"Best on the Street" Communication Services Analyst Jim Breen, CFA, of William Blair & Company, L.L.C. Interviews with the Wall Street Transcript: Positive Fundamental Trends in Data Hosting and Data Centers

Wall Street Transcript

67 WALL STREET, New York - February 21, 2014 - The Wall Street Transcript has just published its Data Hosting Centers and Data Storage Report offering a timely review of the sector to serious investors and industry executives. This special 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: Data Hosting Centers - Flash Memory - Cloud Computing Secular Trends - Data Center REITS - Colocation, Managed Hosting and Cloud Computing - International Enterprise and Consumer Demand - Mobile Computing - Infrastructure Upgrades and Consolidation Activity

Companies include: AT&T, Inc. (T), Verizon Communications Inc. (VZ), Sprint Nextel Corp. (S), Akamai Technologies Inc. (AKAM), Cogent Communications Group In (CCOI), Equinix Inc. (EQIX), Rackspace Hosting, Inc (RAX), Amazon.com Inc. (AMZN), Google Inc. (GOOG), Microsoft Corporation (MSFT), Cortex Pharmaceuticals Inc. (COR), Digital Realty Trust Inc. (DLR), DuPont Fabros Technology, Inc. (DFT) and many others.

In the following excerpt from the Data Hosting Centers and Data Storage Report, an expert analyst gives a detailed outlook for the sector and names his top stock picks for investors:

TWST: Let's start with an overview of your coverage universe.

Mr. Breen: I have a fairly broad coverage universe. The two main groups would be traditional communication services companies like AT&T (T), Verizon (VZ), Sprint (S), T-Mobile (TMUS), and then the second group would be what we have classified as Internet infrastructure, names like Akamai (AKAM), Cogent Communications (CCOI), Equinix (EQIX), Interxion (INXN) and Rackspace (RAX).

TWST: Our focus today is on the data hosting or data center names. What's your overall outlook and sentiment on that space and why?

Mr. Breen: We've generally been positive on the fundamentals in the group. We think that there is a continuing trend happening of IT dollars moving outside of the organization and the enterprise to companies that are providing a shared platform, whether it be on the data center side or a managed hosting situation. This has been driven by cost savings in general, but also as IT has gotten a bit more complicated these companies are using information technology and software to solve problems. IT spending has become a larger part of cost of goods sold, so organizations have started thinking about what's the most efficient way to handle those assets.

TWST: Let's talk a bit more about the key trends impacting these companies and how they are adapting.

Mr. Breen: For the data center companies there are a couple of things, and it depends to some extent on whether you are talking within the U.S. or internationally. As we just mentioned, enterprises that currently have a data center on their premises - I think on average about 20% of data center facilities are outsourced today, 80% is on-prem - that continues to shift as the concept of shared real estate, power and so forth is more attractive. I think that's been one of the drivers. Additionally, as companies are moving toward more SaaS-based applications and having software hosted out in the cloud, that gives them motivation to outsource to third-party, carrier-neutral colocation providers.

The other driver in this sector, which we saw here in the U.S. starting in 2006 and 2007 and is having a greater effect internationally now, is wireless users moving toward smartphones and tablets. As the carriers in the U.S. upgraded to 3G and 4G, as the iPhone was introduced and along with that a diverse group of smartphones, the amount of people looking at the Internet each day and the amount of time they spent looking at the Internet grew pretty dramatically.

As that happened, the content providers to the Internet - whatever Web page you are looking at, be it CNN or whatever - they need to get that content more distributed in the field and closer to the end user, and the way to do that is by colocating servers in more data centers...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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