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Apple Deal Highights Industry's Recovery

Posted by Rich Miller on February 28, 2006

The market for Internet data centers continues to heat up, with a flurry of new deals involving major Internet companies. Within the last three weeks, Apple, Yahoo, Microsoft and Hewlett-Packard have all announced deals to acquire new data centers. The expansions by tech's biggest names are the latest headlines in an extraordinary recovery for the data center industry, which was in dire straights just two years ago. Rampant overbuilding during the dot-com boom proved disastrous when the market collapsed, as debt from network buildouts pushed many providers into bankruptcy. Data center prices collapsed as supply outstripped demand, and dozens of facilities changed hands in bankruptcy or distress sales.

That's all changed now. Yahoo outbid several other contenders for a former WorldCom data center in Newark, Calif., paying at least $45 million for a 107,000 square foot property. The seller was Stream Realty, a Dallas firm that was a big buyer during the market trough several years ago. The outlook for data centers has changed completely, especially in Silicon Valley, Stream Realty's Robert Kennedy told Commercial Property News this week. Recent deals have absorbed the market overhang, boosting properties once contemplated as data centers but then "repurposed" for alternate uses when demand evaporated.

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February 28, 2006

It's been a while since we've seen startups unveiling speculative data center projects in Northern Virginia. Cokomo LLC has announced plans for a 140,000 square foot facility in Prince William County, with a projected cost of $80 million and completion date of Febraury 2008. Last week, the county approved the sale of 20 acres of land to Cokomo at Innovation, a 1,500-acre piece of land purchased by the county to pursue high-wage businesses, a strategy that has succeeded for Fairfax and Loudoun counties.

"The demand for [data center] space has ramped up quickly in the last 18 months," James F. Coakley, the head of Cokomo, told the Washington Post. "We're hoping the market will be there for us with a user by the time we are ready for final build-out."

  Posted by Rich Miller February 28, 2006 | Permalink | Newsletter

February 27, 2006

Apple Computer has bought a 107,000 square foot former WorldCom/MCI data center in Newark, Calif. for $45 to $50 million, according to the San Jose Business Journal. Apple acquired the property from an affiliate of Stream Realty Partners, the Dallas investment fund which scooped up multiple data centers at bargain prices.

Even as the market recovers, Stream Realty isn't done buying. As it was closing the Apple deal, it acquired a 90,000 square foot facility in Santa Clara that was intended for data center use, but never fully built out.

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  Posted by Rich Miller February 27, 2006 | Permalink | Newsletter

AmeriVault Expands Online Backup Network

Data protection specialist AmeriVault has added an additional data vault in Wood Dale, Illinois, a suburb of Chicago, to provide real-time replication of its primary data center at its headquarters site in Waltham, Mass., the company said today in a press release. The expansion creates a redundant set of customer data located over 1,000 miles away that is available should AmeriVault’s primary vault in Waltham be unavailable due to a disaster.

"Natural disasters, such as the recent hurricanes and terrorist threats, are making it increasingly necessary for organizations to have backup data in multiple locations," said Bud Stoddard, President and CEO of AmeriVault. "We have seen disasters strike large metropolitan areas, so by making an additional copy of backup data available outside of our geographic area, organizations can trust that AmeriVault will keep their critical data available."

Online backup is a growing business, one of numerous demand drivers supporting the recent growth of the data center economy.

  Posted by Rich Miller February 27, 2006 | Permalink | Newsletter

Austin Offers Incentives for Hewlett-Packard

The city of Austin is preparing to offer $3.2 million in tax incentives to computer giant Hewlett-Packard in a bid to seal the deal on a new $300 million data center, according to local news reports. The new facility would create at least 140 jobs in the Austin area, pating an average of about $60,000 apiece. Hewlett Packard is retrofitting a building at the Freescale Semiconductor campus on Ed Bluestein Boulevard in Southeast Austin and is also said to be considering a second site in Wells Branch. Austin has become a magnet for enterprise data centers in recent years, with Oracle (2002) and Home Depot also locating facilities in the Texas capital.

  Posted by Rich Miller February 27, 2006 | Permalink | Newsletter

February 24, 2006

A story in Tuesday's Wall Street Journal (subscription) examines Digital Realty Trust, the largest landlord in technology real estate, and wonders aloud about future demand for data center space. "Digital Realty Trust Inc. is going where few real-estate investment trusts have dared to go since the technology-stock bubble burst in late 2000," the Journal's Michael Corkery writes.

While noting the case for the "bulls" buying Digital Realty shares, the article features comments from several analysts who worry about a repeat of the tech bust, and the potential impact upon DRT's operations. "There is a real risk that some of the company's tenants may not be in business within the next few years," Citigroup Inc. analyst Jonathan Litt wrote in a report late last year. There is also concern that the shift to blade servers and smaller equipment will translate into smaller lease requirements for enterprise companies.

The story may have had a chilling effect on other stocks in the sector. On Thursday Piper Jaffray downgraded Akamai (from Outperform to Market Perform), and Matrix Research lowered its recommendation on Infocrossing (from Buy to Hold).

