Equinix earlier this month agreed to buy AMS1, one of three facilities owned by Amsterdam data center provider Switch Datacenters (no relation to Las Vegas-based Switch) for $34 million. The building is leased, so Equinix technically bought the data center business Switch operates inside and not the building itself.

The deal expands Equinix’s already sprawling footprint in Amsterdam, one of Europe’s core data center and network interconnection markets that are together referred to as FLAP (Frankfurt, London, Amsterdam, and Paris). Not counting the Switch facility, the company has eight buildings in Amsterdam, totaling about 385,000 square feet of colocation space.

According to Equinix, the network service providers, content companies, and cloud providers hosted at the Switch data center are a good strategic fit for Equinix. Building places where companies interconnect their networks is at the heart of its business model. With a model like that, you want customers that have interest in linking their networks to each other.

The AMS1 building is leased, Equinix said. About 250 cabinets inside are occupied by customers, but the data center can accommodate 700 more when fully built out. There’s an adjacent building the site can be expanded to, which would add another 1,300 cabinets.

Equinix said it will rename the facility to AM11 and make it part of its southeast Amsterdam data center campus, which currently consists of four data centers (AM1, AM2, AM5, and AM7). The Switch building’s customers will have access to Equinix customers’ networks on the campus via a connection to AM7, the company said.

One of Equinix’s most valuable customers in Amsterdam in terms of interconnection is AMS-IX, the world’s second largest internet exchange. The exchange is distributed across 14 data centers in and around Amsterdam, five of them Equinix facilities. AMS-IX is in all the buildings that make up Equinix’s southeast Amsterdam campus.

Once AM11 is connected to the Equinix campus network, its customers will be able to buy campus cross-connects to other tenants in the campus "more efficiently" than they can today through a carrier, Eric Schwartz, the company's EMEA president, told Data Center Knowledge. More efficiently means either more bandwidth at the same cost or the same bandwidth at lower cost, he explained.

The main reason Equinix zeroed in on this particular building is its location, Schwartz said. There are more networks interconnectinging in southeast Amsterdam, the borough called Amsterdam-Zuidoost, than anywhere else in the city.

Switch's AMS1 facility is "next door" to AM7, Equinix's most interconnection-rich data center in Amsterdam. Buying a data center that's already up and running and has both customers and room for expansion was the quickest way to add capacity in the hot Zuidoost market, Schwartz said. Prior to the acquisition, Equinix's "capacity position in the southeast" was "OK," he said; adding the Switch site gives the company more capacity to sell and, importantly, capacity to sell colocation deals larger than it could have sold in its other buildings. Although large, those would not be hyperscale-grade deals Equinix's recently launched Hyperscale Infrastructure Team is going after, Schwartz clarified.

Equinix continues to leverage its substantial investment in building out the global Equinix Cloud Exchange Fabric by layering on additional services customers can self-provision.

The recently announced Equinix Network Edge services allow customers to connect and launch virtual network services in minutes, with no additional hardware requirements, the company said. Also known as virtual network functions, such services typically run on regular x86 servers, replacing expensive, specialized hardware with software.

Traditionally, enterprises have had to buy physical appliances like routers, load balancers, and firewalls and paying IT staff to set them up. Through Network Edge, Equinix customers can provision virtual versions of these appliances quickly, offered as services by Equinix partners.

In combination with Cloud Exchange Fabric, the services are especially useful for companies that need such network functionality in places where they don’t have physical hardware. If you host a rack of servers in an Equinix data center in San Jose, California, for example, but need a router in Amsterdam that’s connected to your network, you no longer have to lease space from Equinix in Amsterdam and figure out how to deploy the box there; you can spin up a virtual router that’s hosted in Amsterdam.

Equinix Network-as-a-Service Solution

Network Edge is yet another way Equinix, a colocation provider, is adding value beyond real estate.

Brian Lillie, the company’s chief product officer, outlined during an Equinix Analyst Day about a year ago a strategy for the Cloud Exchange Fabric that included in-house and partner services. “So, in addition to being able to self-provision circuits and cross-connects, customers will have an 'easy button' to select value-add services," he said, describing point-and-click provisioning tools bought and consumed much like cloud providers’ Software-as-a-Service offerings.

Network Edge provides enterprises with a “digital-ready infrastructure,” Bill Long, Equinix’s VP of interconnection services, explained in an email to Data Center Knowledge.

Services supported initially are a virtual router by Cisco Systems and firewalls by Juniper Networks and Palo Alto Networks. Coming up next, according to an Equinix video, are:

The solution is built on an infrastructure stack that includes virtual compute and memory resources for each virtual device and “various operating systems, hypervisors, VM, orchestration services, and other elements of the stack,” Long explained.

When you order a Network Edge device, you’re not just paying for the software (you can either buy a license from Equinix or bring your own), you’re also paying for all the underlying infrastructure:

Equinix is initially rolling out Network Edge across its largest metros to provide remote access to multiple cloud on-ramps, IT service providers, networks, and customer ecosystems:

Investor Edge

Interconnection has proven to be a fast growing and high-margin business for Equinix.

The business model enabled by software-defined networking is highly scalable and should also deliver high margins for Equinix, since the self-provisioning aspect of ECX Fabric and Network Edge lowers the cost of customer acquisition. Making it easier for customers to expand to multiple regions may also reduce churn. It can also simply the connection of branch office locations to resources available within strategic Equinix data center locations where Network Edge connectivity will be offered.

The Network Edge demonstration video doesn’t provide any pricing information. The speed and convenience of provisioning virtual devices without negotiating with multiple vendors or needing to deploy hardware in remote locations could very well command a premium.

