Network, Telecom and Cloud Providers Drive Data Center Demand: A Wall Street Transcript Interview with Todd Weller, Managing Director, with Stifel, Nicolaus & Co., Inc.

Wall Street Transcript

67 WALL STREET, New York - October 16, 2013 - The Wall Street Transcript has just published its Internet Services 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 - Cloud Computing Secular Trends - Colocation, Managed Hosting and Cloud Computing - Increased Mobile Content Traffic - Chinese Online Monetization Trends - Internet Infrastructure Build - Enterprise Adoption of Cloud Computing

Companies include: Digital Realty Trust Inc. (DLR), Rackspace Hosting, Inc (RAX), (CRM), Equinix Inc. (EQIX), Centurytel, Inc. (CTL), DuPont Fabros Technology, Inc. (DFT), Inc. (AMZN) and many others.

In the following excerpt from the Internet Services Report, an expert analyst discusses the outlook for data hosting services and technology:

TWST: What is the level of investor interest in data center/hosting stocks right now? Based on the current investor sentiment, do you think investors are accurately assessing the opportunities in the space?

Mr. Weller: Right now, I'd say that the level of interest is low. It has been pretty quiet as far as of incoming calls on the group. We think the sector has been out of favor, particularly following June quarter results that were pretty noisy, and so interest is low right now. And as far as kind of investors assessing the sector and whether it is accurate, we think some a lot of the concerns out there are overblown and there is an element around fundamental concerns around wholesale and competition in network-dense colocation, and then there is also kind of other concerns or other headwinds out there around rising rates, which are a bit beyond our control.

TWST: From a technological perspective, what do you think are some of the most exciting things happening, or about to happen, in the data center/hosting space?

Mr. Weller: I don't know if so much is changing from a technological perspective. We always think of two different angles there. One, are significant changes around how data centers are being designed and developed? Short answer - we don't think that there are significant changes. There are definitely alternative approaches, where you're seeing more modular designs, kind of prepackaging power and cooling kind of in a container approach; a company called IO Data Centers has an approach to that market. Today, we still view that to be largely a niche market, so I don't think much is going on as far as kind of the technology that's behind data center design. You're seeing moves by Digital Realty (DLR), for example, to focus more on their data center infrastructure management software as a differentiator.

The other angle on technological changes we have to focus on is the technology, the IT gear the customers are using, and how that impacts demand for space and power. I'm not sure that there is a significant change on the near-term horizon. There are definitely continued moves to decrease power, and one of the longer-term trends we're watching is ARM-based servers, which are low-power servers where they are using the chips you'll find in a mobile device, which consume a lot less power. So if there was a rapid change in kind of power consumption, that could potentially be a negative for data center demand. But we think that, again, is at a pretty early stage. And then other key technology trends that are occurring if you think about it from a mobile perspective or cloud computing, we think those are positive drivers for data center, and trends such as virtualization, those are kind of well-established at this point.

TWST: Which customer verticals do you think represent the best opportunities for the data center/hosting companies, and which of your companies have the best exposure to those verticals?

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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