Wall Street Transcript Interview with Todd Weller of Stifel, Nicolaus & Co.: Secular Growth Lifts Data Hosting and Security Equities

Wall Street Transcript

67 WALL STREET, New York - September 14, 2012 - 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 - Internet Infrastructure Build - IT Consolidation Activity - Mobile Computing - Cybersecurity

Companies include: Check Point Software Technolog (CHKP), Symantec Corporation (SYMC), Equinix Inc. (EQIX), Digital Realty Trust Inc. (DLR), Rackspace Hosting, Inc (RAX), Amazon.com Inc. (AMZN), DuPont Fabros Technology, Inc. (DFT), Cortex Pharmaceuticals Inc. (COR), Verizon Communications Inc. (VZ), Centurytel, Inc. (CTL), Sourcefire, Inc. (FIRE), Cisco Systems, Inc. (CSCO), Juniper Networks, Inc. (JNPR) and many others.

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

TWST: What is your coverage in the software and storage space?

Mr. Weller: There are two different sides to it. One is security, which tends to fall under software coverage. In that area, we cover companies like Check Point Software (CHKP), Fortinet (FTNT), Palo Alto Networks (PANW), Symantec (SYMC) and other companies in the IT security area.

The other names we cover fall under what we call Internet infrastructure, and more specifically, data center and hosting companies, such as Equinix (EQIX); InterXion (INXN), which is a European data center company that is listed in the U.S.; Digital Realty Trust (DLR), among others. And then, on the hosting side, Rackspace (RAX) is the lone pure-play hosting company remaining following some consolidation in the sector.

Within the data centers, it is an interesting group because some of the companies are operating companies, but three of the companies we cover are real estate investment trusts or REITs. So that tends to draw interest from the real estate investment crowd.

TWST: How is the macro environment impacting them right now?

Mr. Weller: In terms of the macro trends, I tend to think about what the economic environment is like, what are IT budgets like. And many of the elements between the two groups are similar, and they have shared elements here. One commonality is that these areas are more resilient to tougher times driven by exposure to various secular trends.

In security, the space is driven by an increase in threats, and these threats are becoming more severe and have shifted to a focus on stealing data, money, intellectual property, that kind of stuff. Then, you have a lot of real compliance and regulatory drivers which are making security more important or more required. In other words, security is an area that you have to continue to invest in.

On the data center and hosting side, secular trends that are driving the area include mobility, consumerization, cloud computing, among others. For example, we all have our iPhones or other types of smartphones now, and we want to be able to access both personal and work applications wherever we are, and those applications are located in a data center somewhere. There are many angles to cloud computing. It can go from the traditional Web hosting to infrastructure as a service, up to purchasing software applications as a service, known as SaaS. The software application and that data, they have to be in a data center somewhere. So a lot of the secular trends around Internet growth and cloud computing are fueling data center demand.

And in terms of economic times, it doesn't seem like at this point people are spending any less on Internet, or using data less, for example. So I think we've been pretty fortunate that from a U.S. economic perspective, we've muddled along the last few years, and Europe obviously has been choppy, and security and data center demand has held up very well. So we think these two areas that can be classified as secularly advantaged.

TWST: Speaking about the data hosting and the data centers, in general, is there a move to outsource data centers? Companies used to like to have their data in their offices. Is that changing?

For more from 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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