AT&T to Cut 12,000 Jobs, Capital Spending

AT&T said today that it will lay off 12,000 employees and reduce capital spending as it seeks to adapt to a tough economy and the shift to wireless technologies. The telecom giant said it plans to reduce its capital expenditures from 2008 levels, and will detail its 2009 spending plans in January.

It’s not immediately clear how the cuts in staff and capital spending will affect AT&T’s huge data center network, which includes 38 facilities around the world with more than 2.3 million square feet of data center space. Larry Dignan notes that the company’s 2008 capital spending is likely to reach $20 billion.

Skanska Hired for $150M Data Center Project

Skanska says it has been awarded the construction management assignment for a new, $150 million data center project in the western U.S. for “one of the largest companies in Internet trading.” The facility will be approximately 19,000 square meters, or about 204,000 square feet. Construction has begun and is scheduled for completion in May 2010, according to Skanska, which said its focus on energy efficiency was “decisive” in its selection.

“We have focused on developing our expertise within Green Construction,” says Mike McNally, President, Skanska USA Building. “Our green solution benefits us, the customer and the environment. We strengthen competitiveness for both parties while at the same time reducing environmental impact.”

Skanska is one of the world’s leading construction groups with expertise in construction, development of commercial and residential projects and public-private partnerships. Skanska USA is based in Parsippany, New Jersey and has approximately 4,000 employees.

Venture-Backed Companies Hunker Down

One of the biggest differences between the dot-com crash and the current financial crisis is the data center sector’s exposure to venture-backed startup companies. That’s not to say that data center and colocation companies haven’t leased plenty of space to venture-backed companies; only that startups play a far smaller role in the overall client mix than they did in 2001.

That’s a good thing, as major Silicon Valley venture capital firms are telling their portfolio companies to cut costs and prepare for lean times ahead. GigaOm was ahead of the curve with its coverage Wednesday of Sequoia Capital, which called a meeting to warn portfolio companies of grim times ahead and urge them to cut costs and become cash-flow positive as quickly as possible. Sequoia isn’t alone, as Benchmark Capital and angel investor Ron Conway have shared similar sentiments with their portfolio companies.

How concerned are the VC firms? Sequoia’s “slide presentation of doom” is now online at TechCrunch and VentureBeat.

Few Data Center Managers Report Budget Cuts

Forty three percent of data center managers say they expect their 2009 budget to increase, according a survey of members of AFCOM, the industry group for data center professionals. The survey was released Monday during the keynote session for AFCOM’s Data Center World Fall conference in Orlando, Fla.

The good news: the findings suggest that investment in data center services is positioned to remain strong, as companies are either continuing to invest in data center services, maintaining their budgets or targeting their cuts in other areas.

The bad news: the survey of more than 300 data center managers was conducted in May. Although the credit crunch was already affecting the economy at that time, budgets have almost certainly come under additional scrutiny in recent weeks due to the global financial crisis.

Broadband Utilities Plans 3 Denver Facilities

Broadband Utilities Inc. has bought land in Longmont, Colorado and plans to build three 50,000 square foot data centers in the Denver suburb, the company said this week. Broadband Utilities is a partnership between three Dallas-area companies: private equity firm Broadband Venture Partners, builder Beck Group, and Brandt Engineering, an electrical and mechanical systems specialist.

“We have approximately 13 acres under contract, and our plans are to build three enterprise data centers on that property where we can have three individual users or a large (user) that needs a tremendous amount of space,” John Drossos, Broadband’s chief executive officer, told local media.

Wall Street and the Data Center Sector

What will the turmoil on Wall Street mean for the data center sector? As the financial markets prepare to digest the collapse of Lehman Brothers and the sale of Merrill Lynch to Bank of America, it seems likely that the deepening problems in the financial sector will have ripples in the rest of the U.S. economy.

That clearly includes the data center sector, where there are three key issues:

• How the upheaval will impact the availability of capital for data center projects.
• The ongoing demand for data center space from Wall Street firms.
• The fate of existing data centers operated by Lehman and Merrill Lynch in any sale/merger process

There are far more questions than answers at the moment. For some history and perspective on these issues, here are some links to our “Crunch Time” series earlier this year, which examined the following issues:

• How eroding conditions in the credit markets and commercial real estate affect new construction and the supply of data centers.
• How the credit crunch is affecting data center builders, the specialized companies that have already committed to spending hundreds of millions of dollars on new facilities.
• Wall Street’s appetite for premier data center space and whether the financial sector, bruised by huge losses from subprime lending, will continue to build new facilities.

