Equinix Poised for Growth – Analyst Blog

Leading data center solutions provider Equinix Inc. (EQIX) recently disclosed that a provider of on-demand enterprise storage solutions, Zetta, will be using its Silicon Valley International Business Exchange (IBX) data center to serve its customers better and ensure the security of its highly sensitive data.

The main purpose behind Zetta’s selection of Equinix is to augment the launching process of its on-demand enterprise storage solutions in 2009, which will help it provide better connectivity and provide it with a cost effective expansion opportunity.

As an expansion strategy, the company is also opening new data centers all over the world. The company has entered into a strategic partnership agreement with Shanghai Data Solution Co. Ltd. (“SDS”), a leading China-based systems integrator for network and communications services. Through this strategic partnership, Equinix marks its entry into the world’s fastest growing market.

This apart the company recently opened the first phase of its second IBX data center in Geneva, Switzerland. This customized GV2 IBX data center, Equinix’s fifth in the country, has the capacity to meet the demand for premium collocation and data center services from both local and global corporations and banking organizations. This expansion falls within Equinix’s $1.4 billion 2007–2010 global expansion plan. Besides, the company is also expected to open a fourth IBX data center in Zurich during the second quarter of 2010.

Equinix reported mediocre numbers in the first quarter of 2010, with EPS of 35 cents below the Zacks Consensus Estimate of 43 cents per share, although revenues increased 3.0% sequentially, attributable to good demand across all geographies.

Recently, Equinix revised its second quarter and fiscal year 2010 earnings, which incorporates the forecasted results of the recently acquired Switch & Data Facilities Company Inc. The company looks a bit more optimistic about its growth prospects.

For the second quarter of 2010, the company now expects revenues in the range of $296.0 million to $298.0 million, a substantial increase from its previous guidance range of $258.0 million to $260.0 million. Equinix expects to incur a capital expenditure in the range of $155.0 million to $185.0 million. For fiscal year 2010, total revenue is now expected to be in the range of $1,225.0 million to $1,240.0 million, revised upward from the previous guidance of $1.06 billion to $1.08 billion.

The company is also expanding its current facilities, at the same time exercising fiscal discipline. We are positive about its recurring revenue model and its expansion into the European market, which has very favorable characteristics. However, increased competition, industry consolidation, and a long sales cycle are reasons for concern.

We maintain our Neutral rating on the shares.