Equinix shareholders have enjoyed an astounding 44.6 percent price appreciation year to date. The company’s shares gained 6 percentage points since the Network Edge announcement on June 4, trading at $510.04 afterhours on Monday.

Equinix, the world’s largest data center provider, is putting more firepower behind the push it started two years ago to build data centers for the world’s largest digital platforms.

The Redwood City, California-based company is forming a $1 billion joint venture with GIC, the Singaporean state-owned investment fund, to cater to the large data center requirements of about a dozen tech giants, including Alibaba, Alphabet, Amazon, Facebook, Microsoft, and Tencent. Starting with six facilities in Europe, the idea is to lease large footprints in those facilities to the platforms, connected to the big network-interconnection points in regular Equinix data centers nearby.

Traditionally focused on smaller-footprint, higher-margin retail colocation leases, Equinix recently has been branching out to take advantage of the skyrocketing growth of the hyperscale platforms. Companies specializing in wholesale data center deals, which can range anywhere from 1MW to 30MW per site, have been riding an unprecedented wave of demand for space and power in recent years as their hyperscale clients scale their platforms.

Equinix’s core business model has largely precluded it from getting on that ride. Meanwhile, smaller companies that have traditionally leased retail colocation space from the likes of Equinix have been deploying more and more of their software in public clouds like Amazon Web Services and Microsoft Azure instead of on their own servers housed in colocation facilities or in their own data centers.

As a result, overall growth in the retail colocation market has slowed. Structure Research, which closely tracks the global data center services market, projects global retail colocation revenue to grow at slightly over 6 percent per year on average over the next five years, from $26.9 billion in 2018 to $39.2 billion in 2014. That’s compared to low-to-mid-teen-percent annual growth just four years ago, Jabez Tan, head of research for data centers at Structure, told Data Center Knowledge in an interview.

The global wholesale colocation market, however, is projected to grow at close to 16 percent a year during the same period, according to Structure, going from $12.6 billion in 2018 to $30.6 billion in 2024.

Equinix’s announcement is symptomatic of “a natural evolution of a slowing retail business,” Tan said.

The company said proximity to their network points of presence in its interconnection-heavy facilities makes its hyperscale sites attractive to the cloud platforms. In turn, tethered to core hyperscale infrastructure nearby, the interconnection facilities become more attractive for enterprise customers wanting to use cloud services by connecting directly to their networks.

HIT Becomes xScale

The brand for data centers operated under the joint venture, 80 percent-owned by GIC and 20 percent-owned by Equinix, will be xScale. It’s a new name for the initiative and the team behind it that used to be called the Hyperscale Infrastructure Team, or HIT, headed by Jim Smith, former CTO of Digital Realty Trust, the world’s largest wholesale data center provider. (Digital has been selling the concept of large hyperscale facilities leased on a wholesale basis while tethered to interconnection-dense retail colocation nearby since 2015.)

Smith led the effort to create the xScale joint venture, Eric Schwartz, Equinix’s recently appointed chief strategy and development officer, who previously ran its EMEA business, told Data Center Knowledge. “Jim and I worked closely together to get to the announcement today,” he said.

As part of the agreement, expected to close sometime in the third quarter, Equinix will sell two existing data centers developed under the HIT initiative, one in London and one in Paris, to the JV; the company will also sell “certain development investments” to the entity – all in return for cash and its 20 percent stake. Equinix has four development sites under contract in Europe (two in Frankfurt and one each in Amsterdam and London) on which it will build four xScale data centers.

To pay Equinix for its contribution and to fund construction, the JV has secured €850 million, or about $960 million, in credit facilities.

A “significant portion” of the two existing data centers Equinix is offloading to the JV (LD10 and PA8) is already under lease, the company said.

Together, the six European xScale sites will provide about 155MW of data center capacity, the company said. That capacity will be spread across Europe’s four primary data center markets, collectively referred to as “FLAP,” which stands for Frankfurt, London, Amsterdam, and Paris.

Not a Full-Fledged Wholesale Business

Equinix’s announcement states that the JV’s formation doesn’t signal a “broader entry into the wholesale market.” It’s an important point for the publicly traded REIT to make, but it’s also now harder to make it.

Part of the reason it chose the JV vehicle to go after hyperscale business was to avoid spooking investors into thinking the company was upending its traditional business model. The bigger reason, according to Schwartz, was the amount of capital needed to build facilities at the scale and the speed hyperscale customers require.

Equinix already deploys about $2 billion in capital annually to expand capacity and stay ahead of the demand for its retail colocation and interconnection services. While the company has been able to fund its first hyperscale facilities on its own, meeting its growth ambitions in that space would require changing its financial model, Schwartz explained. The JV gives it immediate access to sums like the initial $1 billion GIC is investing without having to explain to investors why it’s borrowing that kind of money to grow a business whose returns are much lower than from its core retail colocation business.

The company has been selectively competing for wholesale deals outside of the US for some time now. The joint venture injects a lot of additional capital into those efforts.

Speaking with Data Center Knowledge about the company’s hyperscale efforts last year, Charles Meyers, who was then Equinix’s president of strategy, services, and innovation but was later named its CEO, told us joint ventures were its preferred way to fund these efforts. Besides making it easier to sell the story to investors, it helps soften the negative short-term impact on investor returns from the natural dynamics of the wholesale business, where lower return margins, large upfront-investment requirements, and “lumpy” demand are offset by steady returns over long periods of time.

So, is Equinix entering the wholesale data center market? It’s entered that market years ago, but it’s only gone after a subset of the market, and it’s done so selectively and opportunistically. Is it taking away from its core retail business? The company’s management has come up with a creative strategy for avoiding that; whether that strategy will be effective remains to be seen.

