Equinix-Carpathia Data Center Deal

Zacks Equity Research

Data center provider Equinix Inc. (EQIX) will allow collocation and hosting solutions provider Carpathia Hosting to use its Hong Kong based International Business Exchange (:IBX) data centers. Financial implications of the alliance were not disclosed. U.S. based Carpathia specializes in providing cloud services to certain large enterprises and federal agencies.

Carpathia and Equinix formed an alliance in February 2011, whereby the companies jointly provide secured data exchange facilities to federal agencies, financial and healthcare enterprises.

Per their latest agreement, Carpathia will leverage Equinix's data centers to penetrate into the Asia-Pacific region. While this marks Carpathia’s entry into the Asia-Pacific, Equinix made its presence felt in the region some years ago.

Equinix has shown relentless efforts in boosting its Asia-Pacific footprint. In May 2012, Equinix announced plans to acquire an aggregate of six data centers and a disaster recovery center from Asia Tone for a cash consideration of $230.5 million. Asia Tone is a Hong Kong based data center and colocation service provider. With facilities in Hong Kong, Shanghai and Singapore, Asia Tone creates opportunities for Equinix to expand its footprint across the Asia-Pacific. These three regions happen to be the fastest-growing data center markets.

As per recent studies conducted by research firms Frost and Sullivan and Gartner, data center growth is most sought after in the Asia-Pacific. Gartner also expects China to grow into the second largest global data center market by 2015.

We believe that both Equinix and Carpathia will be able to capitalize the data center opportunities by jointly providing colocation, interconnection and managed services to match the growing demand.

Equinix has seen an annualized revenue growth rate of 30% from the Asia-Pacific region. In the first quarter of 2012, the region generated 13.9% of the company’s total revenue, reflecting an increase of 13.3% from the prior-year quarter. The region also witnessed strong bookings growth.

Equinix has delivered strong first quarter results and provided a decent guidance for the coming quarter and fiscal 2012. We believe that strategic acquisitions and international expansion will help expand its client base, thus enhancing its revenue growth potential.

We are also optimistic about the company’s recurring revenue model and current expansion plans. However, despite all these positives, competitive pressure from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) cannot be ignored. European exposure and industry consolidation also remain concerns.

Equinix has a Zacks #3 Rank, implying a short-term Hold rating.

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