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Equinix Expands Brazil Footprint

Zacks Equity Research

Leading data center solutions provider Equinix Inc. (EQIX) announced its intention to set up a new International Business Exchange data center (RJ2) in Rio de Janeiro, Brazil. The estimated cost would be roughly $20.0 million for the first phase of the facility.

The first phase is expected to be completed by 2013, after which the facility will accommodate 320 cabinets. The subsequent phases will allow the setting up of 850 additional cabinets.

The RJ2 data center will be developed under the supervision of ALOG Data Centers of Brazil, S.A. Equinix took over a 90.0% stake in ALOG in April 2011 for $127.0 million. The purpose of the acquisition was to enable Equinix to grab a bigger share of the growing data center market in Brazil and Lain America.

Apart from the new data center, Equinix also announced plans to proceed with the second phase of another data center (SP2) in Sao Paulo. Development costs are estimated to be $14.0 million, with the extension expected to be operational by the beginning of 2013. The facility will host 350 cabinets.

Equinix’s data center platform has been popular in the financial services, networking and content management industries. Equinix has taken advantage of the fact that many firms in these industries are setting up their bases in South America. Seeing the growth prospects in the region, particularly in Brazil, we believe Equinix will be able to meet the growing demand and secure a solid revenue stream.

Equinix boasts a presence across various geographical regions and is increasingly becoming popular among major players in the tech industry for data management. The company’s worldwide presence has resulted in high network density with a vertically focused approach, which will continue to support demand.

The company has delivered decent second quarter 2012 results with EPS exceeding the company’s expectation. Moreover, revenue improved substantially on a year-over-year basis on improved colocation, interconnection and managed infrastructure services. Guidance for the third quarter and fiscal 2012 was encouraging.

However, a heightened debt situation, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) and European exposure keeps us on the sidelines.

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

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