The big winner for the quarter was Akamai Technologies, the leading content delivery network (CDN), which bounced back after a tough first half of the year.  Akamai (AKAM) got a shot in the arm from its acquisition of Cotendo, a rival that had gained traction in next-generation services.

Here’s a look at how data center stocks fared in the quarter.

The three real estate investment trusts (REITs) focusing on the data center also had strong quarters. CoreSite Realty (COR), DuPont Fabros Technology (DFT) and Digital Realty Trust (DLR) recorded gains of between 21 and 24 percent for the quarter.

For the full year, the big winner was Rackspace,  which saw its shares soar 36 percent over the course of the year as its cloud computing business continued to grow and gain momentum. See our roundup of the top data center stocks of 2011.

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can see our “Companies” page, or just type the company’s ticker symbol into our search box.

Rackspace (RAX) has been making more money from each square foot of data center space with each successive quarter. in 2011 it continued to add data center capacity to further scale up its revenue. Meanwhile, it sought to leverage ts leadership role in Open Stack, an open source cloud computing platform.

Here’s a look at the full-year 2011 performance for the stocks we track on our Data Center Investor list:

It was a strong year for the wholesale data center sector, as CoreSite Realty (COR) and Digital Realty Trust (DLR) finished with gains aof about 30 percent, while DuPont Fabros Technology (DFT) was up nearly 14 percent on the year. All three benefited from a strong leasing environment, as well as growing attention to the strength of the data center REITS compared to other real estate asset classes.

All three easily outpaced the Dow Jones Industrial Average, which improved by 5.5 percent on the year, as well as the S&P 500 (flat for the year) and the Nasdaq composite index (-1.8%).

The content delivery sector fared the worst, as Akamai (AKAM) and rival Limelight Networks (LLNW) lost 31 percent and 49 percent, respectively, for the year. Both stocks were battered by the increasingly competitive CDN market, which led to declines in pricing for many services.

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can see our “Companies” page, or just type the company’s ticker symbol into our search box.

Shares of data center companies tend to be more volatile than the broader market. That held true in the third quarter of 2011, which was a tough time for Wall Street and a tougher time for the data center sector. Every stock in our Data Center Investor chart fell by at least 10 percent in the three-month period ending Sept. 30, with six of the 10 companies dropping 20 percent or more.

The Dow Jones lost 12.1 percent in the quarter, while the broader market, as measured by the Standard & Poor’s 500 index,was off 14.3 percent for the quarter.

The best performers were the sector’s standardbearers: Digital Realty Trust (DLR), the largest data center REIT, was lower by 10.7 percent, while the largest colocation provider, Equinix (EQIX), was off by 12.1 percent.  CoreSite Realty (COR) also kept pace with the Dow, dipping 12.5 percent.

It was a brutal quarter for companies in the content delivery sector, as shares of Akamai (AKAM) were off 36 percent, while Limelight Networks (LLNW) was the worst performer for the quarter, seeing nearly half its value wiped out after reporting disappointing earnings.

Managed hosting and cloud computing specialist Savvis left the chart, as it was acquired by CenturyLink (CTL), which we’ve added. With its acquisitions of Qwest and Savvis, CenturyLink now operates 48 data centers in North America, Europe and Asia with more than 1.9 million square feet of raised floor space.

Mark Thorsheim, Managing Director at DH Capital (at left), discusses industry merger activity with Tier 1 Senior Equity Analyst Kelly Morgan at the Tier 1 Hosting and Cloud Transformation Summit.

Will mergers continue to reshape the data center landscape? Investment bankers tracking the industry predict say there are more deals to come, with telecom companies targeting the cloud computing market shaping up as the likely buyers. There were mixed opinions about whether colocation and managed hosting firms would continue to fetch premium prices in these deals.

There has been approximately $7.1 billion in deal activity in the data center industry in 2011, according to Tier 1 Research, which held a panel on mergers and acquisitions activity at its Hosting & Cloud Transformation Summit in Las Vegas this week. That’s up from $4.8 billion in 2010, but based on a smaller number of acquisitions with higher valuations. That includes blockbuster deals like Verizon’s $1.4 billion purchase of Terremark and CenturyLink’s $2.5 billion acquisition of Savvis.

Buyers Still Hungry for Deals

“There’s been a tremendous amount of consolidation in the last two years,” said Doug Webster, Managing Director with Signal Hill. “The good news is that there’s still tremendous interest. There doesn’t seem to be any loss of appetite for the sector.”