There are lots of new circumstances and facts, which we’ll be tracking. To stay informed on our news coverage of the data center industry, subscribe to our RSS feed or get our daily headline summaries by e-mail.

Data Center Demand Remains Healthy

What’s the current outlook for data center demand? Earlier this month DuPont Fabros Technology (DFT) said leasing at its data centers has slowed slightly due to a longer sales cycle for enterprise companies.

Is this a growing trend, or specific to the experience of DuPont Fabros? A review of second-quarter conference calls for the other publicly-held data center specialists finds demand for data center space remains healthy, and outpaces supply in the most active markets of Silicon Valley and New York/New Jersey.

“We continue to see a very attractive pricing and strong demand for our market, particularly for our Turn-Key Datacenter product,” said Michael Foust, CEO of Digital Realty Trust (DLR). “We continue to see a significant lack of supply necessary to meet this demand, and DLR is one of the few data center providers actively building speculative Turn-Key space across our major markets.”

Foust said that despite the challenging economy, Fortune 1000 companies, Internet companies and systems integrators continue to make “significant investments” in IT infrastructure. “Our teams are experiencing strong demand in the major markets in the U.S. and Europe especially for our Turn-key product,” Foust said in the company’s Aug. 6 conference call (see full transcript).

Wall Street Grids: The Cloud or the Data Center?

Is in-house financial grid computing “dead” and headed for the cloud? Or is it alive and well and rapidly filling data center space from existing providers?

I read a lot of blogs and listen to a lot of conference calls from public companies in the sector. Last week’s intake provided a stark difference between the view from the cloud and the reporting of events on the ground from data center developers.

In a post last Thursday, Reuven Cohen of Enomaly predicted that Grid is Dead, citing discussions with prospects in New York:

A particularly interesting discussion earlier today was with the director of grid infrastructure for a major wall street bank. The conversation ranged from network optimization, the pros and cons of map/reduce to the importance of utilization. During our discussion I couldn’t help but think that the traditional single tenant grid infrastructure was dead and that the future lied in the use of flexible and adaptive compute clouds.

Reuven offers a technical discussion of utilization rates and how clouds and virtualized grids might improve the performance of financial applications.

I don’t doubt that Wall Street IT executives are having interesting discussions about the potential of cloud computing. But in the meantime, they’re leasing large amounts of single-tenant turn-key data center space from Digital Realty Trust (DLR) to run these apps in their own space, as was clearly indicated in the company’s conference call with analysts last week.

DuPont Fabros Reports Slower Leasing

DuPont Fabros Technology (DFT) said today that leasing at its data centers has slowed slightly due to a longer sales cycle for enterprise companies, who are the primary customers for the company’s newly-opened Chicago data center. DuPont Fabros executives said they remain highly confident about demand for the company’s facilities, and expect to have no trouble meeting their revenue projections.

“We feel demand outpaces supply and the market is healthy,” said Hossein Fateh, the president and CEO of DuPont Fabros. “In the current economic climate, the decision to sign leases is now taking longer, particularly in the enterprise market. We originally hoped to be 100 percent leased in ACC4 (the company’s new data center in Ashburn, Virginia) and we are currently at 86 percent. We also hoped to be further ahead on leasing our Chicago facility.”

Fateh discussed the leasing in a conference call with analysts this morning. The company also said it had raised the low end of its 2008 guidance on funds from operations (FFO) from $1.20 to $1.24, while keeping the top end estimate at $1.30 per share.

The report of slower leasing differs from the experience at Digital Realty Trust (DLR), the other large REIT focused on the data center sector, which reported strong demand and higher leasing rates in its second quarter earnings and raised its 2008 FFO projection. Colocation providers Equinix (EQIX) and Switch and Data (SDXC) also reported strong demand for space and raised their revenue guidance.

Fortress Reports $37M in 2Q Engagements

In the latest sign of activity in data center construction and expansion, Fortress International Group (FIGI) said Thursday that it booked $37 million in new business in the second quarter, bringing new engagements for 2008 to $91 million, a 46 percent increase from $62 million during the first six months of 2007.

The new business for Fortress included $32 million in construction management, $3 million in facility management and $2 million in technology consulting. Fortress International is a holding company for a portfolio of companies that design and build mission-critical facilities, including notably Total Site Solutions (TSS). Fortress has now booked $80 million in new construction work this year, including two new projects announced Monday.