DCK Investor Edge: Why RagingWire is a Data Center Company to Watch
Doug Adams, CEO, RagingWire © 2015 | Kristina Sherk Photography | www.Kristinasherk.com

DCK Investor Edge: Why RagingWire is a Data Center Company to Watch

Its US operations are just the visible tip of the provider's massive parent NTT Global. Here's why investors can expect big things from RagingWire in Tier 1 markets going forward.

A tailwind from the Internet of Things, 5G networking, and edge computing research by parent NTT Group gives data center provider RagingWire a distinct advantage in competing for large-scale deployments, according to CEO Doug Adams.

Many US data center professionals familiar with the Reno, Nevada-based company's patented 2N+2 data center design may not be as familiar with its publicly traded corporate parent from Tokyo, NTT Communications. In 2014, NTT invested $350 million to purchase 80 percent of Raging Wire, and plans are in place to consolidate 100 percent ownership later this year.

One notable exception would be DuPont Fabros Technology CEO Chris Eldredge. Prior to joining DFT in February 2015, Eldredge was executive vice president of data center services at NTT America. Today, RagingWire and DuPont Fabros are both building large-scale wholesale data centers, targeting hyper-scale public cloud providers and Fortune 1000 enterprise customers.

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The latest RagingWire 2N+2 design allows for customization of 1MW vaults (each of which can be further subdivided into four 250kW data halls) within 14MW to 16MW data centers. This design allows for redundancy even when undergoing scheduled maintenance. RagingWire's existing customer deployments range from four or five racks to 20MW.

"Our view is that the cloud is a catalyst for data center demand, not a one-time blip," Adams said in an interview with Data Center Knowledge. "Over time, the Internet of Things, content, big data, and AI (Artificial Intelligence) will drive greater need for cloud computing and data centers."

Read more: RagingWire Pursuing Cloud Providers with New Focus on Wholesale

NTT has top-level executives leading dedicated teams and research labs supporting IoT, 5G, edge data centers, and other IT initiatives, including a recent partnership announced with Toyota to research and build out a global data center network to support autonomous vehicles.

NTT Group

NTT Communications generates over $100 billion in annual revenues, making it one of the largest telecom and data center players globally. It also has a complex corporate structure with over 900 subsidiaries. NTT in aggregate has 240,000 employees located in 88 countries who "provide consultancy, architecture, security and cloud services to optimize the information and communications technology (ICT) environments of enterprises." NTT companies include: Dimension Data, NTT DOCOMO, and NTT DATA.

Source: NTT – June 2017 (click image to enlarge)

There are over 140 NTT-affiliated data centers located in major cities across 19 countries on four continents. In Asia-Pacific the company serves: Tokyo, Hong Kong, Singapore, Malaysia, Indonesia, Philippines, and Thailand.

The scale of NTT's data center footprint is easily overlooked when it comes to industry stats reported in the US, likely because of the historic concentration in Asia and multiple data center "brands" which operate semi-autonomously.

The NTT Nexcenter data center "umbrella" includes:

  • RagingWire – North and South America
  • Netmagic Solutions – India
  • Gyron Internet – United Kingdom
  • e-shelter facility services – Germany

The RagingWire US data centers are "carrier neutral." However, the ability to coordinate with NTT engineers on IT architecture allows for some unique global solutions which can involve NTT sub-sea cables and "global tier-1 IP network, the Arcstar Universal One VPN network reaching 196 countries/regions."

Notably, there is the ability for RagingWire enterprise customers to enter into "consistent contracts worldwide" to help support and distribute workloads globally if required. Customers can choose to contract globally with counterparties backed by NTT's enormous balance sheet and impressive AA- investment grade rating.

RagingWire Tier 1 Strategy

US Tier 1 markets are attractive to a multinational telecom and data center player like NTT, because they represent such a large piece of the global data center pie.

Source: Raging Wire – June 2017 (click image to enlarge)

Adams mentioned to us back in February that both Chicago and Silicon Valley were being targeted Tier 1 markets for expansion -- although the precise timing still remains under wraps.

Read more: NTT Names Adams RagingWire CEO, Takes Full Ownership of Company

The NTT sales force has business relationships with 80 percent of the Fortune Global 100. This deep penetration with multinationals should provide RagingWire's business development team enhanced access to decision makers.

Adams, who recently returned from corporate meetings in Tokyo, now has a runway for CapEx budgets through 2019, making it easier for RagingWire to accelerate expansions into strategic markets. Stay tuned to DCK Investor Edge for further developments on those fronts.

Cost-of-Capital Advantage

The Raging Wire 2N+2 design incorporates far more parts and pieces than low-cost competitor CyrusOne's "Massively Modular" design. However, RagingWire's cost-of-capital advantage helps to level the playing field when it comes to competing for hyperscale customers interested in large-scale deployments.

Read more: DCK Investor Edge: CyrusOne — Catch Me If You Can

NTT's AA-/Aa3 bond rating paved the way for a 10-year yen denominated bond due in March 2023 to be offered at an eye-popping 0.69 percent interest rate. By way of comparison, CyrusOne's March 2017 private offering of $500 million of senior notes due 2024 and $300 million of senior notes due 2027 priced at 5.000% and 5.375%, respectively.

Digital Realty Trust, the only US REIT with an investment-grade balance sheet and a global wholesale data center footprint, has a BBB-rated balance sheet. Digital's current weighted average coupon is 3.5 percent, for an average 5.2-year term. DuPont Fabros has a BB/Ba1 rated balance sheet, and unsecured notes average 5.8 percent, for a five-year remaining term.

While none of these are precisely apples-to-apples comparisons, NTT has a clear edge in the capital-intensive data center business.

Bottom Line

Clearly, RagingWire has the horsepower, as well as  scale and operational expertise to compete with both private equity-backed and publicly traded US data center REITs across Tier 1 markets in North America.

"Our focus is on the top data center markets in North America," Adams said. "We are listening to our customers tell us where they want their data centers and helping them get there." He added, "Enterprises, particularly multi-nationals, will be the next wave, as they deploy hybrid data center and cloud architectures."

RagingWire's parent can afford to make strategic investments in the US for the long term, without concerns about quarterly performance typically associated with smaller publicly traded companies. Investors should keep a close eye on both RagingWire's appetite for geographic expansion and its ability to gain market share going forward.

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