrated in Figure 18, Measurement/ innovation Research
characterisation base
so they can create a common understanding of universities
NPL
the opportunity. The complexity of the supply chain
landscape and the importance of key but highly time-
constrained end users in the financial sector requires a DC exchange High speed
structured approach. This includes: infrastructure trading
X2M, CHI-X specialists
1) T
 he identification of long-term enabling technologies
that are key to impacting mega DCs through a
workshop involving existing technology developers. Figure 18 Parties required to be brought together to
This should focus on the UK’s potential to make an maximise UK data centre equipment development,
impact within the global DC market and the key uptake and impact
technology platforms where the UK has world-
leading capability. These include silicon photonics,
compound semiconductors, energy-efficient
computing and DC/computing architecture. 3) Bringing together financial regulatory authorities,
Highlighting this capability should help drive inward measurement experts (e.g. NPL) and technology
investment and flag where research and development developers to understand positive and negative
investment is most likely to have a long-term impact impacts, including regulation and risk management
within global mega DC markets. of next-generation DCs and high speed
communications technologies.

2) B
 ringing together technical decision makers in high 4) B
 ringing together other location-sensitive DC users
speed trading and technology innovators to develop from government, defence and security, public
a common impact and technology roadmap linking services and their DC providers to determine
UK technology with advances in high speed trading. common requirements that may not be met by the
Given that it is unclear whether the highest impact development of low cost technologies for mega DCs.
will be through providing more market information The critical component outcome will be the
faster and/or providing lower or more consistent identification of new niches (and their detailed
latency access to the exchange, this should include definition) that are separate from the future needs of
those responsible for DC infrastructure at mega DC operators.
the UK financial exchanges and those responsible
for providing real-time market information. For
maximum benefit to the UK economy, targeting
the largest exchange providers in the UK is logical,
i.e. LSE Group, BATS Chi-X Europe and Turquoise (see
Appendix 1).

The Big UK Data Centre Equipment Opportunity | 27

10 Conclusion

DC equipment is a major international and domestic As these and other DC applications mature, the market
market worth over $100bn globally, with the UK being for DC equipment is fragmenting, with optimised
the leading market in Europe, buying over £20bn in solutions emerging for differing applications.
equipment annually. The proximity-sensitive DC market represents a
significant opportunity for the UK, as London provides
Whilst this market has to date been dominated by globally leading end user demand. The UK’s innovation
global players, the DC equipment market is increasingly base is also well positioned to provide solutions, with
fragmenting as it matures. The needs of mega DCs for world-leading capability at multiple research institutes
consumer, large scale, time-less-critical and cloud in optical communications, optical fibre, data storage
applications are driving high demand for improvements and high performance computing. The capacity
in cost, bandwidth and energy performance. There are to adopt innovations and deploy them is also present
already UK companies successfully deploying solutions throughout the supply chain — from DC providers to
into such DCs, often as part of an international supply equipment manufacturers.
chain. The hunger for rapid innovation also makes the
market open to new innovations developed by the UK’s The largest barrier to market, however, remains a lack
globally leading innovation base, especially in optical of understanding on all sides of what UK data hardware
communications, storage and energy-efficient could deliver to the financial services and other
computing — as long as they can meet the challenge of proximity-sensitive DC segments in multiple business-
rapid large-scale deployment and short lifecycles. critical areas. Potential benefits include enhanced
financial performance, reduced risk, reduced cost of
Mega DCs will migrate to locations offering the lowest deployment and increased ease of deployment. Very
energy, cooling and space costs in what is already a few individuals can translate between the financial
very globalised market. However, although they grab metrics that drive trading and the underlying hardware
the most headlines, mega DCs represent <50% of the capability. Whilst there are structural reasons for this,
equipment market. Many more DC customers are bringing these communities together would enable
sensitive about the location of their DCs. For the UK, the UK’s most valuable data users to drive the
by far the most important of these proximity-sensitive development of hardware solutions that would give
customers is the financial services industry, in particular London a sustainable competitive advantage as the first
the trading of financial securities. There are multiple adopter of next-generation, low latency, proximity-
financial exchanges in and around London, each housed sensitive DC solutions.
in a DC and trading trillions of pounds of assets
annually. The data volumes for completing this trading Without developing these links within the UK, there
volume are not significant but the rise of high speed is a significant risk that other global financial trading
trading and the way the market is interrogated to get centres will develop improved DC hardware first,
the best prices drives demand for substantial local risking the migration of financial trading to outside
data volumes, extremely low latency communications, the UK. However, if successful, a real and effective
high speed processing and system monitoring. link can be made between the UK’s eminent financial
services sector and its hardware innovation and
manufacturing base.

28 | The Big UK Data Centre Equipment Opportunity

11 Appendix 1 – Financial sector key players

Whilst the identification of all relevant contacts in the finance sector and DCs is outside the scope of this report,
the following table gives some examples.

