) recently announced the expansion of its second International
Business Exchange (IBX) in Singapore. This particular data center,
dubbed SG2, is expected to cater to the growing market demand from
cloud-based service providers as well as financial service
providers. The expansion involves an additional investment of $28.5
million to increase the cabinet count to 3,256.
The expansion of its data centers in Asia and Europe had a
positive impact on the business volume of the company.
As per recent studies conducted by research firms Frost and
Sullivan and Gartner, data center growth in the Asia-Pacific will
be the most sought after with China emerging as the second largest
data center market in the world by 2015.
Within Asia, Singapore is another favored destination. As per a
recent survey by the "Singapore Economic Development Board," this
trade and commerce hub of Asia controls around 50.0% of South East
Asia's data center capacity. With the fourth phase of expansion,
Equinix is expected to meet the data center demand in
This apart, a recent survey conducted by a data center dedicated
website, datacenterdynamics.com, on 100,000 facilities shows that
data center usage is expected to grow around 7% in 2012. Moreover,
the website has also increased its investment projection on new
data centers from about $30.0 billion in 2010-11 to $35.0
billion in 2011-2012.
We believe this is good news for networking companies and data
center service providers like Equinix,
), which are taking necessary steps to seize this opportunity in
the data center business.
Apart from Singapore, China, India, Japan and Australia, the
United States offers good growth opportunities. We believe that
favorable pricing trends in the U.S., coupled with planned
expansion, have the potential to boost revenue growth in the
On the other hand, another set of industry experts believe that
the telecommunications industry is currently in the middle of
cut-throat competition. In many cases, customers are combining
their businesses, thus reducing their co-location space
requirements. They are also looking for innovative ways to better
utilize existing co-location space. These actions are secular
headwinds for a company such as Equinix.
However, we expect that these actions will be more than offset
by the growing demand for data center services, since many more
companies are moving to the cloud, and Internet usage continues to
grow steadily year after year.
Equinix delivered good first quarter 2012 results with EPS
exceeding our expectation. Moreover, revenue grew substantially on
a year-over-year basis as the company is witnessing improvement in
mobility, cloud computing and data management. The company is
also experiencing improvement in business fundamentals across all
segments, along with a better supply chain process and better
We are also optimistic about the company's recurring revenue
model and current expansion plans. Despite all the positives,
competitive threats from the likes of
) raise our apprehension. European exposure and industry
consolidation also concern us.
Equinix has a Zacks #2 Rank, implying a short-term Buy
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