“Acquisitions are up because there aren’t too many other options for funding,” said Kelly Morgan, Senior Equity Analyst at Tier 1 Research. “This is not the best time for an IPO. We saw Telx withdraw theirs,” she said noting that Telx was instead acquired by ABRY Partners and Berkshire Partners.

But based on the pricing on some of the acquisitions, the buyers seem pretty motivated as well. Morgan said recent industry deals have seen companies sell for between 8 to 10 times their annual EBITDA (earnings before interest, taxes, depreciation, and amortization), with some outliers approaching 15 times their EBITDA.

Acquirers Seeing Benefits

Some of the investment bankers noted that deals at these multiples have paid off well for the acquirers. One example is Cincinnati Bell, which bought high-density colo specialist CyrusOne for $525 million in 2010. Colocation revenue from CyrusOne boosted results at Cincinnati Bell in the most recent quarter, prompting a buy recommendation from securities analysts. Cincinnati Bell recently announced plans to build a 1 million square foot CyrusOne data center in Phoenix.

“How many disappointed buyers are there?” asked Mark Thorsheim, Partner and Managing Director of DH Capital. “Just about every deal has produced strong results. We’re in a very robust sector. Where else are private equity firms and lenders going to do better? They’ve really done exceedingly well.”

On one point, there was broad agreement: the buyers in this consolidation will be telecom companies seeking to build their cloud computing businesses. “The next two to three years will be dominated by telco activity,” said Thorsheim.

Telcos Decide to Buy, Not Build

Tier 1 Research Director Antonio Piraino said telecom companies have been sizing up the cloud computing opportunity for several years, trying to sort out whether it was best to build their own data centers or buy existing providers. “The telcos have recognized that they can’t do it themselves,” said Piraino. “We believe the telcos have a major role to play.”

It remains to be seen whether the innovation and rapid growth seen in cloud-focused managed hosting companies will continue under new ownership. “One can make the argument that telcos aren’t that successful getting into new businesses,” said John Hendon, Director in the Communications & Media Investment Banking Group at Stifel Nicolaus Weisel. “This is a strategic imperative for these companies.”

Who will be bought? Are acquirers more likely to focus on colocation providers who lease raised-floor data center space,  or companies specializing in managed services?

“If you look at managed versus colocation, the colo model is simple,” said Thorsheim. “It’s less people-intensive, so margins can be in the 50 to 75 percent range.” While managed hosting often involves premium pricing, margins are somewhat lower because the provider must acquire and own the server hardware to power the services.

Mergers May Spur Construction

The acquisitions are likely to boost data center construction, according to Hendon. “Look at the amount of funding behind some of these industry leaders,” he said. “These sponsors are looking to deploy a large amount of capital.”

That trend is likely to boost the amount of data center space in “second tier” markets and smaller cities. “The colocation business is still a fantastic business,” said Thorsheim. “Capital is flowing freely supporting that business model. There are still dozens of cities that could see additional capacity.’

The panel also touched on a relatively new wrinkle in data center deals – whether valuations were affected by whether a company owns its data centers or leases space from wholesale providers.

“If you’re doing high-end complex hosting with high margins, those leasing costs probably aren’t as important,” said Webster. “We’ve seen very successful companies that don’t own their facilities. In the retail colo business, it’s probably harder to make the margins if you don’t own the facility.”

Colocation companies Internap and Equinix each had double-digit gains for the quarter. Equinix has moved back above $100 a share, and has now regained nearly all of the ground lost in a  sharp selloff last October. The three publicly-traded data center REITs (Digital Realty Trust, DuPont Fabros and CoreSite were next, improving by 4 to 6 percent on the quarter.

By comparison, the Dow Industrials gained 0.7 percent during the quarter, whikle the NASDAQ index lost 0.3 percent and the S&P 500 was down 0.4 percent.

It was another tough quarter for the public content delivery networks (CDNs). Akamai and Limelight Networks saw their shares slide amid competition from carriers.

We’ve added Century Link (CTL) to the list, as it bought Qwest and will soon complete its acquisition of Savvis. Exiting are managed hosting providers Terremark Worldwide (acquired by Verizon) and NaviSite (bought by Time Warner Cable).

First-Half Winner is SGI

At the midway point of 2011, a solid majority of  data center stocks are outperforming the market in a big way.  The Dow was up 7.2 percent for the first half of the year, while all but three companies (the CDNs and Century Link) easily beat that performance. The strongest performer was SGI, which lost some ground after a huge gain in the first quarter of the year, followed by the three companies whose shares were boosted by acquisitions: Savvis, NaviSite and Terremark. Here’s a look at the first-half results.