Table 1 Key players and organisations from the financial sector and associate DCs.

Role Organisation
Business development manager BATS Chi-X Europe
X2M DC infrastructure department of the LSE65
Turquoise
Investment banking market and LSE Group
client connectivity
Infrastructure project manager

Market analysts of UK DCs Tariff Consultancy Ltd - http://www.telecomspricing.com

Gartner Data Center, Infrastructure and Operations
Management Summit
www.gartner.com/events/emea/data-center

The Big UK Data Centre Equipment Opportunity | 29

12 Appendix 2 – key sources

1
Cisco Visual Networking Index Global IP Traffic 12
MarketsandMarkets, reported in the article Data
Forecast, 2014–2019, published May 2015. Center Networking Market To Reach $21.85 Billion By
www.cisco.com/c/en/us/solutions/service-provider/ 2018: Report, October 2013. www.networkcomputing.
visual-networking-index-vni/index.html com/networking/data-center-networking-market-to-
reach-$2185-billion-by-2018-report/d/d-id/1234507
2
Seagate strategic marketing and research 2014.
Data Center Ethernet Switching Goes Bare Metal, Mar
13
3
Cisco Global Cloud Index (GCI). www.cisco.com/c/en/ 2015. http://www.infonetics.com/pr/2015/4Q14-Data-
us/solutions/collateral/service-provider/global-cloud- Center-Network-Equipment-Market-Highlights.asp
index-gci/Cloud_Index_White_Paper.html
 he total network equipment market, including all
T
4
The World Bank’s 2014 estimate of total GDP or enterprise network equipment, is worth approximately
Global World Product, at $78 trillion. four times this amount. Gartner: Market Share:
http://databank.worldbank.org/data/download/GDP.pdf Enterprise Network Equipment by Market Segment,
Worldwide, 2Q15. www.gartner.com/doc/3125420/
5
As an example, Global Switch promotes the ‘carrier market-share-enterprise-network-equipment
neutrality’ of its London data centres.
www.globalswitch.com/locations/london-data-center 14
Cloud Storage Market worth 65.41 Billion USD by
2020. www.marketsandmarkets.com/PressReleases/
6
Gartner quoted in the article Data center budgets cloud-storage.asp
dropping, while security spending needs increasing.
www.fiercecio.com/story/data-center-budgets- 15
Global Data Center Server Market Expected to Reach
dropping-while-security-spending-needs- Nearly USD 44 Billion by 2019: Technavio.
increasing/2014-02-12 www.businesswire.com/news/home/20150814005123/
en/Global-Data-Center-Server-Market-Expected-Reach
7
Belden, Transition to the Hyper Data Center.
www.slideshare.net/beldeninc/data-center-trends-2014  nterprise Data Centers Still Going Strong, As Data
E
Center Server Market Posts Growth Through 2019.
8
If You Build It: The Rise Of The Mega Data Center,
www.technavio.com/blog/enterprise-data-centers-
December 2014. www.crn.com/slide-shows/data-
still-going-strong-as-data-center-server-market-posts-
center/300075104/if-you-build-it-the-rise-of-the-
growth-through
mega-data-center.htm/pgno/0/31
16
Tariff Consultancy Ltd (TCL), reported in the article
9
Datacenter Colocation Market to Reach $36bn
UK Will be ‘Largest Single Data Centre Market in Europe’
Worldwide by End of 2017. www.thedatadriver.
by 2020. www.techweekeurope.co.uk/cloud/uk-data-
com/2015/04/Datacenter-colocation-market.html
centre-market-europe-171576
10
Synergy Research Group, reported in the article
European Data Center Spending up by 8 Percent.
17
Microsoft and HP top data centre infrastructure market,
www.datacenterdynamics.com/design-strategy/
claims research. http://cloudtribes.com/index.
european-data-center-spending-up-by-8-
php?option=com_k2&view=item&id=136:microsoft-
percent/94671.article
and-hp-top-data-centre-infrastructure-market-claims-
research&Itemid=309 The £15.7bn UK Data Centre Market.
www.itcandor.com/uk-data-centre-2013
11
Powering and Cooling the Evolving Data Centre
Infrastructure, Frost and Sullivan 2014. The former indicates a £10bn market in Q2 2015.
www.slideshare.net/FrostandSullivan/powering-and- The latter states there was a £15.7bn market in 2013.
cooling-the-evolving-data-center-infrastructure £30bn represents a compromise between these
market reports.

