One of New Zealand’s largest home-grown technology companies has watched its profit fall by nearly half in a single year, even as its sales pushed past $1.5 billion for the first time. Datacom’s latest results show the cost of trying to keep up with the artificial intelligence boom, with the company choosing to plough cash into data centres and computing power rather than protect its bottom line.
Figures for the year ended 31 March show Datacom Group made a net profit of $20 million, down from $37 million the year before. That is a drop of about 46 percent. Revenue moved the other way, rising 6.8 percent to $1.58 billion, according to results reported by RNZ. Operating earnings slipped to $133 million from $147 million, and operating cash flow fell sharply to $75 million from $164 million the previous year.
The headline number that will catch the eye of any business owner is that profit gap. A company can grow its top line and still take home far less, and Datacom is a clear example of why. The gap between rising revenue and falling profit came down to a deliberate decision to spend big on the infrastructure that AI workloads demand, while customers at the same time pushed hard on price.
Datacom now runs five data centres in New Zealand after buying the T4 facility at Highbrook in East Auckland, which it is upgrading for the kind of high density, energy hungry computing that AI models require. The company has framed the spending as sovereign infrastructure, meaning data and computing power that stays on New Zealand soil rather than sitting on servers overseas. That pitch matters to government agencies and larger firms that are wary of where their information physically lives.
Chief executive Greg Davidson said the trade off was intentional. “Those decisions affect short-term profit, but they are the right choices for resilience and future growth,” he said, in comments reported by Reseller News. He put weight on flexibility over being tied to a single supplier, describing the approach as “portability over lock-in, continuity over single-vendor risk”.
Behind the profit fall sits a trading environment Davidson described in blunt terms. “This is the most volatile world I’ve seen for supply chain. It’s worse than Covid,” he said. To manage the disruption, Datacom pre-purchased components and warehoused stock so it could keep delivering to clients as prices for parts jumped around. Holding that much inventory ties up cash, which helps explain why operating cash flow more than halved over the year.
The other pressure came from customers themselves. New Zealand businesses and government agencies have been through a deeper economic downturn than their counterparts across the Tasman, and it shows in how they buy technology. “We’ve got very price-sensitive buying. We’ve got customers really looking for value in what’s being delivered,” Davidson said. Organisations have been scrutinising every line of their technology spending and focusing on cost savings, which squeezes margins for a supplier like Datacom.
That caution has not stopped the interest in AI, but it has changed the shape of it. Rather than signing up for sweeping transformation projects, buyers are picking off specific tasks where a productivity gain is easy to see and easy to measure. It is a more careful, prove-it-first mood than the hype of the past couple of years, and it means the returns on all that data centre investment will take time to show up.
Datacom is not listed on the sharemarket, so its results do not move a share price the way a company like a2 Milk or Fisher and Paykel Healthcare would. That makes it easy to overlook. But the company employs thousands of people across New Zealand and Australia and works deep inside the systems that run banks, retailers, hospitals and government departments. When a business of that size decides to sacrifice a year of profit to build computing capacity, it is a signal about where the whole sector thinks demand is heading.
It also lands at an awkward moment for the wider economy. The Reserve Bank has just lifted the Official Cash Rate to 2.5 percent, banks have followed with higher floating rates, and households and firms alike are watching every dollar. In that setting, spending heavily now for growth that may only arrive in a few years is a genuine bet. Datacom is wagering that the demand for local, AI-ready computing power will be large enough to justify the pain in this year’s accounts.
For the rest of the market, the read-through is simple enough. The cost of staying competitive in technology is climbing fast, the supply chains that feed it are still unsettled, and customers are in no mood to pay a premium. Companies that want to ride the AI wave are finding they have to fund the surfboard themselves and wait for the swell. Datacom has decided it can afford to wait. Plenty of smaller players will not have that choice.
What do you make of Datacom trading a year of profit for AI data centre capacity? Is it a smart long game or an expensive bet in a tight economy? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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