A Close Watch as the Overbuilding of Wholesale Colocation Services Could be Pushing Up Against the Boundaries of Demand: Expert Analyst Barry McCarver Discusses the Big Trends in Data Center and Storage Companies

Wall Street Transcript

67 WALL STREET, New York - September 16, 2013 - 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 and Equity Analysts. 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

Companies include: tw telecom inc. (TWTC), Cogent Communications Group In (CCOI), Windstream Corporation (WIN), EarthLink Inc. (ELNK), Cbeyond, Inc. (CBEY), Level 3 Communications Inc. (LVLT), Equinix Inc. (EQIX), Rackspace Hosting, Inc (RAX), 8x8 Inc. (EGHT), ShoreTel, Inc. (SHOR), Cortex Pharmaceuticals Inc. (COR), Digital Realty Trust Inc. (DLR), DuPont Fabros Technology, Inc. (DFT) and many more.

In the following excerpt from the Data Hosting Centers and Data Storage Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What's your overall take on the data-center-related names right now, and why?

Mr. McCarver: I think there are a couple of big trends going on. In terms of wholesale colocation, it's a very basic service, more of a real estate play and less about the technology. Wholesale colocation services are for simple space and power, with less consideration for performance, scale or geographic location.

One of the concerns we hear from investors regarding wholesale colocation is the amount of new capacity coming online and the effect this might have on pricing. More specifically, there is concern that overbuilding wholesale services may have an impact on performance-based colocation and managed cloud services. Investors remember the turn of the century when there was an explosion of fiber network builds, ultimately resulting in several network providers going bankrupt after they learned how much excess fiber capacity was in the market.

There are several larger public providers and numerous small private or regional providers of colocation services, and I think there is a rising concern among investors in the industry that the level of building that's going on, in the U.S. at least, is pushing up against the boundaries of demand. The outsourcing trend for colocation services has been going on for a decade now.

So we're seeing, on the very low end of the spectrum of providers that are providing just basic power and space, that pricing has come under some significant pressure over the course of the last, say, four quarters. I think that has investors, analysts and other industry participants watching that market closely. We are trying to determine whether or not that's going to be an even bigger problem in the future and what portion of the market it may affect.

EQIX provides colocation and interconnection services that are very performance-based, and so we believe that company will be...

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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