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Equinix Expands Data Center

Zacks Equity Research

Data center major Equinix Inc. (EQIX) is in an expansion mode. The company recently revealed its plan to expand its data center in Florida. The Boca Raton (MI3) in Miami will cater to the local companies and will also help to maintain overseas connectivity.

The company is trying to encash on the business opportunity in this area, as Miami has the sixth highest Internet traffic globally and has a large concentration of international companies.

Apart from scheduling a new data center, Equinix also announced its plans to proceed with the second phase of another local data center (DC10). The work on the expansion was accelerated upon sensing the high demand for Equinix's co-location platform in the region.

Washington, D.C. serves as the eastern hub of Internet traffic exchange in the U.S., and is therefore an important business area for Equinix. The company is trying to grab a major share of the pie there.

However, some industry experts believe that the telecommunications industry is currently facing cutthroat competition. Moreover, customers are combining their businesses, and so they require less co-location space. In addition, increased utilization of existing co-location space could reduce the attractive expansion opportunities available to Equinix.

Although the BRIC countries offer increasing opportunities, the growing number of players may affect the margins going forward.

The company has delivered modest first quarter results with EPS exceeding our expectation. Moreover, revenue improved substantially on a year-over-year basis as the company is witnessing improvement in mobility, cloud computing and data management. Equinix is also experiencing improvement in business fundamentals across all segments, along with better supply chain process and a firm pricing environment.  

Although the company is cash-rich, its debt level remains quite high. We are also positive about its recurring revenue model. Despite all the positives, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) have us concerned. European exposure and industry consolidation are also things to watch out for. 

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

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