“The longer-term impact is very bad.” This is the description that Ricardo Alário, CEO of the data center construction company Odata, gives about the rapid rise in the dollar and interest rates in Brazil. The executive assesses that the increase in indicators could impact the demand for cloud services and increase costs for the sector.
Last Monday (16), . The Monetary Policy Committee (Copom) raised the basic interest rate by 1% at its last meeting — the expectation is for two increases of the same magnitude in the next meetings.
Odata operates in an infrastructure development segment for large cloud providers, called hyperscalers. The company doesn’t say exactly what they are, but Google, Amazon, Microsoft, Meta and Oracle dominate the market.
Although these contracts are concluded in dollars, which initially seems a good sign when the American currency appreciates against the Real, the effect is not positive for the sector.
“The cloud of most networks are dollarized products. No matter how much they charge in Real, they are linked to a price in global dollars, so it automatically becomes more expensive for all final consumption customers”, says Alário.
It works like this: big techs charge in Real, but the pricing for hiring a cloud service is linked to the American currency. So, the dollar becomes more expensive, and customers of large cloud providers have higher costs to migrate or maintain their data and processing on this network.
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“As in most industries, information technology is a means, not an end, there are budgets that contain growth and the implementation of new technology”, explains the executive. This effect is not restricted to the cloud, but to the entire chain, such as when contracting software services.
Rising interest rates
The rise in interest rates makes the scenario even more challenging, increasing the cost of financing works on new data centers. As the bargaining power of technology giants is great, passing on these costs is not the simplest alternative. The most common thing is that profit margins are compressed.
Purchased by the American Aligned Data Centers in 2023, Odata is less exposed to the cost of loans in Brazil: more than 90% of its current debt was contracted abroad. Still, Alário’s assessment of the current Selic level is not positive. Again, it is an indicator that, when high, signals lower demand from end customers.
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On the other hand
Despite the challenging scenario, the technology sector tends to be more countercyclical than other industries. As periods of growth tend to reduce companies’ appetite for capital expenditure, such as infrastructure investments, an alternative is to outsource these demands to services — for example, instead of buying a server, rent it in the cloud.
“It’s an area that’s a little more protected than others that suffer more from a drop in consumption,” says Alário.
For Odata, Brazil’s macroeconomic situation should not mean a major change of route. The assessment is that only a “longer-lasting crisis” could impact the assessment, which is not the case today.
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“The company continues to invest in land. “We are thinking long term. We haven’t stopped buying land and equipment, because we’re thinking about four or five years.”
The company also has operations in markets such as Mexico, Chile and Colombia, generally attracted to the countries at the instigation of big techs. In October, the company began building new sets of data centers in Colombia.
