Microsoft opens giant data centre in NZ: Where it is and what it cost

Microsoft is officially opening its first hyperscale data centre in New Zealand at a central Auckland, off-site event. The firm said it would mark the opening by training 100,000 people over the next two years with AI and digital skills. “It will be predominately online courses, as well as other training formats yet to be determined,” a spokesman said.

The tech giant has refused to provide any hard information about the giant facility, including its location. But key details have been revealed in council and Government records, as revealed in the story below, first published on December 2 - which also covers a recent price hike for the company’s cloud software.

Microsoft New Zealand’s 2024 accounts reveal a bumper year – and the huge scale of its investment in its first New Zealand “hyper-scale” data centre, which will power cloud-based software and AI (artificial intelligence) tools.

The tech giant has two local subsidiaries – the longstanding Microsoft New Zealand and Microsoft 6399 New Zealand, created in 2020 as the vehicle for its data centre operation. Both are owned by Microsoft Ireland Research (which took control of the New Zealand operation from a Bermuda-registered Microsoft subsidiary in 2021).

Microsoft New Zealand’s revenue rose 12% from $1.18 billion in FY23 (its first billion-dollar year) to $1.32b in the 12 months to June 30, 2024, as net profit increased 18% from $40.1 million to $47.4m.

Income tax expenses were $15.4m from the $15.3m in FY23.

Expenses included $1.07b in purchases from related parties. Microsoft New Zealand and the local subsidiaries of a number of other Big Tech firms, such as Google, report New Zealand revenue that is net of in-house payments to their US corporate parents for software and services.

The Microsoft New Zealand results are in line with the double-digit growth the firm has achieved globally on the back of the AI-driven boom in cloud computing. Microsoft is the largest investor in ChatGPT maker OpenAI, as well as driving its own AI efforts through its Copilot-branded product.

$1 billion data centre

Microsoft has long said its Auckland data centre - first announced by then Prime Minister Jacinda Ardern in 2020 - will open by year’s end, and the Herald understands construction is down to the nip-and-tuck stages. Anchor customers of Microsoft Azure services, which will be hosted at the Auckland data centre, will include Auckland Transport, Fonterra, ANZ, BNZ and The Warehouse Group.

On the internet, geography is destiny, and a local data centre should mean faster performance for Microsoft’s cloud-based products.

Microsoft's data centre in Westgate in Auckland, pictured when under construction in August. The tech giant has previously said the facility will be online by the end of this year. Photo / Chris Keall

The local servers will also address data sovereignty issues for the likes of banks and government agencies who want files stored and processed on-shore.

Microsoft’s 6399 New Zealand’s accounts put plant, property and equipment costs at $1.06b as of June 30, 2024.

The total includes land ($49.8m), “Building and improvements – data centre”, ($241.8m), construction still in progress ($74.4m), furniture and fittings ($17.5m), servers and network equipment ($188.9m) and right-of-use assets ($483.9m).

Microsoft has declined to comment on the location of the data centre – which was redacted in a 2020 Overseas Investment Office application – citing security, but it has since been published in property records and on a widely-published map by NZ Retail Property Group, which is developing the area. (See a high resolution version of the map here.)

An NZ Retail Property Group map of existing and new projects at the firm's Westgate Town Centre development in northwest Auckland. Image / NZRPG website

In a photo essay on the early stages of the build, the Herald reported that Hawkins was the lead contractor.

Microsoft New Zealand could not immediately be reached for comment on its latest financials. The company has historically offered no detailed comment on its local financial set-up and results.

Server farms sprouting all over Auckland

DCI – a multinational that makes and runs data centres on behalf of various Big Tech firms – is also building at Westgate.

So is Amazon-owned Amazon Web Services (AWS) – although the AWS, immediately across the road from Microsoft and DCI, build has been held up in its preliminary stages by drainage issues. An Auckland Council spokesman earlier told the Herald the drainage issues did not relate to the building’s function as a data centre.

Microsoft distributed the above photo this morning. The firm said it was a generic photo, but that the interior of its first NZ data centre would look "very similar". Photo / Supplied

AWS has said it will spend $7.5b on three Auckland data centres over 15 years, including construction and servers costs, utilities and staff and contractors costs. (The tech giant has a separate study that anticipates the AWS data centres will add $10.8b to NZ’s GDP over their first decade and a half.)

When it first announced its Auckland data centre push in 2021, AWS said the facilities would open in 2024.

