Equinix Inc. EQIX recently announced the completion of the Bit-isle Inc. acquisition. The Japanese outsourcing firm is expected to strengthen the company’s position in the Asia-Pacific region.
The data center operator commenced a cash tender offer in September through its Japanese subsidiary for all issued and outstanding shares of Tokyo-based Bit-isle. Equinix offered JPY922 a share to Bit-isle shareholders which translates to a total of JPY33.3 billion or approximately $280 million.
Founded in 2000, Bit-isle offers outsourced IT services to over 650 customers through six data centers in Japan — five located in Tokyo and one in Osaka. Further, in terms of revenues, Bit-isle was the 7th largest data center operator in Japan, while Equinix held the 15th position with 300 customers and five data centers.
Post acquisition, Equinix has catapulted to the fourth position backed by the combined revenues and 11 data centers. Moreover, with the buyout, Equinix increased its data center assets to 27 from 21 across the Asia-pacific region.
By leveraging Bit-isle’s strong local presence, Equinix will be able to further penetrate the Japanese and broader Asia-Pacific region, which, is currently one of the fastest growing markets. Notably, the company currently generates roughly 18% of its revenues from this region.
Why Focus on Asia Pacific?
We believe that the expansion of data centers will strengthen Equinix’s portfolio in one of the major global trade hubs and financial centers. Moreover, the company’s recent expansions in Japan are in sync with its strategy of boosting its presence across the Asia-Pacific region and addressing the rising demand for cloud services. Notably, earlier this year, Equinix opened IBX data centers in Singapore and Hong Kong to further expand its footprint in the region.
The increase in demand is also evident from the reports of independent research firms. According to technology research firm, Gartner, Asia-Pacific is likely to witness the highest growth rate in the entire public cloud services market and reach $7.4 billion in 2015, up 14.2% from $6.5 billion in 2014. Additionally, Gartner predicts that the total cloud services spending in Asia-Pacific and Japan will touch the $11.5 billion mark by 2018.
The Gartner report also stated that the emerging markets, including India, Indonesia and China, will witness solid growth while the mature markets such as Australia, Japan, New Zealand, Singapore and South Korea will remain stable. The increase in public cloud services would automatically boost the demand for data centers.
Conclusion
Expansion in important markets and consolidation of facilities in the existing ones has been part of Equinix’s core strategy. The company is continuously striving to boost its revenue base as well as profitability by improving the technology to attract clients. Moreover, the recurring revenue model has provided the much-needed support to the company’s revenue stream over the years. The company’s cloud and IT service businesses are its fastest growing segments and account for nearly one fourth of the total revenue.
Equinix remains positive on the growing demand for data centers driven by the Big Data exchanges. To meet this demand, the global interconnection and data center company is expanding its IBX data centers globally and gaining popularity among tech companies looking for data management. Thus, the company expects its total addressable market for retail data centers to increase at a CAGR of 8% from 2013 to 2017 and reach $24.0 billion. Based on this projection, the company estimates a 10% revenue growth rate through 2017.
Nonetheless, Equinix competes with Internet data centers operated by established communications carriers like AT&T T, Level 3 Communications LVLT and Verizon Communications VZ.
Moreover, the telecommunication industry is currently undergoing consolidation. As customers combine businesses, they may require less co-location space, and fewer networks may be available to choose from. In addition, increased utilization of existing co-location space could reduce the attractive expansion opportunities available to Equinix.
Currently, Equinix has a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment