Question 1

BitTech Pte Ltd (BitTech), with headquarters in Singapore, operates a computer server farm in Texas, USA. It has some 4,000 servers mining Bitcoin cryptocurrency. However, with Bitcoin values fluctuating wildly, intense competition and increasing operating costs, the company has decided to pivot its business to cloud services and to relocate its servers to Asia.

Table 1 below shows technical data over the last 6 months in 4 countries that BitTech is evaluating for the suitability of migrating its servers.

The table above shows the electrical voltages that the power supply companies in the various countries can provide. Availability indicates how many hours in a month where there is no power outage. BitTech works on the basis of 365 days a year over 12 months. Some fluctuations in voltage values and availability days are normal. The table shows measured values over a 6- month period.

The servers are sensitive electrical equipment and require stable power from the data centre that houses the servers. To operate reliably, the data centres used by BitTech must be rated at 22 kV with a tolerance of 6%.

As an example, consider a data centre that is rated at 10 kV with a tolerance of 10%. ThisCmeans that it can only operate the servers if the power supplied varies between 9 kV and 11 kV with a long-term average of 10 kV.

BitTech also noted that the electricity rates in Indonesia, Malaysia, Singapore and Vietnam are $0.16, $0.14, $0.25 and $0.15 per kWh, respectively. These rates are expected to remain relatively unchanged for the foreseeable future.

BitTech prides itself of its ability to provide services at a guaranteed availability of at least 99.95%. For added assurances, it also requires the power suppliers to match this level of availability.

In the industry, the Percentage Availability metric is defined as System Available Hours / Total Calendar Hours expressed as a percentage. Thus, if a system is available for service for 657 hours in a month, the Percentage Availability would be computed as 90% per month.

(a) You are required to develop appropriate models to analyse the questions that follow. Your answers must be justified quantitatively. All such models must contain formulae and functions. Hardcoding is not allowed.

(i) Which countr(ies) are not technically feasible for the migration of the servers? Explain, with reference to your model, why these countr(ies) are not suitable.
(ii) Show, using your model, which countr(ies) are potentially suitable. Identify the most ideal country. Justify why.
(iii) The CTO of BitTech suspects that there are errors in some of the availability hours for Vietnam in Table 1. The affected values are all misstated by the same “X” number of hours. The long-term availability should be 99.99%. Using Solver or otherwise, show which values are incorrect and state the value of “X”. Explain how you derive your answer.

(b) In addition to its data centre in Texas, BitTech currently has 1,000 servers located in Singapore. These are deployed for cloud services. With the advent of AI technologies such as Google Bard, OpenAI chatGPT and Microsoft coPilot, BitTech is thinking about pivoting from cloud services to AI services. It is evaluating whether it should pivot 500 servers to the new AI services. These 500 servers have a remaining shelf-life of 7 years. At the end of this period, all these servers will be written-off with zero book value.

Presently in Singapore, monthly sales per server are $24,000. Operating costs per server are $5,000 a month. It expects sales of cloud services to decline by 5% each year. Costs per server (for cloud services) are expected to increase by a gradual 3% per year.

On the other hand, monthly sales per server for AI services are estimated to be $36,000. However, operating costs per server are higher at $10,000 per month. Sales of AI services are expected to increase by a hefty 15% each year. The costs of operating such servers will also increase by 12% per year.

For all its projects, BitTech uses a minimum ROI target of 18%.
(i) Create an appropriate NPV-based model to analyse whether BitTech should pivot to AI services for 500 of its existing cloud servers. State any two (2) assumption(s) used by your model.

(ii) Using your model, examine whether BitTech should pivot to AI services. Explain why.

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