Remember to track our Data Center Investor channel for performance updates on data center companies. For tracking individual stocks, you can use the “Companies” link in our navigation bar, or just type the company’s ticker symbol into our search box.

A view of an ioDrive from SSD flash memory specialist Fusion-io, which will have its IPO today.

The technology sector continues to blow by other industries as the money keeps flowing in and Initial Public Offerings (IPO) from tech companies are faring well. Today’s scheduled IPO for Fusion-io is just one major event in a busy week for financings. Here’s a roundup:

Fusion-IO’s Thursday IPO

On Wednesday Fusion-IO (FIO) announced the pricing of its initial public offering of 12.3 million shares of common stock  at $19.00 per share. Shares will begin trading on the New York Stock Exchange today (Thursday June 9th). A total of 10,755,607 shares will be offered Thursday.  Fusion-io makes flash-based storage that plugs into a PCIexpress slot on a server motherboard and offers performance advantages over disk-based storage.

Violin Memory receives $40 million

Another player n the flash memory sector, Violin Memory, announced a $40 million Series C funding round which includes existing strategic investors and new cross-over public market investors. This comes just months after the company raised $35 million in Series B funding. Violin Memory appears to be benefiting from the market momentum from Fusion-io’s pending IPO, EMC’s plan to accelerate flash storage adoption and Oracle’s TPC-C flash based world record. “Our new capital will allow us to speed up product development and global expansion in Europe and Asia to surpass $100 million in revenue this year, the first step in building a billion dollar company,” said Don Basile, current CEO and former chairman and CEO of Fusion-io.  ”This pace of revenue growth will continue to make Violin the fastest growing storage company in the last decade.”

Aryaka secures $15 million

Cloud-based WAN optimization and application acceleration solution provider Aryaka announced an oversubscribed $15 million Series B round of funding, led by Nexus Venture Partners with participation from Trinity Ventures and Mohr Davidow Ventures. Aryaka will use the additional funds to further accelerate adoption of its SaaS model for data transfer and application delivery in the lucrative midmarket. “This round will be used to fuel our sales and marketing growth and to push into growth markets in Asia and Europe,” said Ajit Gupta, founder and CEO of Aryaka. “The Aryaka network is fully operational, our new Emergencestrategic alliance program is gaining more partners every day and our customer base is rapidly growing as more enterprises migrate to cloud-based services to drive their business.”

WayIn raises $6.4 million

Sun Microsystems co-founder Scott McNealy has raised close to $6.4 million in financing for one of his new ventures, stealth start-up WayIn. It looks like McNealy has brought along some old Sun colleagues, as Damien Eastwood, former VP of Legal at Sun, Bill MacGowan, former Chief Human Resources Officer at Sun and others were listed on the SEC filing. People are encouraged to follow Scott McNealy’s twitter account for updates related to the company.

Intel Invests $15 Million More in ISTC program.

Intel (INTC) unveiled more than 35 innovative research projects underway at Intel Labs that will help transform the future of technology. Intel’s CTO Justin Rattner announced the latest Intel Science Technology Center (ISTC), a new collaborative framework for security research between Intel and several leading universities. The center represents the next $15 million installment of Intel’s recently announced 5-year, $100 million ISTC program to increase university research and accelerate innovation. “The co-principal investigators from Intel and UC Berkeley will lead a talented team of researchers from across the country to address today’s most challenging problems in computer security,” said Rattner. “Forming a multidisciplinary community of Intel, faculty and graduate student researchers will lead to fundamental breakthroughs in one of the most difficult and vexing areas of computing technology.”

IPO Buzz

Seeking Alpha notes many of the IPO trends in technology with online coupon distributor Groupon.com filing for an IPO on June 2nd to raise $750 million. The rumormill continues with talk of both Zynga and Facebook to IPO sometime in the future. LinkedIn (LNKD) gained 109.4% on their opening day, reaching a high of $122.70 per share.

21Vianet sold 13 million American depositary shares for $15 each, raising $195 million, an underwriter said. The company had planned to sell 12.5 million ADSs at $12 to $13 each — already an increase from 11.5 million ADSs and the price range of $10 to $12 per ADS it had originally proposed.

