Dell Technologies (NYSE: DELL) through its subsidiary Virtustream, Inc., faces significant challenges following Cyxtera Technologies’ bankruptcy and subsequent decision to cease operations at their ORD3 data center in Chicago. Given that Dell is a customer of Cyxtera and conducts operations at this data center, it is seemingly forced to orchestrate a complex and costly migration to a new data center. This transition could potentially cause substantial disruption to its services and impact its customers.
Besides the logistical challenges, Dell is also grappling with the potential for $75 million in procurement costs, the need for various certifications, and managing potential customer outages during the data center migration process. The abrupt change poses the risk of breaching customer contracts, further complicating the situation and potentially leading to significant liabilities for Dell.
Dell’s Cloud Services and Data Center Infrastructure
Dell Technologies’ subsidiary Virtustream, Inc. operates as a managed services business providing cloud software and infrastructure-as-a-service (IaaS) solutions. As an enterprise-class cloud service and software provider, Dell migrates and runs customers’ mission-critical applications in the cloud. Its customers include enterprises, service providers, and government agencies, which utilize Dell’s offerings to meet stringent security, compliance, performance, efficiency, and consumption-based billing requirements for complex production applications in the cloud.
Dell’s Relationship with Cyxtera
In December 2017, Dell’s Virtustream entered into a colocation services agreement with Cyxtera Technologies, a retail colocation provider. This agreement facilitated the purchase of products and services from Cyxtera, and it allowed both parties to initiate and renew specific purchases through service orders.
By September 2022, Dell’s Virtustream executed a service order for a 12-month term at Cyxtera’s Chicago ORD3 data center, located at 1441 Touhy Avenue, Elk Grove Village, Illinois. Dell became a colocation customer at this data center, paying for space and support services to house their equipment within the facility. In June 2023, Dell’s Virtustream and Cyxtera executed an additional service order for the ORD3 data center, this time for a term of 19 months.
Dell’s Infrastructure and Customers at Cyxtera’s Data Center
At the Cyxtera-operated ORD3 data center, Dell currently hosts mission-critical cloud infrastructure, applications, and services for numerous customers operating in healthcare and patient care, energy and manufacturing, as well as various U.S. government operations. Specifically, Dell is presently hosting operations for six distinct U.S. government or FedRAMP customers, five healthcare and pharmaceutical customers, three energy customers, and four manufacturing and other industrial customers at the ORD3 data center.
Dell must maintain the integrity of these customers’ data, and their systems cannot be subject to unexpected downtime. Any interruption could negatively impact the ability of these customers to provide patient care, support government processes, and it could disrupt the energy supply.
Cyxtera’s Data Center Closure Impacts Dell’s Operations
Dell licenses space and power from Cyxtera in the ORD3 data center to host its critical applications and workloads. However, Cyxtera does not own the building. Instead, it leases space within the facility from STACK Infrastructure, a wholesale data center operator. Cyxtera then subdivides the areas it leases from STACK to provide smaller, retail colocation services to its customers, like Dell, through short-term licenses.
This arrangement is significant in light of recent events. On June 4, 2023, Cyxtera filed for Chapter 11 bankruptcy relief. Subsequently, on June 29, 2023, Cyxtera disclosed its intentions to cease operations at this data center and to reject STACK Infrastructure’s lease on or before September 4, 2023. Consequently, this indicates that Dell will no longer be able to operate in Cyxtera’s ORD3 data center after September 4, 2023.
Dell’s Unforeseen Data Center Migration from Cyxtera
Dell alleges that during the time period in which their June 2023 service order was negotiated, Cyxtera failed to mention at any point that they intended to reject STACK Infrastructure’s lease in Chicago – and certainly not a mere two weeks later – nor did they inform Dell that their equipment would have to be relocated and reinstalled in a new data center. As a result, this effectively forces a sudden data center migration for Dell.
Dell maintains that the time period suggested by Cyxtera for the lease rejection, September 4, 2023, does not seem feasible given the number of systems that need to be moved. Additionally, they point out that redundant systems would have to be set up to ensure no customers’ data is lost or experiences downtime.
Dell Faces Sudden Data Center Migration Challenges
The nature of Dell’s operations, combined with the specialized requirements of their healthcare and government customers, makes the sudden relocation order from Cyxtera’s ORD3 data center all the more challenging. Necessary investments in infrastructure setup, deployment, testing, validation, network design, security & monitoring systems, and regulatory compliance, create a complex environment with unique dependencies and approval processes for each customer.
Dell’s technical and program professionals, despite their extensive experience in data center relocations, are under a considerable strain. Their previous experience, which involved the 14-month relocation of just six customers to the ORD3 data center, contrasts starkly with the current situation. Cyxtera’s lease rejection requires Dell to simultaneously migrate its now 18 customers, a task which will need an even longer time period. Therefore, the two-month notice given by Cyxtera, based on the September 4, 2023 rejection date, exacerbates the situation for Dell.
Challenges Identified by Dell Ahead of Data Center Migration
Dell’s evaluation of the ORD3 data center’s operations has identified several hurdles in their impending relocation. These include:
- Estimated procurement costs of up to $75 million for new hardware for the destination data center. Given the need for uninterrupted customer access and the complexity of setting up each customer’s system at the new site, the simple transfer of equipment is not an option. Dell needs to duplicate the hardware and software at the new location, run tests and acquire certifications, and only then migrate the data and applications
- Logistics of installing, setting up, and configuring the new hardware
- Attainment of necessary certifications for meeting federal government (FedRAMP), patient health record privacy (HIPPA), and Payment Card Industry (PCI) standards to ensure customer data protection
- Management of customer outages and downtime windows to accommodate the migration process
- Limitations of data transfer speeds, which restrict the pace of data migration across a network
- Time and resources needed for testing and validation cycles to confirm system functionality before transferring the operations completely
Dell estimates that the migration of 18 customers could take roughly 18 months, a far cry from the two months provided by Cyxtera’s current lease rejection notice. This substantial data center migration demands formal planning, substantial capital investment, and a significant technical services burden.
Lastly, Dell highlights its concern over potential breaches of its own customer contracts, in the event that it is forced to vacate Cyxtera’s ORD3 data center by September 4, 2023. The insufficient migration period poses risks for their customers and could lead to issues with the security and contractual compliance related to Dell’s customer data. This scenario could result in significant liabilities for Dell.