To further demonstrate that it’s not building a typical wholesale business, Equinix is limiting xScale’s target market to the dozen tech-giant customers, a group that not only includes a handful of the largest platforms but also the likes of IBM, SAP, and Oracle, which aren’t as large but operate on the global scale and support enterprise customers with cloud services.

“The growth of the hyperscale category is clearly strong,” Schwartz told us. “This is an opportunity for us to capture a portion of it, but it’s not by any means something we’re doing instead of driving” growth in the core retail colocation and interconnection business.

“Equinix’s strategy is still very focused on that retail-interconnection direction that we’ve been on since the beginning. The hyperscalers are ... an adjacent opportunity that we have historically not addressed.”

Equinix’s xScale strategy isn’t limited to the joint venture with GIC or to the European market.

Schwartz said the xScale team is looking for opportunities outside of Europe. Some of the prime candidates for expansion include sites adjacent to the Infomart Dallas carrier hotel Equinix acquired in 2018 and the dedicated hyperscale data center site the company is building near its TY2 data center, one of the main carrier hotels in Tokyo.

Its future moves to benefit from the cloud growth may include hyperscale builds funded on its own, by the GIC joint venture, or by another joint venture with another partner, he said.

New Big-Money Player in the Data Center Market

Deep-pocketed and well-known in world of finance, GIC is a newcomer to data center investing. This is its third deal with a data center developer. The first one was an investment early last year in EdgeCore Internet Real Estate, a newly formed wholesale data center business that’s been building in North America. GIC announced its second investment in computing real estate only a few weeks ago, partnering with another newly formed data center developer, Singapore-based Polymer Connected, which is planning to build hyperscale facilities in Jakarta.

In recent years, institutional investors such as sovereign wealth funds (like GIC), pension funds, and infrastructure funds have been lining up to put money into data center development. Considered until recently an esoteric asset class, data centers that can be leased on a long-term basis to clients like Amazon, Google, or Facebook are now recognized as stable investments similar in profile to traditional infrastructure like roads and airports.

Such investors are widely expected to continue funding consolidation of existing assets and creation of new players in the global data center sector for the foreseeable future.

Michael O'Boyle and Liana Baker (Bloomberg) -- Equinix Inc. is in advanced talks to buy Mexican telecom firm Axtel SAB’s data centers for around $200 million, according to people familiar with the matter, a deal that would give the real estate investment trust a foothold for expansion in Latin America’s second-largest economy.

The Redwood City, California-based company could soon announce a deal for a majority stake in the business, said the people, who asked to not be identified because the matter isn’t public. Axtel plans to keep a minority stake, they said.

No decision has been made and the talks could fall through, they added.

Representatives from Equinix and Alfa SAB, Axtel’s parent company, didn’t immediately respond to requests for comment.

The deal would give Equinix a base in Mexico to challenge local providers such as Carlos Slim, the billionaire who controls America Movil SAB. Mexico overhauled its telecommunications regulations in 2013 to introduce more competition, but rivals including AT&T Inc. and Telefonica SA have struggled to whittle away at Slim’s dominance.

Equinix plans to aggressively expand in Mexico, using Axtel’s data centers as the foundation of its business in the country, one of the people familiar with the matter said. Equinix doesn’t have any data centers in Mexico, though it has some in Brazil and Colombia, according to its website.

The deal would be one of only a handful of major deals announced in Mexico since President Andres Manuel Lopez Obrador won election last year and shook the confidence of investors with a series of moves, such as canceling an airport project and cutting off private investment in the energy sector.

Axtel has been selling parts of its business to focus on providing services to businesses and government clients.

Axtel has been looking for a buyer for a majority stake in its data centers since last year, Chief Executive Officer Rolando Zubrian said in a conference call in April. Its data centers, located in Queretaro and Monterrey, generate about $15 million annual earnings before interest taxes, depreciation and amortization, he said.

Equinix and other data center owners have been seeking to expand globally through acquisitions, as companies increasingly rely on third parties to manage their data. In April, the company purchased a data center business in Amsterdam for 30 million euros (34 million).

Equinix has a network of 200 data centers in 52 markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific regions, according to its annual report.

Equinix last week confirmed that it is indeed buying three data centers in Mexico from the telecommunications company Axtel. The announcement came a day after Bloomberg reported the deal was imminent.

The Redwood City, California-based global data center services giant has agreed to pay $175 million cash for the facilities, with Axtel retaining a minority stake. All three are carrier-neutral colocation sites and together generated about $21 million in revenue last year.

Emerging markets in Latin America, EMEA, and Asia are expected to see a big wave of data center growth, as hyperscale cloud platforms accelerate expansion of their infrastructure there. In some cases the cloud giants will build their own facilities in those markets (see Amazon Web Services’ Argentina announcement last week, or Google’s Poland announcement the week before). In other cases they will lease space from providers like Equinix. But regardless of how they expand their own building footprint, the customers they serve will need to connect to their networks, and those connections are increasingly done in facilities like Equinix’s.

Several recent moves by US-based data center providers show them positioning to benefit from this anticipated growth. Equinix last year partnered with a local ISP to build a data center in Oman and this year announced plans to build a facility in Seoul, its first in South Korea. Digital Realty in 2018 acquired Brazilian data center operator Ascenty and this July announcedits entry into the Seoul market.

Equinix’s then CEO Steve Smith said in January 2018 that India and South Africa were also on the list (hello there, Google’s upcoming Lisbon-Cape Town subsea cable). Equinix also recently expanded capacity at its NAP of the Americas building in Miami, a crucial interconnection point for markets in Latin America and the Caribbean.