Shares of 21Vianet are expected to begin trading on the Nasdaq exchange Thursday under the symbol VNET (VNET.O). 21Vianet plans to use the proceeds from the IPO to expand its data center and network infrastructure, according to a filing with the U.S. Securities and Exchange Commission. The company, which says is the largest of its kind in China by revenue, has been operating at a loss for the past three years. It hosts servers and networking equipment, also tapping the hot cloud computing market.

The most direct beneficiaries of the cloud M&A trend were investors in Terremark (TMRK) and NaviSite (NAVI).  Terremark shares shot up 47 percent after Verizon Communications offered to buy the company for $1.4 billion, while NaviSite shares were 49 percent higher on the quarter following an acqusition offer from Time Warner Cable. Both stocks continue to trade as the companies work to close the deals.  Shares of Savvis (SVVS) and Rackspace (RAX) jumped in the wake of the deals, as investors speculated that other large companies may be searching for cloud computing acquisitions.

The growth of cloud computing is also boosting shares of companies that sell servers and storage to power these clouds. That was the case for SGI, which was the quarter’s biggest winner with a gain of 127 percent.  Shares of SGI soared 25 percent in a single session in February after the company repoerted stronge-than-expected earnings and said it expects to be profitable in 2011. SGI’s biggest customer is Amazon.com, which continues to buy servers to support the growth of its Amazon Web Services cloud computing platform. SGI said Amazon accounted for more than 10 percent of its revenue, meaning the company bought at least $17.5 million in servers and storage in the quarter.

Here’s a look at the Data Center Investor chart for the first quarter:

Every company in the sector except Akamai (AKAM) finished ahead of the broader market indices, as the Dow Industrials were up 6.7 percent, the S&P 500 gained 5.6 percent and NASDAQ Composite Index was ahead 4.7 percent.

The three public real estate investment trusts (REITs) focused on the data center had a solid quarter, with gains of 12 to 16 percent. The performance of content delivery networks (CDNs) was less consistent, as Limelight Networks (LLNW) was up 23 percent for the quarter, while shares of market bellwether Akamai Technologies (AKAM) slipped 18 percent as analysts were unimpressed with earnings.

The company’s guidance forecasts revenues in the range of $341 million to $ 343 million for the fourth quarter, with adjusted EBITDA expected to be around $146 million. Equinix does not issue guidance for earnings per share. Assuming these numbers are met, organic growth for the company, excluding the Switch and Data acquisition, would still be in excess of 20 percent, compared to 2009.

Analysts expect, on average, revenues of $ 341.9 million, right in the middle of company’s guidance, and earning per share of $ 0.23. During the last conference call, Equinix’s management issued guidance for 2011. The company expects revenues to be in excess of $1.5 billion, and adjusted EBITDA to be in excess of $675 million. Capital expenditures (CapEx) for 2011 are expected to be approximately $400 million, including both expansion and ongoing CapEx.

Watching Switch & Data Sites

After the 3Q 2010 revenue warning, investors and analysts will be closely watching if Equinix will back the previous guidance for next year, and there’s likely to be scrutiny of metrics like churn and occupancy in the former Switch and Data centers as analysts seek to understand if the integration challenges related to the SDXC acquisition are now behind the company.

As a reminder, several interesting non financial metrics are available on the Equinix investor section at this link. In particular, we turned our attention to cabinet equivalents billing and available at the close of the quarter as a way to monitor both the sales performance and the potential going forward for the company – see the chart at the end of the article, down-loadable at this link.

In the last few months Equinix has made an effort to differentiate its offering from the other colocation providers by presenting itself as a global platform providing customers the ability to quickly expand in most key Internet and financial hubs around the world. The Switch and Data acquisition was strategic to this vision, as it gave the company the opportunity to increase the number of networks connected to its data centers and gain a presence in additional North American markets, thus potentially reducing latency and boosting performance for its US customers. Today, Equinix can offer its clients the opportunity of hosting their servers with less than 10ms of geographic latency from 90% of the population of North America and Europe.

The financial sector comes immediately to mind when talking about low latency – however, there are several other applications and industries interested in insuring a great end user experience (click to enlarge pictures):

By positioning itself as the answer to the most demanding customers, Equinix believes it can also create “ecosystems” within its data centers that may reduce, in the future, the possibility of customers’ churn.

Finally, here is a view of Equinix’s data centers by size in North America. As the company does not release data on cabinet equivalents or power available for each market, we used the square footage to get a sense of the potential of each location.

As you may notice, the New York metro area (where the company has a strong presence with the financial industry) is the largest market, followed by Silicon Valley and Washington, D.C. metro. The five largest market represent almost 85 percent of the company’s potential space.