"Neutral Co-location Data Centers Poised for Further Upside and Growth Potential" According to Industry Expert

• On 9:10 am EDT, Tuesday September 1, 2009

67 WALL STREET, New York - September 1, 2009 - The Wall Street Transcript has just published its Data Hosting and Data Storage Services Report offering a timely review of the sector to serious investors and industry executives. This 37 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Capital Investment Growth -- Cloud Computing -- Per-per-Port Trends -- Broadband Network Services -- Content Delivery Networks -- Broadband Network Services -- Backbone Services -- Utilization Rates -- CDN Business Model -- Co-Location Business Model

Companies include: ATT (ATT); RackSpace (RAX); Level 3 (LVLT); Savvis, Inc. (SVVS); Verizon Communications (VZN); Cisco Systems (CSCO); Limelight Networks (LLNW); Internap Network Services (INAP); Switch and Data Facilities (SDXC); Digital Realty Trust (DLR);Voltaire, Inc. (VOLT)

In the following brief excerpt from the 37 page report, Colby Synesael, Senior Analyst Kaufman Bros., L.P., discusses the outlook for the Data Storage sector and for investors.

TWST: How would you describe your overall outlook on the data hosting and data center space? Why?

Mr. Synesael: I'm positive on the group. Out of the four subsectors I cover within telecom and data services, the two that I'm most favorable on are neutral co-location providers like Equinix (EQIX) and Switch & Data (SDXC), as well as managed hosting providers like Savvis (SVVS) and Terremark (TMRK). In terms of why I'm positive, from a modeling perspective, I like the fact that they're recurring revenue-based models. I think that that gives a lot of visibility for shareholders. Also, from a fundamental point of view, if you step back, data centers are really still a fairly new industry that began with the creation of the Exodus's and Verio's of this world, call it 10 or 15 years ago. And people that are buying data centers from third-party providers like those I've mentioned are really buying these services for the first time. Rarely are you seeing guys going from an Equinix to a Switch & Data, or vice versa. It's really them going from their own in-house solution to a third-party solution for the first time. When you look at the life cycle of any company or any industry, right now we're in that growth phase for the data center space, and that's enabling them to put up growth that is far above the industry average for other telco or technology industries. The data center space is growing somewhere between 15% and 25% on a year-over-year basis, depending on the subsegment. So I think all that is very positive from an investment point of view, and therefore gives these guys an opportunity to put up some good returns for their shareholders.

TWST: Do you see any trends in terms of data center design or market location? What risk do these companies face in terms of facilities becoming obsolete?

Mr. Synesael: What we're really talking about then is power, and facilities back in the bubble days were probably being built out at sub-100 watts per square foot. Today you're seeing facilities being built at north of 150 watts per square foot. There is concern that the power requirements for servers will continue to go up at a Moore's Law-type number. The opposite argument, and I buy into this one, is that there is also now a lot more R&D being done on servers' improved power efficiency that had never been done before. It has become a big enough concern or cost that people are willing to deploy investment dollars into figuring out how to resolve that. And I think that in the coming years, we are going to see power efficiency meaningfully improved to the point where we'll get more throughput for that same amount of power consumption that we see today. So I don't foresee us continuing to go from 50 watts a square foot to 100 to 150 to 200 to a day where we're using 500 watts per square foot. I simply just don't see that being the reality. I think facilities that are being built today at 150, 200 watts per square foot should be sustainable business models for, I won't say indefinite because nothing's ever indefinite, but the foreseeable future. That said, if in fact power requirements do continue to go up, facilities certainly will have to be built to higher and higher specifications, and there will be a cost associated with that, that will continue to go up. But I would say two things: One is that there still are servers today that only need 75 watts a square foot; there are a lot of facilities out there today that are below 100 watts per square foot and there's still a tremendous amount of demand for those facilities. So that demand for 75 watts per square foot is still there today, but the point is for new demand, they are being asked for these higher-power facilities. That's why even within an Equinix property, they have 75 watt per square foot facilities and they have 200 watt per square foot facilities, and they're both in a position to be fully utilized and generating revenue. The other component that's important to understand in terms of obsolescence is that even though this is a capital-intensive business model to build these facilities - I mentioned between $1,200 and $1,800 per square foot - it's also, in my view, a capital-intensive business to maintain. So for the companies that I'm modeling, I expect somewhere between 12% and 15% of revenue to be put back into cap ex just to maintain a company's current footprint. Now I'll tell you that the companies have argued that it is less than that; they'll argue that it's somewhere between 6% and 10%. Equinix has argued, for example, that the long-term maintenance requirement for its facilities is between 6% and 8% of revenue. But in my view, empirically speaking, I have yet to see that come to fruition and, therefore, I model a much higher rate.

TWST: What types of cost do you include in that?

Mr. Synesael: There is everything from the proper power and cooling, the generators, the battery backups, the air conditioning units themselves, fire suppression, FAS 70 compliant, HIPAA complaint, SEC compliant, security, all these different things. I think that the requirements for each of them continue to go up every year and, therefore, there is a cost associated with maintaining that.

TWST: Thank you. (MN)

COLBY SYNESAEL Senior Analyst Kaufman Bros., L.P. 800 Third Avenue 30th Floor New York, NY 10022 (212) 292-8100 (212) 292-8101 - FAX www.kbro.com e-mail: info@kbro.com

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 37 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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