Tenant quality is a huge issue for data center operators and landlords. But there are significant difference between the demand supporting the current boom in data center industry, and the dot-com hype that fueled the rampant overbuilding in 1999-2001.

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  Posted by Rich Miller February 24, 2006 | Permalink | Newsletter

February 22, 2006

One of America's best known carrier hotels, the Infomart in Dallas, entered a new phase last week as new owners assumed control of the 1.2 million square foot property. DCI Technology Holdings acquired the Infomart through a foreclosure proceeding after paying $100 million last October to purchase the loan from GMAC. The new ownership team is familiar to many data center veterans from its work selling Exodus properties when the company was known as Venture Asset Group.

The Infomart was built by Trammell Crow in 1980, and was initially envisioned as a hub for computer industry trade shows. The struggling facility found a niche in the early 1990s when it began leasing space to telecom tenants. In recent years the building was owned by Nexcomm Asset Acquisitions, which took out a $115 million loan on the building with GMAC Commercial Mortgages. DCI Technology acquired the loan and declared in Nexcomm in default, according to the Dallas Morning News, but the two companies eventually reached a settlement that cleared the way for DCI to take ownership.

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  Posted by Rich Miller February 22, 2006 | Permalink | Newsletter

February 20, 2006

One of the industry's top conferences returns to New York on March 28th, when DatacenterDynamics New York 2006 will be held at The Hilton New York - Avenue of the Americas. This is the fourth annual DatacenterDynamics event in New York, and with all signs pointing to a continuing boom in the data center industry, New York will undoubtedly be at the forefront of growth and innovation in this market. This year's schedule has been specifically tailored to debate all the important questions in 2006.

Data Center Knowledge is a media sponsor for this event, and will bring you regular updates on the conference and scheduled sessions. The audience is expected to include senior representatives of the financial sector and other Fortune 500 companies operating in the Metro NYC area, as seen in the list of 2005 attendees (PDF).

The speaker schedule includes 10 main sessions and 12 vendor-led solution seminars. Scheduled sessions present the latest perspective on the top issues confronting data center operators in 2006, including power and cooling trends, technical standards and best practices, the latest on cable management, extreme density installations and mission critical monitoring. It's a cutting-edge schedule that offers something for all data center operators seeking to improve availability and manage costs.

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  Posted by Rich Miller February 20, 2006 | Permalink | Newsletter

Feds Eye Charlotte for Backup Data Center

The federal government is scouting a building in the University Research Park in Charlotte, N.C. for a 100,000-square-foot backup computer center for the Social Security Administration's National Computer Center in Baltimore, according to media reports. The General Services Administration (GSA) has been scouting sites in both Charlotte and Research Triangle on behalf of the SSA, which is seeking additional backup facilities to improve the redundancy of its data storage.

  Posted by Rich Miller February 20, 2006 | Permalink | Newsletter

February 16, 2006

According to telecom research firm TeleGeography, Level 3 is not just buying fiber at the bottom of the ocean, it's buying at the bottom of the market as well. In an analysis titled 600 Billion bits Across the Atlantic, TeleGeography  says Level 3's purchase last week of up to 600 Gbps of capacity on the Apollo trans-Atlantic submarine cable system - the single largest purchase of lit subsea capacity ever by an individual carrier - is a sign that bandwidth deals may never get better any cheaper. "This purchase is a big step by Level 3," said TeleGeography analyst Alan Mauldin. "They recognize that prices are at unsustainably low levels and that they are confident in their networks' need for a significant amount of additional capacity over the long-run." You can read more at TeleGeography's web site.

  Posted by Rich Miller February 16, 2006 | Permalink | Newsletter

February 15, 2006

The big announcement Opsware hinted at over the weekend turned out to be a distribution deal with Cisco that appears likely to boost sales of Opsware's automation products. Cisco will distribute Opsware's Network Automation System (NAS) software under the Cisco brand through its worldwide direct sales force and channel partners. Opsware and Cisco's network management technology unit will also create products built on Opsware's NAS software.

"Opsware's network configuration and change control management solution is an important extension to Cisco's Network Application Performance Analysis (NAPA) solution," said Cliff Meltzer, Senior Vice President and General Manager of Cisco's Network Management Technology Group. "This functionality helps customers automate configuration management across increasingly complex IT infrastructures, typically a manual and expensive process, and be able to meet regulatory and compliance procedures."

  Posted by Rich Miller February 15, 2006 | Permalink | Newsletter

MORE STORIES FROM THIS MONTH:

• Apple Deal Highights Industry's Recovery
  
• $80 Million Spec Project in Virginia
  
• Apple Buys California Data Center
  
• AmeriVault Expands Online Backup Network
  
• Austin Offers Incentives for Hewlett-Packard
  
• The Journal Story and Data Center Demand
  
• Dallas Infomart Acquired by DCI Tech
  
• DatacenterDynamics NYC Set for March 28