Virtualization was hot, while CDNs were not. That was the story for data center stocks in the third quarter of 2007, as VMWare (VMW) and BladeLogic (BLOG) surged higher after their IPOs, while content delivery network specialists Akamai (AKAM) and Limelight Networks (LLNW) took a nasty beating. The data center builders had a mixed performance in the middle, ranging from a three-month gain of 15 percent to a loss of 22 percent in a period in which the Dow rose just 3.63 percent and the NASDAQ was up 3.77 percent.
Here's a look at the performance of the data center stocks we track in the third quarter of 2007:
VMWare has been a story unto itself, benefiting from the enormous buzz around virtualization as a transformative technology in the enterprise data centers. BladeLogic, which provides data center automation software, got a boost from exceptional timing. The company's IPO came just days after one of the company's rivals, Opsware (OPSW), was bought by HP for $1.6 billion.
Among data center operators, Navisite (NAVI) and Terremark (TMRK) had the strongest percentage gains in the third quarter. Both companies added revenue through acquisitions, as NaviSite bought netASPx, Alabanza and Jupiter Hosting while Terremark acquired Data Return in May. Rackable (RACK) and Digital Realty (DLR) also beat the Dow, while Internap (INAP), Equinix (EQIX), Switch and Data (SDXC) and Savvis (SVVS) saw their shares lose ground in 3Q. Growing competition in the CDN market has battered the stocks of former high-fliers Akamai and Limelight Networks (which was a hot IPO back in June).
What does the big picture look like for data center stocks for 2007? Here's a look at cumulative performance for the first three quarters of the year:
For the year to date, Equinix and Digital Realty are beating the Dow, which is up 11.5 percent in 2007. Savvis and Terremark are in the black but trailing the broader market, while Switch and Data is off 4 percent from its IPO in February. Internap and Rackable, which have seen their share prices retreat after strong gains in 2006, join the publicly-held CDNs in the deep red.