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US Networking Equipment Channel Check-In

We're seeing encouraging hyperscaler and cloud service provider data points. More than 50% of the private data center operators, or multi-tenant data centers (MTDCs), we have spoken to have reported significant lease signings activity and have committed deals that are materially ahead of budgeted target levels for 4Q21.

Little "Meta Metaverse Response" was picked up from our industry contacts. We polled 50+ executives on whether they began seeing a pickup in hyperscaler activity directly in response to Meta announcing its Metaverse vision, which includes increasing spending plans (building new infrastructure nodes for a new business to monetize). Most executives did not report a response from vital hyperscale peers.

Concurrently, enterprise customers are increasing their spending visibility and tightening their IT refresh cycles. Many executives we spoke to mentioned that enterprise customers (mainly banks, healthcare, large-cap tech, and federal/local governments) are making IT deployment decisions for the next two years. This longer timeframe shifts from the traditional six-month window-- the typical visibility vendors get from product orders. Further, new product orders support traditional/legacy and new application needs. A handful of enterprise-focused MTDCs shed light on a novel dynamic that we did not hear about in prior quarters. They see a tightening of IT compute refresh cycles, from ~8 years previously to ~4 years for data center production environments.

Despite improvements, data center and equipment supply chain dynamics still appear challenged. Through our checks, steel, labor (human capital: engineers/contractors/developers), and power transformers have emerged as new bottlenecks for data center developments. Further, there are issues with chips that go into industrial equipment, now slowing deliveries or pushing out previously agreed upon delivery timelines. There are clear "haves" and "have-nots" in the sector regarding supply chain management, scale, and keeping data center developments on track.

Through our checks on U.S. government spending, more than 75% of the executives we spoke to reported major RFPs and large U.S. government deployments have stalled or slowed down significantly in 4Q21. Additionally, the executives see no re-commencement of those RFP processes insight, which most believe is funding-related. We also continue to see mentions of companies waiting to make investment decisions. They await U.S. government infrastructure spending plans as companies are relying on those funds in part to make their own planned investments. We also observe that government customer spending is slowing, even as healthcare customer business grows.

@Sami Badri