Equinix Adds Capacity in the States

Leading data center solutions provider Equinix Inc. (EQIX - Analyst Report) announced its intention to set up a new 232,000 square foot customer floor space International Business Exchange (IBX) data center (DC11) in Washington, D.C.

The first phase of the IBX, which is scheduled to start operation by 2013, will cost $88.0 million. With a total work area of 42,800 square feet, the first phase of DC11 will accommodate 1,200 cabinets. The subsequent phases will allow the setting up of an additional 1,800 cabinets.

Apart from scheduling a new data center, Equinix also announced plans to proceed with the second phase of another local data center (DC10). Development costs are estimated to be $21.0 million, with the extension expected to be operational by March 2012.

The expansion was expedited upon sensing the high demand for Equinix’s colocation platform in the region. Washington, D.C. serves as the eastern hub of Internet traffic exchange in the U.S., and is therefore an important business area for Equinix. Increasing data exchange through Internet calls for the development of more data centers in the region. Now, with the tenth operating IBX and the eleventh one underway, it will be easier for Equinix to meet the growing business needs.

Equinix boasts a presence across various geographical regions and is increasingly becoming popular among major players in the tech industry. The company’s worldwide presence has resulted in high network density with a vertically focused approach, which will continue to support demand growth.

During the last quarter (fourth quarter 2011), the company witnessed substantial year-over-year revenue growth of 25.0% on solid geographical contributions partially offset by foreign exchange headwinds. The U.S. was the strongest of all the regions, with relatively strong growth.

In the Americas, the average monthly recurring revenue (MRR) per cabinet increased to $2,133 from $2,110 in the third quarter of 2011. In the Asia-Pacific, MRR per cabinet was $1,863, relatively flat with $1,868 in the previous quarter. In Europe, cabinet pricing decreased slightly to $1,199 from $1,210, on account of foreign exchange weakness.

We believe that the favorable pricing trend in the U.S. coupled with the planned expansion will boost revenue growth in the upcoming quarters. Apart from the U.S., Equinix is planning to capture share in the emerging markets. The company is now targeting China, India, Japan and Australia for further expansion.

We are also optimistic about the company’s recurring revenue model and future expansion plans. Despite all the positives, competitive threats from the likes of AT&T Inc. (T - Analyst Report) and Verizon Inc. (VZ - Analyst Report) raise our apprehension. European exposure and industry consolidation are also causes for concern.

Equinix has a Zacks #3 Rank, implying a short-term Hold rating.

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