30 | The Big UK Data Centre Equipment Opportunity

18
Gartner Says the Future of the Data Center Is 27
Industrial Strategy: UK Sector Analysis, 2012, BIS.
Software-Defined. www.gartner.com/newsroom/ www.gov.uk/government/uploads/system/uploads/
id/3136417 attachment_data/file/34607/12-1140-industrial-
strategy-uk-sector-analysis.pdf
19
Data Center Networkng Magic Quadrant, Gartner
2015. http://blogs.gartner.com/andrew- Updated in UK Non-Financial Business Economy: 2014
lerner/2015/05/12/dcmq15/ Provisional Results, ONS, 2014. www.ons.gov.uk/ons/
rel/abs/annual-business-survey/uk-non-financial-
20
Data centre space will rise from 1.58bn square feet in business-economy--2014-provisional-results/stb-
2013 to 1.94bn square feet in 2018 — If You Build It: 2014-provisional-results.html
The Rise Of The Mega Data Center, December 2014.
www.crn.com/slide-shows/data-center/300075104/ 28
Anything AWS Can Do: Microsoft Announces UK
if-you-build-it-the-rise-of-the-mega-data-center.htm/ Data Centre Region for Azure Cloud.
pgno/0/3 www.theregister.co.uk/2015/11/10/microsoft_uk_data_
centre_azure_cloud
21
100G in the Data Center at ECOC 2015, Lightwave
Podcast, October 2015. www.lightwaveonline.com/ 29
The European Union’s Data Protection Directive has
podcasts/2015/10/100g-in-the-data-center-at- placed new restrictions on transatlantic data transfer
ecoc-2015.html following the European Court of Justice ruling on
Maximillian Schrems v Data Protection Commissioner, 6
22
10G/40G/100G Data Center Optics, IHS Infonetics, October 2015. http://ec.europa.eu/justice/data-
2015 — reported in the article Data centers driving 40G protection/data-collection/data-transfer/index_en.htm
optical transceivers, 100G ramping says IHS Infonetics.
www.lightwaveonline.com/articles/2015/05/data- 30
Trading volume October 2015, secondary public
centers-driving-40g-optical-transceivers-100g- traded order book only. www.londonstockexchange.
ramping-says-ihs-infonetics.html com/statistics/historic/secondary-markets/secondary-
markets-archive-2015/oct-15.xls
Data Center Ethernet Switching Goes Bare Metal.
23

www.infonetics.com/pr/2015/4Q14-Data-Center- 31
Trading volume December 2014.
Network-Equipment-Market-Highlights.asp www.londonstockexchange.com/statistics/historic/
secondary-markets/secondary-markets-archive-2014/
24
Datacenter Colocation Market to Reach $36bn dec-14.xls
Worldwide by End 2017. www.thedatadriver.
com/2015/04/Datacenter-colocation-market.html 32
According to TheCityUK research. www.thecityuk.
com/research/our-work/reports-list/key-facts-about-
For Data Center, Google Goes for the Cold, Sept 2011,
25
the-uk-as-an- international-financial-centre
Wall Street Journal. www.wsj.com/articles/SB1000142
4053111904836104576560551005570810. 33
Financial Services: Contribution to the UK Economy,
parliamentary briefing SN/EP/06193, Feb 2015.
Also, the 2015 article UK Will Be ‘Largest Single www.parliament.uk/briefing-papers/sn06193.pdf
Data Centre Market In Europe’ By 2020 reports
the expansion of Nordic data centre space. Ex Goldman Sachs trader, Anton Kreil.
34

www.techweekeurope.co.uk/cloud/uk-data-centre- www.youtube.com/watch?v=- UG11JzWzMY

market-europe-171576
35
Matching Algorithms, CME Group.
Based on data from Data Center Map.
26
www.cmegroup.com/confluence/display/
www.datacentermap.com/united-kingdom EPICSANDBOX/Matching+Algorithms

The Big UK Data Centre Equipment Opportunity | 31

36
How Does the Stock Exchange Work and What 46
Impact of MiFID II on EU Conduct Of Business
Happens When You Buy and Sell Shares? Regimes. www.nortonrosefulbright.com/files/pegasus-
www.thisismoney.co.uk/money/diyinvesting/ slides-122135.pdf
article-2792867/how-stock- exchange-works-happens-
buy-sell-shares.html Intergence Invests in NPLTime®.
47