In Mexico, Latin America’s second-largest economy, Equinix expects a boom in data center and interconnection services enabled by former president Enrique Peña Nieto’s 2013 antimonopoly telecommunications reform. Newly open competition in the country’s telecom markets creates opportunities for more service providers, businesses of the kind Equinix is best at serving.

“As a result [of the reform], Equinix believes there is uncaptured market demand in the region for interconnection and data center services if bandwidth requirements and end-user demand continue to increase as expected,” the company said in a statement.

The Axtel facilities are a good fit for Equinix’s model. Two of them, serving the Mexico City metro, are in Querétaro, each home to five network service providers. The third, in Monterrey, is a “key connectivity gateway between the US and Mexico” and hosts 10 service providers.

If Digital Realty Trust successfully closes its industry-record acquisition of the European data center heavyweight Interxion, it will shrink Equinix’s lead in European markets substantially. But that won’t be the case on a global basis.

On Wednesday, commenting on his two rivals’ deal, announced a day earlier, Equinix CEO Charles Meyers said the combination would be logical, acknowledged – vaguely – its game-changing potential in Europe, and pointed out his company’s overwhelming dominance in the global retail colocation and interconnection market.

“I think there's probably merit in the deal and an industrial logic to it,” he said on the company’s third-quarter earnings call. “I think it's a bit of a stretch to say that the combination really meaningfully closes the gap in terms of trying to replicate the scope, scale and value of Platform Equinix.”

Combining Digital Realty and Interxion, “just mechanically, let alone operationally, financially, and culturally, will certainly be nontrivial,” Meyers continued. “And even if and when that's done successfully, I think … what comes out at the other end is a company we'll feel pretty comfortable competing against, certainly in Europe, which we've been doing, obviously, for years, and in particular on a global basis.”

The $8.4 billion transaction would give Digital, the world’s second-largest data center provider that's traditionally been focused on the wholesale market – building massive data centers and leasing large spaces and power capacities to clients long-term – the second-largest share of Europe’s retail colocation market.

Retail colocation and interconnection services – where network carriers and other service providers lease small footprints and pay for the ability to link their networks inside its data centers – have been Equinix’s specialization since birth and continue generating nearly all its revenue.

In 2018, Equinix had 22 percent share of the $1.2 billion EMEA retail colocation market, Jabez Tan, head of research at Structure Research, which tracks the global data center market, told DCK.

Digital Realty’s 2018 retail colocation revenue in EMEA was about $200 million, or 4 percent market share, Tan said. The source of most of that revenue, he pointed out, are the eight former Equinix data centers Digital bought in 2016, after European antitrust authorities forced Equinix to divest the assets as a condition for approval of its acquisition of TelecityGroup.

Adding Interxion to the mix, with its 13 percent EMEA market share, would give Digital 17 percent of the market, Tan said, bringing its share much closer to Equinix’s 22 percent than today.

Globally, however, the transaction’s impact would not be as transformational. Digital Realty’s colocation business outside EMEA is about one-tenth the size of Equinix’s, Meyers said. Tan confirmed that 10 percent was in line with Structure’s estimate.

But there’s a more strategic angle to Digital’s Interxion acquisition than the EMEA market share. While continuing to grow, primary data center markets in the US and Western Europe are well developed, and analysts, financiers, and data center providers anticipate much higher rates of growth in the emerging markets in Latin America, Eastern Europe, Africa, Middle East, and Asia.

Interxion controls – and sells – access to 14 submarine cables that land in Marseille, linking Europe to Africa, Middle East, and Asia. That makes its Marseille data centers highly attractive for companies wanting to serve the increasingly connected populations in those regions.

San Francisco-based Digital, which dominates the global wholesale data center market, first started encroaching on Equinix’s retail colocation territory in 2015, when it acquired the US colocation and interconnection heavyweight Telx.

It has since continued building out its offerings in that space, but with its own twist, making the case that network-dense interconnection hubs like Telx’s and Interxion’s are a lot more valuable when tethered to hyperscale cloud nodes of the kind that occupy its wholesale facilities – the likes of Microsoft Azure, Amazon Web Services, or Google Cloud Platform.

As large enterprises seek to outsource their computing infrastructure, they find that while a lot of it can go to the cloud, some of it needs to stay under their control. That latter portion can go into a retail colocation facility, where, conveniently, enterprise networks can get direct, private links (“onramps”) to one or several massive cloud nodes nearby.

While the two companies continue to work together – Equinix is a big Digital Realty wholesale tenant – Equinix also hasn’t shied away from encroaching on its “coopetitor’s” bread-and-butter space. Last year, it launched an initiative to build large data centers specifically to accommodate large leases by the hyperscale platforms.

Earlier this year, it formed a joint venture with GIC, the Singaporean state-owned investment fund, which will finance construction of the hyperscale facilities.

Notably, the man leading Equinix’s hyperscale initiative, called xScale, is Jim Smith, who cut his teeth in the wholesale market in his previous role as CTO at Digital Realty.

Digital Realty’s announcement of a planned merger with the pan-European interconnection powerhouse Interxion at the start of the data center REIT earnings season overshadowed reports of robust quarterly results by the entire sector. Here’s all the newsworthy material that came out of third-quarter reports investors should know about.

(Find the first part of our third-quarter coverage here)

Overcoming Northern Virginia Headwinds

A big theme across the sector was solid bookings and/or record annualized revenues generated from leases signed during the third quarter.

This is despite much lower net absorption in Northern Virginia by hyperscale customers. Last year, a record 270MW of data center net absorption in this market smashed its own previous record of 115MW in 2017. Allen Tucker, a real-estate strategist and data center site selection expert, estimated that 140MW will be the total number for full-year 2019. (Of course, even a single big hyperscale deal in the fourth quarter could skew that number higher.)

