I thought this was an excellent quick & dirty assessment by Lydia Leong over at Gartner about Equinix Guidance being lowered and the ensuing stock tank, that also dragged the sector down with it. It shows me that investors don't understand the data center market other than 'it's a hot sector'. I wonder how many investors stopped to relaize that there are sub-sectors to the marketplace namely retail and wholesale players. This gives us a peek at the sub-sectors and outlines what investors need to pay attention to.
Equinix's reduced guidance
Lydia Leong | October 6, 2010 at 11:15 am | Tags: colocation, EQIX | Categories: Infrastructure | URL: http://wp.me/pj3To-ah
A lot of Gartner Invest clients are calling to ask about Equinix's trimming of guidance. I am enormously swamped at the moment, and cannot easily open up time slots to talk to everyone asking. So I'm posting a short blog entry (short and not very detailed because of Gartner's rules about
how much I can give away on my blog), and the Invest inquiry coordinators are going to try to set up a 30-minute group conference call for everyone with questions about this.
If you haven't read it, you should read my post on Getting Real on Colocation, from six months ago, when I warned that I did not see this year's retail colocation market being particularly hot. (Wholesale and leasing are hot. Retail colo is not.)
Equinix has differentiators on the retail colo side, but they are differentiators to only part of the market. If you don't care about dense interconnect, Equinix is just a high-quality colo facility. I have plenty of regular enterprise clients that like Equinix for their facility quality, and reliably solid operations and customer service, and who are willing to pay a premium for it -- but of course increasingly, nobody's paying a premium for much of anything (in the US) because the economy sucks and everyone is in serious belt-tightening mode.
And the generally flat-to-down pricing environment for retail colo also depresses the absolute premium Equinix can command, since the
premium has to be relative to the rest of the market in a given city.
Those of you who have talked to me in the past about Switch and Data know that I have always felt that the SDXC sales force was vastly inferior to the Equinix sales force, both in terms of its management and, at least as manifested in actual working with prospects, possibly in terms of the
quality of the salespeople themselves. Time is needed for sales force integration and upgrade, and it seems like the earning calls indicated an issue there. Equinix has had a good track record of acquisition integration to date, so I wouldn't worry too much about this.
The underprediction of churn is more interesting, since Equinix has historically been pretty good about forecasting, and customers who are going to be churning tend to look different from customers who will be staying. Moving out of a data center is a big production, and it drives changes
in customer behavior that are observable. My guess is that they expected some mid-sized customers to stay who decided to leave instead -- possibly clients who are moving to a wholesale or lease model, and who are just leaving their interconnection in Equinix. (Things like that are good from a
revenue-per-square-foot standpoint, but they're obviously an immediate hit to actual revenues.)
This doesn't represent a view change for me; I've been pessimistic on prospects for retail colocation since last year, even though I still feel that Equinix is the best and most differentiated company in that sector.