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Equinix to Serve IRESS

Zacks Equity Research

Equinix Inc (EQIX) recently announced that Australia-based financial service technology provider IRESS will use its data center platform to make market data, access, trading and wealth solutions services available across the Asia Pacific region and beyond.

The company has reached an important milestone after setting its strategy correct for data centers expension in Asia and Europe, which has the company’s global business expansion and also helps IRESS to seize the opportunity in the financial services sectors, especially in some of the world’s most dynamic economies.

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

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

The company is making fresh investments and adding new exchanges across the globe. As per recent studies conducted by research firms Frost and Sullivan and Gartner, data center growth in the Asia-Pacific region will be the most sought after. Gartner also expects China to emerge as the second largest global data center market by 2015.

Moreover, the company’s technical collaboration with Cable & Wireless is a win-win situation, as the latter will use Equinix data centres to serve global enterprise customers to augment their existing cloud capabilities. The deal will in turn help Equinix to improve its customer base, as the company will have many takers for its cloud computing expertise.

The company has delivered good first quarter 2012 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. The company is also experiencing improvement in business fundamentals across all the segments, along with better supply chain process and firm pricing environment.  

Although the company has a recurring revenue model and is cash rich, its debt level appears high. . Additionally, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) raise our apprehension. European exposure and industry consolidation are also concerning. 

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

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