Keep in mind that the “powered shells” Amazon subsidiary Vadata leases for AWS data centers are not included in these net-absorption figures.

Data Center REIT Q3 Highlights

Digital Realty:

The $8.4 billion Interxion deal wasn’t the only important Digital Realty news. The company also reported some solid results.

• Digital Realty reported its third largest booking quarter ever, $68.6 million, including a record 64 new logos signed.
• Digital Realty also signed renewal leases representing $152 million of annualized GAAP rental revenue during the quarter.
• Rental rates on renewal leases signed during the quarter rolled up 7.2 percent on a cash basis and up 10.1 percent on a GAAP basis.

Notably, this was in sharp contrast to the previous quarter, when rental rates on $125 million of renewal leases rolled down 5.8 percent on a cash basis and down 3.7 percent on a GAAP basis.

Equinix:

Equinix continues to grow AFFO per share at a rapid clip to support a growing dividend, while retaining over 50 percent of funds available for distribution to invest in organic growth.

• Quarterly revenues increased 9 percent year over year to $1.397 billion, which includes $8 million of negative foreign currency impact when compared to prior guidance rates.
• Delivered record channel bookings, accounting for more than 30 percent of total bookings.
• Equinix’s AFFO per share 2019 guidance was $22.56 - $22.68 per share, a normalized and constant-currency increase of about 8 percent over the previous year.

On the company’s earnings call, Equinix CFO Keith Taylor highlighted returns on CapEx investments: "Our 136 stabilized assets increased revenues 3 percent year over year on a constant-currency basis, similar to last quarter. Our stabilized assets are collectively 85 percent utilized and generate a 30 percent cash-on-cash return on the gross PP&E invested."

CyrusOne:

During CyrusOne’s earnings call, CONE common shares sold off when CEO Gary Wojtaszek quashed market rumors of a potential sale of the company. But this masked solid Q3 results:

• CyrusOne reported a record $23 million in annualized GAAP revenue signed with enterprise customers.
• The company leased out 35MW and 266,000 colocation square feet in the third quarter, totaling $52 million in annualized GAAP revenue, including a 4.5MW (and approximately $5.5 million in annualized GAAP revenue) associated with a paid reservation expected to be exercised in the next 12 months.
• CyrusOne leased out 22MW totaling $27 million in annualized GAAP revenue across European locations (inclusive of a lease associated with the paid reservation referenced above), reflecting growing demand in European markets from US hyperscale companies.
• The company reported a backlog of $53 million in annualized GAAP revenue as of the end of the third quarter, representing more than $340 million in total contract value (inclusive of a lease associated with the paid reservation referenced above).

Subsequent to the end of the quarter, CyrusOne acquired 20 acres of land with 24MW of power capacity in Council Bluffs, Iowa, to deliver a hybrid cloud solution for enterprise customers.

CoreSite:

Bookings rebounded in the third quarter after disappointing second-quarter leasing results:

• CoreSite achieved new and expansion sales of $14.4 million of annualized GAAP rent for the quarter, including 34 new logos. Sales included $4.5 million of core retail colocation sales and $9.9 million of scale leasing.
• CoreSite successfully pre-leased 74 percent of Phase I of its new data center at LA3 (Los Angeles) – a year in advance of its expected completion.
• Sales backlog as of September 30 included $25.3 million of annualized GAAP rent from signed but not yet commenced leases, or $28.4 million on a cash basis, with a majority of the GAAP backlog to commence in the next two quarters, and the remaining amount in Q4 2020, following completion of LA3 Phase I.

One area for investors to watch closely is management's elevated churn guidance of 9 to 11 percent, versus the historical range of 7.5 to 8 percent. Additionally, a customer in SV7 (Silicon Valley) will be vacating a 9MW data hall over the next two years. Management seemed confident about CoreSite’s ability to re-lease that space. given the current Silicon Valley market conditions.

QTS Realty

One bright spot in the quarter’s hyperscale leasing results in Northern Virginia came courtesy of QTS:

• QTS Realty booked 10MW in Ashburn (a new logo) and leased another 4MW in Manassas.
• Subsequent to the end of the quarter, QTS signed a 12MW lease to anchor an expansion of its Metro-Atlanta campus. Notably, the same customer vacated 4.5MW in Richmond, Virginia, at the end of the quarter.
• QTS signed new and modified renewal leases aggregating to $17.4 million of incremental annualized rent, net of the Richmond downgrade of 4.5MW. This included 40 new hybrid IT colocation logos.
• As of September 30, QTS's booked-not-billed MRR balance was approximately $6.6 million, or $79.8 million of annualized rent (a company record), and compares to $5.7 million, or $68.1 million of annualized rent at June 30.
• QTS reported operating FFO per fully diluted share of $0.65 for the quarter ended September 30, compared to Core Operating FFO per fully diluted share of $0.61 in the same period of 2018.

Investor Edge

Despite the slowdown in Northern Virginia leasing, the five publicly traded data center REITs reported solid (in some cases record) bookings and sales backlogs.

Our key takeaways of what made data center providers successful during the quarter were:

1. Offering solutions across multiple markets
2. Having a solid operating track record
3. Maintaining a strong balance sheet to compete for new corporate logos

The quarter showed that publicly traded REITs operating across US, Europe, and Asia-Pacific markets are agile when it comes to allocating capital and resources where customers are expanding, and that supply-demand fundamentals are balanced.

Equinix, the world’s largest data center provider, is buying Packet, a six-year-old startup which provides bare-metal cloud services, and which in recent years has been making a big push into edge computing.