DCI also has a much larger 80,000-server facility under way on a 5.8 hectare ex-garden centre wholesale site in Albany, which it bought from the Knight family. DCI – based in Sydney and owned by Canada’s Brookfield Asset Management – has no public-facing services. It typically hosts servers for most of the Big Tech giants under a multi-tenant arrangement. DCI earlier said it would spend up to $600m across the two sites.

Other activity in New Zealand’s first-wave of “hyperscale” or super-massive data centres has seen CDC, half-owned by NZX-listed Infratil, build then expand data centres at Hobsonville (just a few blocks from Westgate) and Silverdale. CDC says it has spent more than $350m on the twin builds, both of which are operational.

Other projects under way include a data centre being built for the GCSB at Whenuapai on land at its RNZAF Base Auckland, which the spy agency says is near completion, and a planned Spark data centre within a surf park that will be built at nearby Dairy Flat.

The project, which will see Spark’s data centre used to warm a wave pool, gained resource consent in June – though the telco’s full build awaits it finding a funding partner or option for its projected billion-dollar spend on data centres over the next five years.

Northwest Auckland has been favoured because of its proximity to international cables and New Zealand’s largest internet peering exchange, which is based in Albany, and the availability of greenfields sites.

Sharing? They won’t say

Microsoft and AWS both say Auckland will be a data centre “region” or “zone” – meaning they will have several facilities in the city for performance and redundancy.

Neither have commented on future construction plans or partnerships. But each could achieve extra capacity at other locations in the city through partnerships, rather than extra building. In Australia, Microsoft openly co-locates with CDC, and the multi-tenant DCI facilities at Westgate and Albany provide other options.

They got the power

A hyperscale data centre, which requires tens of thousands of servers to be powered and cooled, is an electricity and water-intensive operation.

Data centres are described by their peak power consumption, measured in megawatts (MW).

“Based on the data centres already connected, and confirmed plans agreed with us in coming years, we could see the total capacity required for data centres reach around 500MW over the next five years,” energy distributor Vector said in comments supplied to the Herald.

CDC alone has 44MW capacity between its Hobsonville and Silverdale data centres. Spark is aiming to upgrade from 22MW to 90MW over the next five years if its $1b in plans for new facilities comes off.

For context, Auckland’s peak power consumption is around 1700MW today, according to comments by Vector chief executive Simon Mackenzie. While the Vector CEO says the sector will need more resources and planning, he earlier noted that data centre operators have to pay for local connectivity upgrades, and that most of the data centres would begin operations at partial capacity then build up over time.

Microsoft would not give specifics on the number of servers in the data centre, or peak power but a spokeswoman said, “The data centre will be water-free and will use less electricity than the 51.4 megawatts generated by Te Huka 3 each year.” (More on Te Huka below).

Funding new power stations

Both Microsoft and AWS say they will use state-of-the-art natural air cooling systems to minimise water use.

And both say they have helped fund new renewable energy projects (mirroring a trend in the US, which has also seen Microsoft, Google and others put money into new or reanimated nuclear plants).

In April 2023, Mercury Energy signed a deal to supply Amazon with 50% of the electricity from its soon-to-be-completed 222MW Turitea South wind farm, which will be used to power the AWS data centre at Westgate.

And Microsoft has signed a deal with Genesis-owned Ecotricity to supply 100% renewable power for its hyperscale data centre at Westgate, due to open by year’s end as part of a multi-facility plan.

The company won’t comment on the new Auckland facility’s number of servers, or peak power use, but said today “a 10-year contract with Microsoft supported Contact Energy’s investment decision to construct the Te Huka 3 geothermal power station, which can generate 51.4 megawatts of reliable and renewable generation throughout the year”.

Not everyone’s on board with the green vision. NZRise co-founder Don Christie sees Big Tech building globally-accessible data centres in New Zealand “to export our green energy. They’re running out elsewhere”. Christie earlier complained that then PM Ardern had met with Microsoft and Amazon about their New Zealand centre plans, but not his firm, Catalyst Cloud, which is also in the data centre business.

Microsoft increases pricing 28%

Meanwhile, at the consumer end of the chain, Microsoft is increasing the price of subscriptions to 365 (formerly Microsoft Office).

An Auckland man complained to the Herald that he had recently received an email from the firm saying: “Starting on 16/12/2024, the price for your Microsoft 365 Family subscription will change from $18.00 a month to $23.00 a month.” That’s a 28% increase.

Microsoft told the Herald in a statement: “To reflect the value we’ve added over the past decade and enable us to deliver new innovations for years to come, we’re increasing the prices of Microsoft 365 Personal and Family. The price increase will apply to existing subscribers upon their next renewal.”

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.