What is Colocation, and Who Are the Biggest Players Investors Should Know?
When it comes to storing business information, many organizations have moved from an on-premise model to the cloud. Somewhere between these options comes a colocation, sometimes known as "colo." A colocation facility is a data center in which a company can rent space for servers and other computing hardware like a cloud-based deployment model. However, unlike the cloud, the servers and network infrastructure used by the company are privately owned and operated, instead of the data center facility. Rackspace defines colocation as “the practice of renting space for your servers and other computing hardware at a third-party provider’s data center facility.”
Here's a look at the colocation market and its top players. The global data center colocation market size was valued at $54.82 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 14.2% from 2023 to 2030. According to an another report, the global data center colocation market is projected to reach approximately $131.8 billion by 2030.
Equinix (EQIX), a colocation space provider, is a prominent digital infrastructure company. Equinix has a network of 248 international business exchange data centers across 71 metros in 32 countries. In FY2022, Equinix reported a revenue of $7.26 billion, a 9% increase over the previous year. According to its annual sustainability report, Equinix achieved 96% renewable energy coverage of its operational load for 2022, marking the fifth consecutive year with over 90% renewable energy coverage. Equinix posted a revenue of $2.02 billion during Q2FY2023, an 11% increase over the same quarter last year. The company has a track record of over 80 consecutive quarters of revenue growth, the longest streak by any S&P 500 company.
In its recent earnings report, Equinix’s President and CEO Charles Meyers said, “We continue to see momentum in our business as digital transformation accelerates the pace of innovation and changes the way business is done. By 2026, IDC is forecasting that 40% of revenue from G2000 companies will come from digital products, services and experiences, a dynamic that is reshaping the basis of competition in nearly every industry and making digital an unprecedented force for economic growth.”
Digital Realty (DLR) is a provider of cloud- and carrier-neutral data center, colocation, and interconnection solutions. Digital Realty reported a revenue of $1.4 billion, a 2% increase from the previous quarter and a 20% increase from the same quarter last year for Q2FY2023. In July, Digital Realty partnered with TPG Real Estate to establish a joint venture for the sale of an 80% interest in three stabilized hyperscale data center buildings in northern Virginia. The company also announced the expansion of its joint venture in India with Brookfield Infrastructure through the addition of Jio, a Reliance Industries Ltd. company.
China Telecom Corporation Limited is one of the world’s largest providers of integrated telecommunication services. With an extensive network of over 700 internet datacenters (IDCs) located at prime locations in Mainland and globally, China Telecom is among the major colocation players. In 2022, China’s telecommunications service revenue accumulated RMB1.58 trillion, representing an increase of 8% over the previous year “with emerging digital services, which mainly include datacenters, cloud computing, big data and IOT contributing more than 60% the revenue growth of telecommunications services.”
Japan-domiciled NTT is another established name in the colocation industry. NTT is an acronym for Nippon Telegraph and Telephone Corporation. The group has a four-segment structure consisting of the integrated ICT business, regional communications business, global solutions business (NTDTY), and others. Network system services, cloud services, global data center services, integration services and related services are part of its global solutions business. NTT operates a data center of over 600,000 square meters of floorspace across Europe, North America, Africa, and Asia, including a major presence in India. In June-end 2023, NTT launched its latest hyperscale data center campus with a new subsea cable system in Chennai.
CoreSite Realty Corporation is a hybrid IT solutions provider. A subsidiary of the American Tower Corporation (AMT), CoreSite delivers secure, reliable, high-performance data center and interconnection solutions to a growing customer ecosystem. CoreSite owns 28 data centers, totaling over 4.7 million square feet, in 10 strategic markets across the U.S. CoreSite was acquired by American Tower Corporation in November 2021 for approximately $10.1 billion. In the quarter preceding (Q3FY2021) the acquisition, CoreSite consisted of “25 data centers, 21 cloud on-ramps and over 32,000 interconnections in eight major U.S. markets.” During the Q2FY2023, Tom Bartlett, American Tower’s Chief Executive Officer, stated that the company experienced “solid leasing in our U.S. data center segment.”
Other companies comprising the market are China Unicom, Cyxtera, NaviSite, Global Switch, Telehouse, Cologix, Colt Technology, CyrusOne, Flexential, Iron Mountain, QTS Realty Trust, Rackspace Technology, and Zayo Group.
In terms of country dominance, the U.S. and China account for almost half of the world market, followed by Japan, UK, Germany, Singapore, and India. According to a report by Synergy, “On-premises data centers will not disappear any time soon, but their scale is being increasingly dwarfed by hyperscale and colocation companies.”
Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. Information based on mentioned reports.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Prableen Bajpai
Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.
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