Equinix said it plans to combine its network of colocation data centers with Packet’s network of edge data centers, providing a single platform for all service-provider or enterprise computing needs.

If the deal is closed successfully, that platform will consist of about 200 colocation facilities around the world – many of them complete with private network onramps to the largest cloud providers, the likes of Amazon Web Services, Microsoft Azure, and Google Cloud – and a network of edge data centers where customers can spin up dedicated servers for low-latency workloads with the click of a mouse.

The acquisition is also an entry into an entirely new market for Equinix: cloud services. While the company is closely tied to the cloud market, being a data center operator hosting infrastructure for all major cloud providers and offering enterprises connectivity to those cloud platforms, it's never been a cloud provider itself. With Packet on board, it would become one.

Packet’s investors include SoftBank and Dell Technologies. The company lists wireless carrier Sprint and chip designer Arm as its customers (among others).

Arm is one of the CPU choices available in its bare-metal cloud, but it offers Intel and AMD servers as well.

Terms of the deal, announced Tuesday, were not disclosed. Equinix expects to close the transaction before the end of this quarter.

Packet accelerated expansion of its “edge cloud” last year. It now lists cloud services for edge computing in 10 locations in North America, two in Europe, and two in Asia Pacific.

It built some of them at the feet of wireless towers and some in locations close to the towers, the idea being that bringing computing power closer to the point where wireless devices connect to the physical network will speed up application performance. Such low-latency connectivity is expected to enable next-generation applications like autonomous vehicles and virtual and augmented reality.

The company’s public cloud, which it markets as a separate cloud from the edge infrastructure, is in four data centers in the US, one in Europe, and two in Asia.

Equinix included little detail in its announcement, and a spokesperson said the company wouldn’t comment further until about three weeks from Tuesday.

To learn more about Packet, listen to our interview with Jacob Smith, one of its founders, on the Data Center Podcast.

Less than one month after announcing that it would be buying one of the leading startups in edge computing infrastructure, Equinix, the world's largest data center provider, has taken a step to expand its sphere of influence in the development edge computing architecture.

The company said last week that it had joined the open source LF Edge foundation. As a top-tier Premier member, it gets a seat on the foundation's governing board, which will be held by Equinix CTO Justin Dustzadeh. This will give the colocation and interconnection giant influence on the foundation's direction, including a say in which new projects get accepted.

In January, Equinix announced it was buying Packet, a bare metal cloud startup that in the last couple of years has been expanding in the "edge cloud" arena. Its edge cloud now has 10 locations in North America, two in Europe, and two in Asia Pacific.

LF Edge is a one-year-old umbrella organization within the Linux Foundation that's working to build an open framework for edge computing "independent of hardware, silicon, cloud, or operating system." It's currently home to seven projects, including Akraino Edge Stack, a software stack for cloud services optimized for edge-based servers and applications; EdgeX Foundry, a framework for plug-and-play microservices; Home Edge, a platform for "connected home" devices; and Project EVE, an edge virtualization engine.

Through its membership, Equinix hopes "to help customers and the community to develop open, cloud-neutral frameworks for edge computing, including its ever-increasing use cases and diverse set of requirements across the technology stack," Dustzadeh told Data Center Knowledge in an email. "We also look forward to sharing our experience and learnings with the community, given our unique position as the global data center and interconnection platform for networks, clouds, and enterprises."

Equinix is joining 32 other companies with top-level LF Edge membership. They are mostly telcos, but some are mobile and IoT device manufacturers and hybrid cloud software vendors. Companies in the latter category increasingly see edge data centers as part of the hybrid/multi-cloud landscape.

The membership will set Equinix back $50,000 annually, in addition to the $20,000 per year it already pays for a Linux Foundation Silver membership, a prerequisite for LF Edge membership.

The Packet acquisition, expected to be finalized in the next few months, gives the company access to small data centers located either directly below or in close proximity to cell towers, along with the expertise to quickly build new locations when necessary. Also important to Equinix is Packet's software platform that automates provisioning and management of physical, "bare-metal" hardware resources in data centers remotely. 

"We see that businesses continue to move computing from centralized data centers to a distributed infrastructure and toward the edge, where data exchange and interconnection between businesses and cloud services are growing at an exponential rate," Dustzadeh said. "We also see that businesses across many industries are embracing edge computing, leveraging a hybrid multicloud architecture."

Equinix, with more than 200 data centers serving more than 50 markets on five continents, has a customer base that includes large hyperscale cloud providers as well as Fortune 500 and Global 2000 companies, and it wants to be the service provider that gives them an easy on-ramp to the edge, when they're ready to make the move.

"With a combined Equinix-and-Packet solution, enterprises and service providers will be able to build and deploy low-latency services at the edge through their choice of owned physical deployments in colocation, or by utilizing bare metal, which leverages as-a-service consumption, and which can reduce CapEx and resource requirements," said the CTO.

"The LF Edge premier membership will help us to collaborate more closely with industry leaders and the software-developer community, within the same umbrella organization, on an open, interoperable framework for edge and real-world use cases that we believe our customers can benefit from."

The Packet deal gave also gave Equinix a powerful position in another organization that's driving the development of edge computing infrastructure, but at a lower, more physical layer than the layers LF Edge is concerned with. Packet CEO and co-founder Zachary Smith was recently named chair of the board of the Open19 Foundation, replacing its founding chair, Yuval Bachar, who formerly led all things data center and hardware engineering at LinkedIn.

Open19 oversees development of a standard for data center hardware LinkedIn engineers designed to radically accelerate deployment in the field. Packet has been one of the few major adopters of the standard besides LinkedIn.