www.npl.co.uk/news/intergence-invests-in-npltime
37
Both LSE and the NYSE Euronext exchanges are
based in Basildon. See NYSE Euronext opens up 48
Regulators Come Closer to Defining HFT.
Basildon data centre. www.ft.com/cms/s/0/251f9418- http://marketsmedia.com/regulators-como-defining-hft
e6ce-11df-8894-00144feab49a.html - axzz3tv9OK6yQ
49
The head of corporate finance for a major London-
38
Quote Stuffing Is A Thing Of The Past. based institutional stockbroker.
http://ezinearticles.com/?Quote-Stuffing-Is-A-Thing-
Of-The-Past&id=6422561
50
NBIM Criticises Data Sales to HFT Firms.
www.ft.com/cms/s/0/bf2d5ae0-77e7-11e5-a95a-
39
Ofcom Infrastructure Report 2014. 27d368e1ddf7.html#axzz3sPH8lylE
http://stakeholders.ofcom.org.uk/binaries/research/
infrastructure/2014/infrastructure-14.pdf
51
Notably, in the UK all the major exchanges (BATS
Europe, Chi-X and Turquoise) operate make-or-take
40
High-Frequency Trading Behaviour and its Impact on pricing models, apart from the LSE, which has operated
Market Quality: Evidence from the UK Equity Market, an equal pricing scheme since 2009. See Single Stock
December 2012. www.bankofengland.co.uk/research/ Circuit Breakers – Issues in Fragmented Markets.
Documents/workingpapers/2012/wp469.pdf www2.warwick.ac.uk/fac/soc/wbs/subjects/finance/
fof2012/programme/single_stock_circuit_breakers_-
41
Ex Goldman Sachs trader, Anton Kreil, University Tour issues_in_fragmented_markets.pdf
2013, page 7. http://issuu.com/instituteoftrading/ docs/
institute_university_tour_2013 52
Synergy Research group, reported in the article
Microsoft and HP Top Data Centre Infrastructure
42
Making Waves: Breaking Down Barriers with Market, Claims Research. http://cloudtribes.com/index.
Ultrafast Networks. www.thetradingmesh.com/pg/ php?option=com_k2&view=item&id=136:microsoft-
blog/mike/read/647703 and-hp-top-data-centre-infrastructure-market-claims-
research&Itemid=309
43
Documentary: Money & Speed: Inside the
Black Box (VPRO Backlight). 53
Ethernet Switching Sales Soften.
www.youtube.com/watch?v=aq1Ln1UCoEU www.enterprisetech.com/2014/06/02/ethernet-
switching-sales-soften
44
Gil Tene, vice president of technology and chief
technical officer, Azul Systems — Thomson Reuters 54
The Real Story About Server Market Share.
Special Latency Report 2014, page 8. www8.hp.com/uk/en/solutions/business-perspective-
www.waterstechnology.com/inside-market-data/ article.html?compURI=1103378
special/2335469/latency-special-report
55
Intel’s Server Market Share to Decline as Competition
45
Bats Europe Multicast Latency Feed Specification. Heats Up. www.trefis.com/stock/intc/articles/185169/
http://cdn.batstrading.com/resources/participant_ intels-server-market-share-to-decline-as-competition-
resources/BATS_Europe_Multicast_Latency_Feed_ heats-up/2013-05-09
Specification.pdf

32 | The Big UK Data Centre Equipment Opportunity

56
EPSRC Grants on the Web. Data communications are
supported in multiple areas under the ‘information and
communication technologies’ theme, e.g. digital signal
processing or optical communications.
http://gow.epsrc.ac.uk/

57
£97m Supercomputer Makes UK World-leader in
Weather and Climate Science. www.metoffice.gov.uk/
news/releases/archive/2014/new-hpc

58
www.datacentred.co.uk/technology/arm

59
In Data Center Optics Market, 40G Transceivers
Ubiquitous, 100G Accelerating. www.infonetics.com/
pr/2015/1H15-Data-Center-Optics-Highlights.asp

60
In Data Center Optics Market, 40G Transceivers
Ubiquitous, 100G Accelerating — states “optical
network hardware market ended down 1 percent in
2014 over 2013”, Infonetics Research, 2015.
www.infonetics.com/pr/2015/4Q14-Optical-Network-
Hardware-Market-Highlights.asp

61
According to TheCityUK research.
www.thecityuk.com/research/our-work/reports-list/
key-facts-about-uk-financial- and-related-
professional-services-2015/

62
Fund Management in the UK.
www.gov.uk/government/uploads/system/uploads/
attachment_data/file/478378/UKTI_Asset_mgmt_
broch_B5_RC_AW_DIGIAL.pdf

63
Understanding MiFID.
www.londonstockexchange.com/traders-and-brokers/
rules-regulations/mifid/understanding-mifid.pdf

64
Head of Legal, Compliance and Corporate Finance for
a London-based asset management firm.

65
www.lseg.com/markets-products-and-services/
technology/x2m

The Big UK Data Centre Equipment Opportunity | 33

13 Acknowledgements and contact details

This report was commissioned by the Knowledge

Transfer Network and written by Dr John R Lincoln and
Mr Morley Beswick of Harlin Ltd.

For further details or enquiries please contact:

anke.lohmann@ktn-uk.org

34 | The Big UK Data Centre Equipment Opportunity

The Big UK Data Centre Equipment Opportunity | 35
Contact
KTN Ltd.
Suite 220, Business Design Centre,
52 Upper Street,
London
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Phone number: 01403 850 500

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