Data center major Equinix Inc. EQIX recently revealed its plan to expand its presence in Hong Kong by building the third phase of its second International Business Exchange (IBX) data center (HK2) worth approximately $40 million.
Located in the western part of Hong Kong, the third phase of HK2 is slated to be operational in the fourth quarter of 2015. The third phase will provide 900 cabinets, thereby bringing HK2’s total capacity to 2,250.
Additionally, the company announced its decision to build the ninth phase of the first IBX data center (HK1) in Hong Kong. Slated to open in fourth-quarter 2015, the ninth phase will add about 275 cabinets to HK1.
We believe that the expansion of data centers will strengthen the company’s portfolio in one of the major global trade hubs and financial centers. Moreover, the company’s recent expansions in Hong Kong are in keeping with its latest strategy of boosting its presence across the Asia-Pacific region and address the rising demand for cloud services. Notably, in March this year, Equinix opened the third IBX data center in Singapore — SG3.
The increase in demand is also evident from the reports of independent research firms, such as Gartner. According to this technology research firm, Asia-Pacific will witness the highest growth rate in total public cloud services market and is expected to reach $7.4 billion in 2015, up 14.2% from $6.5 billion in 2014. Additionally, Gartner predicts that total cloud services spending in Asia Pacific and Japan will touch the $11.5 billion mark by 2018.
The emerging markets, including India, Indonesia and China, will record high growth rates. The increase in public cloud services would automatically raise data center demand.
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 more clients. Moreover, its recurring revenue model has provided the much-needed support to its revenue stream over the years. The company’s cloud and IT service businesses are its fastest growing segments and account for approximately one fourth of its 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 projects a 10% revenue growth rate through 2017.
Nonetheless, Equinix competes with Internet data centers operated by established communications carriers such as 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 there may be fewer networks 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 #2 (Buy).
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