If you're curious about the current state of play in edge computing architecture, deployment, and use cases, join us this March in San Antonio for Data Center World, where DCK Editor-in-Chief Yevgeniy Sverdlik will interview Yuval Bachar, one of the industry's top edge computing thought leaders, live on the dedicated Data Center Knowledge stage. Another not-to-miss interview on the DCK stage will be with Cole Crawford, founder and CEO of Vapor IO, which is currently in the middle of building out a nation-wide network of edge data centers in US cities. Use the DCK100 promo code to get $100 off registration.

Equinix has closed its acquisition of Packet and disclosed how much it paid for the startup: $335 million.

The plan is to add Packet’s on-demand server provisioning capability to Equinix’s platform, so that its customers can launch dedicated servers inside Equinix data centers much like they do virtual machines in a public cloud like AWS or Azure. The difference is that Packet provides numerous types of bare-metal servers to choose from and the freedom to deploy whatever virtualization platform and other software you need on the machines.

The companies announced completion of the deal Tuesday, less than two months after announcing the acquisition agreement.

Zachary Smith, Packet’s co-founder and now former CEO, will lead Equinix’s new bare-metal business as managing director.

The addition of bare metal gives Equinix the ability to make hybrid cloud easier for enterprises and their service providers. It already offers ways for customers to connect to cloud-provider networks from its data centers, but customers have to populate their colocation space with their own hardware if they want to use cloud services in combination with their own computing infrastructure.

Integration of Packet’s platform with Equinix’s will give them the option to provision and manage both dedicated hardware and cloud resources remotely – and consume both as services on a pay-as-you-go basis without having to sink capital in hardware upfront.

Packet, whose investors have included SoftBank and Dell Technologies, is already providing the hardware provisioning substrate for Anthos, Google’s hybrid cloud service that connects on-premises Kubernetes clusters with Kubernetes running on Google Cloud Platform. Google also has a long-standing relationship with Equinix, and now that Equinix has absorbed Packet, the colocation giant will act as a key enabler for Google’s hybrid-cloud play.

Packet also provides some infrastructure for Sprint’s 5G network and the carrier’s Internet of Things platform called Curiosity, announced in 2018. Now, Equinix’s “balance sheet” should give big customers like Sprint and Google the confidence to expand their use of Packet’s platform, something they had been reluctant to do with a young company, Smith told DCK.

“Having the financial capabilities of Equinix … really helps,” he said. What also helps is Equinix’s massive global footprint of interconnection-dense data centers around the world. “For Packet, being able to take our value and our platform and deploy it across this massive global footprint, for us this is huge.”

Equinix sees the acquisition as a major expansion of its technical capabilities, Jon Lin, Equinix’s president for the Americas region who is leading the Packet integration from the Equinix-corporate side of things, explained.

A big part of Packet’s strategy has been to build its platform in a software developer-friendly way. As a low-level infrastructure provider, Equinix doesn’t know as much about interacting with “the software community,” Lin said. “We’ve traditionally spoken … with the infrastructure side.” Packet adds the ability to engage with a whole new type of customer for the data center provider.

There’s another big dimension to Packet: its bare-metal edge cloud, a network of small edge data centers, some deployed at or near wireless towers. The company has invested a lot of resources in developing this edge capability, recently accelerating deployment. It lists 10 edge cloud locations in North America, two in Europe, and two in Asia Pacific.

For now, however, Equinix is primarily interested in launching bare-metal services across its existing platform of colocation data centers, Smith and Lin said. The company will not continue expanding Packet’s edge cloud footprint, unless there’s high customer interest, Smith and Lin explained.

They declined to share which or how many markets are first on the list for launching the bare-metal capability, but said those decisions will also be driven by customer demand. Lin said the company will share more details on this during its analyst day in June.

They also declined to share how much revenue Packet had been generating as a stand-alone business or whether it was profitable.

Lin said he didn’t expect Equinix shareholders (the company is a publicly traded REIT) to be concerned about the capital investment necessary to buy, install, and manage all the hardware that will have to be deployed in Equinix data centers around the world to support the upcoming bare-metal offering.

To the contrary, he said, the company’s management has been “pretty clear for a number of years” that it’s embarking on a journey to expand its platform capabilities. “Investors have been expecting us to really put meat behind that story.”

Equinix put some “meat behind that story” by enabling software-defined provisioning of interconnection across the global platform last year. In the future, as the bare-metal vision is realized, customers will also be able to provision computing capacity in some or all of its 200-plus data centers remotely, via a software platform.

Many technology companies have been contributing in whatever ways they can to help as the world struggles with the COVID-19 pandemic. That includes companies that provide infrastructure that supports digital services people are now relying on more than ever before.

Providers of VPN services, password management tools, software development platforms, cloud storage, and many other types of technology services essential for doing business online, have either made their services free or available at substantially lower costs for organizations in need.

Some of the big companies further down “the stack,” operators of data centers and interconnection platforms, are trying to make it easier for networks to boost interconnection.

To make sure their systems can handle the flood of users, organizations have had to beef up their computing capacity and capacity of the links that connect their networks with networks of service providers, be they ISPs, cloud infrastructure providers, or cloud software providers like Zoom or Microsoft.

For example, there’s been a 775 percent increase in users of Microsoft’s Teams video conferencing service in Italy over a one-month period, the company said. Globally, Microsoft has seen “a very significant spike in Teams usage,” while Windows Virtual Desktop usage has tripled as a result of the pandemic.

To help the most essential organizations scale their capacity to meet the demand, some of the largest data center and interconnection platform operators said they wouldn’t charge those organizations certain fees associated with using their platforms.

