In recent years we've often cited analysts and industry executives discussing the imbalance between supply and demand in the data center business - namely, that there's lots of demand circling around a shrinking supply of quality space.
Colocation provider Equinix put a finer point on this topic in its earnings conference call this week, saying it is running short of colocation space in three key markets. "Unfortunately we are restricted (on space) in a couple markets in the U.S. and that makes it tough," said Equinix CEO Steve Smith. "We have pass on deals."
Equinix expects this to be a temporary phenomenon. It has new data centers scheduled to come online later this year in northern New Jersey, Virginia and Silicon Valley, and could gain access to additional space if it completes its acquisition of Switch and Data, which has been delayed by a regulatory review.
Equinix is currently at about 80 percent of capacity across its national footprint, with 23,600 of its 29,700 total cabinets billing at an average monthly revenue of about $2,023 per cabinet. That level of utilization is nothing new, as Equinix has been above 80 percent capacity since late 2008. But the geography of deal activity is a factor.
Of the remaining 6,100 cabinets, about half are reserved for deals in the late stages of completion. "Depending on our win rate from these, we could face some temporary capacity constraints in the middle of the year in three of our six markets, which highlight the importance of bringing on the new capacity," said Smith.
New Capacity Imminent
Equinix expects to bring new data centers online in the New York and northern Virginia markets by mid-2010, with a new data center opening in Silicon Valley in the fourth quarter. Those three markets have been the busiest in the nation, with active deal streams.
The strongest supply/demand challenges appear to be in the New York market. Equinix chief financial officer Keith Taylor said Wednesday that the company has booked sales that won't convert into billing revenue until the company opens the third phase of its NY4 data center in Secaucus, N.J. at mid-year. Equinix will also gain sellable space if it closes the deal for Switch and Data, which has capacity in its new data center in North Bergen, N.J.
"We have a healthy backlog of bookings that will turn into billing cabinets into revenues in Q2 and the rest of the year," said Taylor. "This result is partially affected by our lack or limited inventory in some of the key markets, including New York."
Growth From Cloud Computing
Equinix said it was seeing strength in the cloud computing sector, with new orders from IPsoft, Go Grid, Telayo and Zoho.
"We’re starting to see a tremendous pick up in private and public cloud deployments in our pipeline and we’re converting at a very quick phase," said Smith. "Applications such as electronic trading, mash-ups, social media, app stores and mobile data, are all critical communities of interest attracted to our model because of the reduction of latency and the ability to have closer proximity to key partners."
Taylor said the company's sales staff was working closely on matching sales to capacity. "It will cause us to pay very close attention to what capacity we have and where we have it," said Taylor. "The team is very well disciplined around managing and assessing (capacity) as each month goes by. Once we get these new assets available that we are going to fill them up as quickly."
Equinix (EQIX) reported revenues of $248.6 million for the first quarter, with $237.2 million coming from recurring revenues, which consisted mostly of colocation, interconnection and managed services. Acquisition costs of $5.0 million were incurred in the first quarter for the pending Switch and Data acquisition. Cash equivalents and investments jumped up to $1.18 billion, compared with $604.4 million as of December 31, 2009. Capital expenditures for the first quarter were $143.4 million, of which $14.5 million was attributed to ongoing capital expenditures and $128.9 million was attributed to expansion capital expenditures.