IT Multinationals Invest In Data Centers In Brazil Despite Recession

Despite the slowdown of the Brazilian economy, IT multinational companies are going against the trend and have invested in new data centers and innovation units in Brazil.
Last month, IBM opened the first Softlayer data center dedicated to public cloud services in Brazil, located in Jundiaí, in the state of Sao Paulo. This is the second cloud data center in Brazil and will allow IBM to expand cloud services to Latin America customers, providing faster network connections for the region.

The new data center has capacity for 9,000 total servers and a power rating of 2.8 megawatts. “This infrastructure allows us to expand the data center capacity according to demand,” said Cesar Campos, director of cloud services for Latin America at IBM.

IBM already has a cloud data center in Hortolandia, which is located just 100 km from the one in Jundiaí, dedicated to private cloud solutions, which creates synergy between the two operations. “With the SoftLayer in Jundiaí,  IBM can offer cloud solutions in private, public and hybrid platforms,” said Campos.

The new data center is part of IBM’s global plan to invest US$1.2 billion in cloud data centers, which was announced in 2014. The company has more than 40 cloud data centers around the world.

The IT multinationals’ investments in cloud data centers in the Brazilian market aim to reduce network latency and improve applications’ performance. Furthermore, there is a trend toward migrating from traditional software services to Software as a Service (SaaS), in which the customer pays for the use, which requires faster and more efficient data transmission.

“With the economic crisis in Brazil, many companies have sought to reduce their costs and have adopted cloud solutions. Besides that, the third platform – which includes social media, mobility, cloud computing and big data – requires much faster network speeds to improve performance,” said Pietro Delai, research manager at IDC Brazil.

A Growing Cloud Computing Market

IDC forecasts that cloud computing spending – which includes cloud Saas, Iaas (Infrastructure as a Service) and Paas (Platform as a Service) – will reach about US$1 billion by the end of this year. IDC’s outlook is that the sector will grow above 50% annually over the next three years. “The cloud computing market in Brazil is still small compared to the global market, but it has showed fast growth in recent years,” said Delai.

The Brazilian cloud computing market should more than double in the next two years. According to research firm Frost & Sullivan, the Brazilian cloud computing market totaled USD 474.8 million in 2014 and it is estimated to reach US$1.11 billion in 2017.

“These investments  are aimed at ensuring greater reliability and information security for customers, further improving the management of the cloud environment,” said Jorge Sukarie, CEO of the Brazilian Association of Software Companies (ABES), which has about 1,600 associates.

Most of the investments in cloud data centers that were announced two years ago by IT multinationals have materialized, despite the economic crisis in Brazil.

One year and half after it had been announced, the first Oracle data center was opened in Brazil, located in Campinas, in the state of São Paulo. This is Oracle’s 19th data center in the world.

The investment is part of Oracle’s strategy to migrate its activities to cloud computing, aiming to boost Oracle Cloud SaaS. With this business model, Oracle intends to expand its market share in the small and mid-sized enterprises segment in Brazil, as it offers a lower cost compared to traditional sales models based on software licenses.

Oracle is the third largest provider of Enterprise Resource Planning (ERP) software in Brazil, with a 16% market share, according to Fundação Getúlio Vargas (FGV). The local IT company Totvs leads this market, with a 36% market share, followed by SAP, with a participation of 30%.

In September 2014, SAP announced that it would build a local data center to provide support for the company’s cloud solutions in Brazil, which was scheduled to have opened in the first quarter of 2015, but was postponed.

“Our current plan is to have the data center ready in the third quarter of 2016 in order to meet the needs of our 11,000 customers in the country. The most fundamental investments in this data center have already been made. We remain committed to providing the best solutions to help customers simplify business and navigate the digital economy,” SAP stated in an email.

Emerging Innovation Centers

Apart from the investments in local data centers, IT multinationals have also invested in innovation centers in Brazil. In March, Microsoft opened its 13th innovation center in Brazil, located in Curitiba, in partnership with PUC Paraná University (PUCPR) and Signum Game Studio.

The new center will focus on the development of digital games and cloud computing projects and mobility. “The Microsoft Innovation Center (MIC) aims to accelerate the local software ecosystem in partnership with private and academic sectors,” said Rodrigo Dias, manager of academic programmes and Microsoft Innovation Centers.

The connection with the startups accelerator of PUC Parana will offer technological qualifications for students, supporting entrepreneurship initiatives. On the other hand, the partnership with Signum aims to build a game portfolio, using the Windows platform and cloud servers.

Brazil is the fourth largest market consumer of games and the partnership with Sigmum will allow Microsoft to expand its portfolio of games as much for the entertainment area as for therapeutic purposes.

Microsoft has another MIC in Curitiba, opened in 2013 in partnership with the Technology Institute of Parana (Tecpar).

What justifies the IT multinationals’ investments is the Brazilian market growth potential, the seventh largest in the world, which reached US$60 billion in 2014, an increase of 6.7% over the prior year. The forecast for this year is to reach a growth between 6% and 7%, said Sukarie.

On the one hand, the devaluation of the Brazilian real against the US dollar favors multinationals’ investments in the country, but, on the other, the high cost of some services in Brazil such as electricity and infrastructure, low quality of Internet and changes in regulation make Brazil less attractive compared to other markets, said Sukarie.