Israel Poised for Server Farm Boom as Global Firms Chase Soaring Cloud Computing Usage

Amitai Ziv
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A campus-network room at a Google data center in Council Bluffs, Iowa, undated.
A campus-network room at a Google data center in Council Bluffs, Iowa, undated.Credit: AP Photo / Google, Connie Zhou
Amitai Ziv

If you put your ear to the ground anywhere around Israel, you just might hear the excavation work. From the Negev up to the Carmel — but mainly between Tel Aviv and Jerusalem — intense digging is underway to build server farms, or giant data centers.

It’s an undertaking costing billions of shekels and aimed at meeting the growing demand from the Israeli economy for computing power. The good news is the work testifies to the massive growth of Israel’s digital economy. The bad news is that the country’s infrastructure has failed to keep up, and this could mean Israel misses out on a chance to be a global data crossroads.

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At least five multinational companies are exploring the prospect of developing server farms in Israel, each of which costs hundreds of millions of dollars to build.

“We’re in a recession and the way to exit it is investment in infrastructure. Here is an opportunity for massive investment in infrastructure without government spending,” said Yonit Goldberg, a partner in the consulting firm 11Stream and a leading figure in the Israeli server farm industry.

Oracle and Microsoft, two leading global companies in cloud computing, have announced they are planning facilities in Israel. Other big players in the cloud market, including Amazon, Google, IBM and SAP, are also eyeing the country. Each server farm in a “region,” as local installations like those in Israel are called, has to have at least two giant sites to ensure against operating failures that would disrupt service.

According to a report Goldberg wrote on the Israeli server farm sector, all the facilities in Israel today consume about 22.5 megawatts of power, a benchmark for measuring their size. With the sector attracting so much global attention, she estimated that power needs would reach 130 megawatts in four years, an 6.5—fold increase – but the available supply will be more in the area of 105 megawatts.

Server farms – groups of interconnected servers housed in a single facility – aren’t just a boon to the economy and the tech industry. Whether you’re sending an email, conducting a Zoom video conference or using a bank application, the services are being operated from servers operated by the company providing the service. The farms are housed at giant installations usually located underground, certainly in the case of Israel. That makes it easier to secure them and keep them cool.

Server farms offer differing levels of backup and survivability, but the bottom line is that they require multiple electric power lines, they’re attached to several networks and are staffed 24/7.

Goldberg cites four markets in Israel that are spurring the rapid growth. The first is that some 6,500 local startups are using cloud services, so it makes sense for the giants to locate the facilities close by. The second is the presence of 350 multinational research and development centers, such as those run by Intel and eBay, many of which need nearby data-storage facilities.

Microsoft CEO Satya Nadella delivers the keynote address at Build, the company's annual conference for software developers,  in Seattle, on Monday, May 7, 2018. Credit: Elaine Thompson,AP

Coke heading to cloud

A third source of demand for server farms are local non-tech companies. “Take, for example, Central Bottling Company – Coca Cola [Israel], with whom I work. They are prepping to move [computer operations] to the cloud to improve work processes and advance technologically. Every big company realizes that in the end they’re going to have to go to the cloud,” said Goldberg. Companies are developing more and more online services and need to expand their digital infrastructure, she said.

The fourth market is the government and the army, said Goldberg. As reported by TheMarker, the government has undertaken a project called Nimbus to gradually move all its computer services to the cloud. There’s a separate Israel Defense Forces project called Five Ninths, about which Goldberg said she can’t speak, that calls for a giant server farm located in the south of the country that will concentrate all of the miliary’s most sensitive listening systems into a single location.

Another growth driver for the local server farm sector has recently entered the picture due to Google’s plans to develop an undersea fiber optic cable line called Blue-Raman (the latter half named after the Indian Nobel Prize laureate Venkata Raman), which will run between India and Italy through Israel.

“Server farms go hand in hand with international capacity, so I think that within the next two or three years we’ll be seeing the country catching fire, in the positive sense of the word,” said an industry source who asked not to be named.

The world’s leading cloud computing players aren’t the only ones who could potentially build server farms in Israel. There are also dedicated server farm operations, companies like Digital Realty, CyrusOne and Equinix, all of them big, multinational companies that combine real estate skills with technology expertise. These companies are looking seriously at the Israeli market because the supply and demand for server capacity locally is so out of balance.

“Israel now has the historic opportunity to turn itself into an international digital crossroads,” said Goldberg. ”It can join the scores of global nodes – London, San Francisco, Marseilles, Singapore and other places. We have a stable democratic government relative to the region, strong domestic demand, reasonable international transmission prices and we can serve as backup installations for other [server farm] installations in the region,” said Goldberg.

The big ‘but’

However, there is a significant “but” to all this: There simply isn’t room for all the players that want to enter the Israeli market. According to 11Stream, Israel’s 20-megawatt capacity is 98% taken, but it requires years between the time a company decides to build a server farm and it is finally up and running.

Take Yossi Shonfeld, a local entrepreneur who is completing work on what will be Israel’s biggest data center, covering 35,000 square meters of floor space. Work on the Shonfeld Data Services Center, or SDS, began four years ago in the city of Modi’in and is still awaiting approval to begin operations. Bezeq International, Binat, Global Data Center and MedOne are also building server farms and face similar delays because red tape is a severe obstacle to the sector’s expansion.

“I worked with one city on a landing point [where an undersea cable comes ashore] and the city manager helpfully told me that we would get a construction permit within a year and a half. There’s a problem about available land and communications infrastructure,” said Goldberg.

Yonit Goldberg in Tel Aviv, Israel, May 26, 2020.Credit: Ofer Vaknin

But the biggest problem of all is energy. A facility like SDS will boost Modi’in’s electricity usage by 30%, which is something planners have to take into consideration.

“The Israel power sector can supply 15 gigawatts and [during the May heat wave] usage reached a record 13.8 gigawatts, so there’s a problem. Demand is growing 5% a year. Israel isn’t ready to become a server farm center in any way, shape or form. Not on a macroeconomic level and not on a micro level either,” said one industry source, who spoke on condition of anonymity.

“If someone wants to build a big facility in Petah Tikva, for example, can the Israel Electric Corporation substation in the city generate another 50 megawatts? It’s not really a problem if IEC decides that this is something that needs to be taken into consideration. It can be addressed through network upgrades – a hurdle that can be overcome. But there is no one to talk to there,” the source said.

In response, IEC said it is prepared “to respond quickly and professionally to the special requirements of [server farm] developers. The IEC has clear and transparent procedures for connecting large consumers of this type.”

A Google server farm in Iowa, U.S.Credit: AP

On the other hand, the Forum of Private Power Companies admitted there was a capacity problem that can be solved by more private investment in electricity supply. “It is absurd that the State of Israel, a high-tech power, doesn’t have enough electricity. Power consumption is increasing year by year and for international companies to come here, there must be a reliable and strong energy infrastructure,” it said in a statement.

Goldberg said the government has to cut the red tape and expand power-generating capacity. The Housing Ministry must pitch in by making land available. “We have an opportunity to turn Israel from Startup Nation to Digital Nation,” she said.

For the short term, Goldberg said, Israel could increase its server farm capacity by making use of excess space at the big data centers that Bank Hapoalim, Bank Leumi and Mizrahi Tefahot Bank have built in recent years. The problem is that the banks don’t want to lease space for a variety of reasons.

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