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Equinix Inc. (EQIX - Analyst Report) is looking forward to expand further in the Middle East via its newly acquired International Business Exchange (IBX) data center in Dubai. For this, Equinix will work jointly with United Arab Emirates-based telecom operator, du. Together, the companies will offer seamless interconnection and colocation services through the carrier-neutral data center to cloud service providers, financial services providers, content providers and enterprises.

The data center will host 650 cabinets within its 44,000 square feet area. The first phase, which is likely to be fully operational by January 1, 2013, will cost around $40.0 million. Leveraging Equinix’s state-of-the-art IBX data center in Dubai, the local clients of both the companies will have better access to traders around the world.

The Middle East holds huge business potential, which is evident from the growing demand for data center services across the region. A study conducted by networking giant Cisco Systems Inc. (CSCO - Analyst Report) reveals that cloud traffic in the Middle East and Africa could grow at a compound annual growth rate (CAGR) of 79.0%  up to 2016, which seems to be pretty high to drive Equinix’ business in the Europe, Middle East and Africa (EMEA) region. Reportedly, the region has been performing well over the past few quarters.

In the recently concluded third quarter, the EMEA region generated 23.0% of Equinix’s total revenue, registering year-over-year growth of 21.3%.

The growing demand for big data exchanges call for greater usage of data centers. To meet this global need, Equinix is expanding its IBX data center footprint globally and becoming popular among tech majors looking for data management. The company’s worldwide presence has resulted in high network density with a vertically focused approach, which will continue to support demand.

We are optimistic about the company’s recurring revenue model and 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.

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

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