Recently, Interconnection and data-center REIT Equinix, Inc.EQIX augmented government solutions by completing the integration of Terremark Federal Group, (TFG). The move enables the company to leverage on the U.S. public sector IT transformation efforts.
It also marked the accomplishment of the final leg in the 29 data-centers buyout, from Verizon, last year, that comprised TFG and secure data-center facilities catering to the U.S. Federal Government ecosystem's specific requirements.
Acquired in 2011 by Verizon, TFG has earned its reputation for successfully servicing government interconnection solutions and cloud-enabled initiatives. It will now operate from several Equinix IBX data centers in the nation, with the largest footprints in the Culpeper and Miami regions.
With the integration, Equinix is able to enhance its federal industry expertise, and capabilities for delivering secure interconnection and data-center solutions for Federal agencies, systems integrators and civilian research and education groups.
Specifically, leading cloud-service providers, including Amazon Web Services, Google Cloud Platform, IBM Cloud, Microsoft Azure, SAP and Oracle Cloud, have presence in IBX data centers. Therefore, the integration allows the Federal ecosystem members to enjoy direct connectivity with these partners at Equinix, and make use of their portfolio of government cloud services.
Moreover, per IDC's U.S. Federal Government Cloud Forecast, 2017-2021, federal hybrid cloud spend is estimated to witness an 11% CAGR from $113.7 million in 2016 to $191.2 million in 2021, thereby making the TFG integration a strategic fit for the company. Also, 33 TFG staffs come on board of Equinix who have solid expertise of the Federal sector to efficiently advise for the IT transformation initiatives.
Notably, data-center REITs will likely continue experiencing a boom market, with growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure. Also, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five-eight years. These factors, along with an improved outlook for economic growth, are anticipated to provide substantial growth impetus to data-center REITs, including Equinix, Digital Realty Trust, Inc. DLR , CyrusOne Inc. CONE and CoreSite Realty Corporation COR .
For Equinix, its diligent IBX expansion strategy will likely fortify the company's global footprint in the data-center space and bring in additional revenues over the long run. However, its significant debt burden remains a concern in a rising rate environment. Moreover, aggressive pricing pressure is likely to continue in the industry in the upcoming period. Also, consolidation in the telecommunications industry might result in low demand for colocation space, hindering the company's growth.
Currently, Equinix has a Zacks Rank #4 (Sell).
The stock has also underperformed its industry over the past three months, rallying 7.1% compared with the industry's growth of 9%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.