Equinix: Demand 'As Strong As We've Seen'

The management of Equinix (EQIX) has been closely monitoring data center demand throughout this year's global financial crisis, but says it has seen no change in customers' appetite for mission-critical space. That continued strength helped Equinix deliver third-quarter earnings that exceeded Wall Street's expectations, and has prompted the company to invest in new construction to meet demand in several key markets.  

"The fundamentals of this business remain as strong as we've seen them," said Steve Smith, the CEO of Equinix. "Year to date, we've seen virtually no impact to our pipeline or bookings. We've just don't see any letup in the demand for this offering."

Smith said data center spending from the financial sector and enterprise companies remains strong. "This stuff is mission-critical," he said. "It's very clear that our services are not considered discretionary spedning, but are essential to the operation of our customers' businesses." 

While the crisis hasn't dampened demand, Equinix said it expects to lose $1.5 million from losses at the Primary Fund, the huge money market that froze withdrawals in mid-September after its shares "broke the buck." Equinix also said that the strengthening dollar reduced its revenues from international operations by about $2.5 million.

Although the credit crunch is creating some management challenges, Equinix said it is also a time of opportunity.  

"We may see a flight to quality to Equinix due to the quality of our brand and our capital strength," said Smith. "I believe we are well positioned to grow our business in this environment, and we will see even more business coming at us due to constraints on CapEx and OpEx," said Smith, referring to capital expenditures and operating expenses, both of which are under scruinty at many companies.

Not all markets are created equal, however. Equinix said it will maintain its current level of investment in data centers, but will shift $15 million to $20 million in expansion funding from its Los Angeles project to other cities with stronger short-term demand. One of those hot markets is Paris, where Equinix is boosting its investment in power and cooling infrastructure for a new facility.   

Equinix also may go shopping for facilities begun by other developers that have stalled due to the credit crunch. "We are getting a look at a couple of opportunities, and will look at others as they come up," said Smith. 

Equinix CFO Keith Taylor said the company has $330 million in cash, and will feel no operational impact from the $1.5 million loss from the Primary Fund, which is currently being managed by the SEC and KPMG.  The fund, one of the oldest and largest money market funds, froze investor redemptions on Sept. 17 when heavy losses from the Lehman Brothers bankruptcy caused its share price to fall below the traditional share price of $1.

Net income for the quarter rose 79 percent to $7.4 million. Excluding items, earnings were 22 cents a share, ahead of market estimate of 15 cents a share, according to Reuters Estimates.

The company gave revenue guidance of 2009 of $870 million to $892 million, which would be a growth rate of about 25 percent (depending upon where final 2008 revenues fall within the current range of $702 million to $706 million).