By Maureen Farrell in New York, Benoit Faucon in London and Summer Said in Dubai
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 2, 2018).
Saudi Arabia's state-owned oil giant and Google parent Alphabet
Inc., two of the world's biggest companies, are in talks about
jointly building a large technology hub inside the kingdom, people
familiar with the potential deal said.
As part of the potential joint venture, Alphabet would help
Saudi Arabian Oil Co., known as Aramco, build data centers around
Saudi Arabia, the people said. It isn't clear specifically whose
data the centers would house or who would control them.
Senior executives at Aramco and Alphabet have been in talks for
months on the potential joint venture, these people said. The talks
have included Alphabet Chief Executive Larry Page and have been
encouraged by Crown Prince Mohammed bin Salman, who is enamored
with Silicon Valley and wants to bring more tech expertise to the
kingdom, some of the people said. Prince Mohammed has been leading
the kingdom's plan to take Aramco public.
Still, there are many details to work out, and it is unclear
when -- or whether -- such a deal will be finalized, the people
said.
The size of the potential joint venture is unclear, although it
could be big enough to become listed on Saudi Arabia's stock
exchange, one of the people said.
An alliance would help bolster the development of the technology
sector in Saudi Arabia, a goal Prince Mohammed has pointed to as a
key part of his plan, known as Vision 2030, to wean the kingdom off
its reliance on oil.
Alphabet's Google is chasing both Amazon.com Inc. and Microsoft
Corp. in the business of renting computing power and storage
online, and a joint venture with Aramco would give it a key
foothold in Saudi Arabia as it rushes to develop its tech sector.
None of the three companies have massive data-center complexes,
known as "regions" in industry parlance, in the area, though Amazon
has plans to open one in Bahrain and Microsoft has announced it
will open two data-center operations in South Africa this year.
Amazon is also close to finalizing a $1 billion deal to build
three data centers in Saudi Arabia, people familiar with that deal
said. The deal is expected to be announced during a trip to the
U.S. by Prince Mohammed early this year.
A data-center region in Saudi Arabia could potentially help
Google win business from oil-industry customers that are looking to
shift their computing operations to the cloud. The costs for such
centers can run into the hundreds of millions of dollars.
Most data for the Middle East is piped from Europe, slowing
surfing to the most-trafficked websites, which are accessed via
long-distance undersea cables, according to a person familiar with
the Alphabet-Aramco talks. Local data servers -- which would store
content but also cached memory of personal-navigation data or
social-media content -- would speed up access and help the country
be more competitive in the digital economy.
Alphabet and other digital giants have been reluctant to set up
physical data centers in the Middle East, Africa and most of Asia
because of data-protection concerns -- unlike in the U.S., police
generally don't need a court order to access private data, the
person said.
Internet experts say a lack of protection for online data users
in Saudi Arabia and other Gulf countries remains an obstacle for
the establishment of mass storage by U.S. internet giants and, more
broadly, the region's competitiveness in the internet economy.
"Data servers located geographically close to customers means the
speed of access is much higher," said Emily Taylor, an associate
fellow researching internet governance and privacy at British
institute Chatham House.
Aramco is in the middle of planning for an initial public
offering that the government has pegged for this year, though it is
unclear whether it will get done in that time frame.
Prince Mohammed has said the proceeds from the IPO would be used
to invest outside of the oil industry.
"The future business case for oil is slowly shifting from energy
to how much technology can boost the oil sector's productivity,"
said Sam Blatteis, chief executive of MENA Catalysts Inc., a Middle
East public-policy advisory and research firm, and who was Google's
head of Gulf government relations until July of last year.
"Technology is driving a dramatic reordering of the oil arena,
becoming the single most important driver of innovation,
competitiveness and growth."
While a potential joint venture between Alphabet and Aramco
isn't necessarily connected to the latter company's IPO, if a deal
is struck before the offering, advisers to the company could pitch
the pact as a way for investors to bake in technology
valuations.
Because of the outperformance of the technology sector and tech
companies' massive growth potential, investors have often been
willing to value firms higher if they can successfully pitch
themselves as technology companies. It is unclear whether Aramco
would seek to do this in its IPO.
Since Prince Mohammed announced the stock-offering plan and his
$2 trillion estimate for the company's total valuation in early
2016, insiders and outsiders have questioned how he arrived at that
number. Advisers on the deal have said that even with a rebound in
oil prices, investors will struggle to value the company in excess
of $1.5 trillion.
--Jay Greene and Nicolas Parasie contributed to this
article.
Write to Maureen Farrell at maureen.farrell@wsj.com, Benoit
Faucon at benoit.faucon@wsj.com and Summer Said at
summer.said@wsj.com
(END) Dow Jones Newswires
February 02, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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