Rackspace Goes Shopping for Data Centers

Rackspace Hosting (RAX) is reducing its planned capital spending on data centers because it believes it will be able to buy or lease a facility for less than it would cost to build one of its own.

Rich Miller

November 6, 2008

2 Min Read
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Rackspace Hosting


Rackspace Hosting (RAX) is reducing its planned capital spending on data centers because it believes it will be able to buy or lease a facility for less than it would cost to build one of its own. CEO Lanham Napier said the company, which has $260 million in cash, is focused on "opportunistic investments."     

The company is reducing its anticipated capital expenditures estimate for 2008 from $310 million to $270 million. The reduction is due to revised build out plans for its data centers and headquarters and reduced customer equipment spending.

"We are starting to see changes in the data center market where we think we will not have to build a data center next year," said Rackspace CEO Lanham Napier. "We think there are opportunistic (acquisition) opportunities for data center space." 

Rackspace raised $145 million in its IPO in August, and  last month drew down $150 million on its revolving credit line. The San Antonio company company recently acquired two cloud service providers, Jungledisk and Slicehost, for $11.5 million in cash and stock. While emphasizing that it will de disciplined, Rackspace executives made it clear that they believe that there will be existing or partially finished data centers on the market.  

Rackspace joins a number of companies who have said they are looking for opportunities to acquire projects that have been unable to finish construction or lease space due to the credit crisis. Equinix (EQIX) and Switch and Data (SDXC) each say they are positioned to take advantage of opportunities to acquire properties, while Digital Realty Trust (DLR)  has historically been an active buyer of data center assets.   

Rackspace reported net income of $5.2 million on revenues of $138.4 million for the quarter ended Sept. 30, compared to net income of $6.3 million and revenues of $96.1 million for the same quarter in 2007. The company now has more than 36,000 customers and 45,200 servers.

“We’ve delivered a strong quarter with nearly every metric improving over the second quarter of 2008,” said Bruce Knooihuizen, senior vice president and chief financial officer, Rackspace Hosting. “We are well funded with excess cash to act opportunistically and make the right investments to continue to fuel our growth.”

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