Relieving the Cost of Interconnection

Global data center operator Equinix has been “donating” its ECX Fabric (Cloud Exchange), Internet Exchange, and “other interconnection services” to healthcare organizations, education, government, food supply chains, COVID-19 research, NGOs, and other “qualifying organizations seeking to support the greater good through this pandemic,” a company spokesperson said in an emailed statement.

Megaport, which operates a software-defined global data center interconnection platform that’s functionally similar to ECX, said it was waiving port fees for emergency services, education, healthcare, government organizations, and private enterprises that provide essential services for six months starting last week.

Digital Realty Trust, Equinix’s biggest rival, which uses partner Megaport’s platform to offer interconnection services on its Service Exchange, said it was doing the same.

ECX is also a software-defined interconnection platform, which means Equinix customers can provision links between their platforms virtually, without having someone physically plug cables inside a data center meet-me room.

ECX is only for networks present inside Equinix data centers, while Megaport’s platform extends across many different data center providers around the world and all the customers using their services.

Reducing the cost of patching into hyperscale platforms through private links like AWS Direct Connect or Azure ExpressRoute can be helpful from a cost perspective, Archana Kesavan, director of product marketing at ThousandEyes, told DCK. ThousandEyes monitors global network health and has been sharing how the internet has been holding up through the crisis on its blog.

“That definitely has legs,” she said about the data center providers’ move to reduce interconnection costs. “I feel that could actually help these organizations.”

The people responsible for technical infrastructure have been fortunate that the technology that enables software-defined interconnection platforms like ECX, Megaport, and PacketFabric has evolved as much as it has in recent years, Avi Freedman, co-founder and CEO of Kentik, which also monitors network health, pointed out.

If you need to provision a cross-connect to Zoom, for instance, you can do it from home using a web portal or an API. That ability has been “a key part of scaling” network capacity these days, Freedman said, when travel is greatly restricted and physical access to data centers is either prohibited or reduced to essential personnel only.

Zoom itself has been relying on ECX in recent weeks to peer with new partners or provision more data transit capacity, Alex Guerrero, who oversees all things infrastructure at Zoom, said during a recent webinar organized by Kentik. Zoom has been using ECX “quite a bit actually to increase bandwidth across the board,” he said.

While waiving port fees for essential organizations, Megaport and Digital Realty will still charge them for the bandwidth they use to transfer data over the fabric. But the savings would still be substantial.

A 10-Gigabit-per-second port normally costs $500 per month, Eric Troyer, Megaport’s chief marketing officer, told us. If you want to use the fabric to connect two data centers, you have to pay port fees for both ends of the connection. If you want to connect to a Megaport partner like Azure or AWS, however, you only pay for one port, he explained.

It’s unclear whether Equinix is waiving all interconnection costs on its platform or just a part of the total, like Megaport and Digital are doing. An Equinix spokesperson did not respond to a request for clarification in time for publication.

The Use Cases Driving Up Interconnection

In recent weeks, as the world grapples with the pandemic, the surge in usage of Megaport’s platform has been driven predominantly by three use cases, Troyer said: connectivity to cloud platforms with the purpose of scaling up virtual desktop infrastructure (VDI), connectivity to internet exchanges, and connectivity between field offices.

Many organizations now have to support many more remote workers than ever before, and cloud-based VDI services are one of the logical ways to do that.

More users connecting to their employers’ networks from home, more students using online education portals or video conferencing for learning, and everyone consuming more entertainment online while stuck at home are driving traffic on internet exchanges to unprecedented levels.

DE-CIX, one of the world’s largest internet exchanges, said last week that it was seeing a 100 percent increase in video conferencing traffic at its location in Frankfurt from the week before, a 50 percent increase in CDN traffic, and a doubling of the number of online and cloud gaming users. Traffic in DE-CIX locations in Hamburg, Dubai, and Madrid was also up substantially, the company said.

Another major exchange operator, AMS-IX, said last week that peak traffic on its platform had for the first time broken through the 8-Terabits-per-second barrier on the evening of March 30. The daily volume of data traveling through the exchange went from about 50 petabytes in February to close to 60 petabytes after March 11, when the World Health Organization declared that the COVID-19 outbreak was a pandemic.

As organizations scale up infrastructure to support a more distributed workforce, they have been increasing bandwidth on their connections to internet exchanges, many of them using platforms like Megaport’s to do it.

The newly distributed workforce is also relying on connections to organizations’ regional field offices more than ever before. To support them, enterprise IT shops have been beefing up connections between those field offices to better replicate data between the locations, Troyer said.

The free connections to Megaport’s fabric are available not only to organizations that fall into the emergency services, healthcare, education, and government buckets but to all organizations “that are making an impact through the COVID pandemic: organizations that are involved in providing relief and efforts to mitigate, treat, and support people through the crisis,” he said.

Japan hasn’t produced a cloud giant of its own, so American and Chinese ones are rushing to sell cloud services to businesses in the world’s third-largest economy. And global data center players are happy to build homes for all those cloud servers in Japan’s hot markets.

Equinix announced this morning a joint venture with GIC, the Singapore government’s sovereign wealth fund, to build three hyperscale data centers in Tokyo and Osaka for the world’s largest cloud platforms. The announcement stopped short of specifying which ones, but all the largest players already use Equinix, including in Japan, for smaller-footprint points of presence.

Digital Realty Trust, an Equinix landlord it increasingly finds itself competing with, also has been lining up additional real estate and construction financing in Tokyo and Osaka through its own joint venture, with Mitsubishi, very likely aiming at the same group of customers.

Jabez Tan, head of research at Structure Research, said the analyst firm was “bullish on the growth potential upside of the Japan data center market, and specifically in relation to the hyperscale colocation segment.

“The absence of a domestic Japanese hyperscale cloud has created a meaningful opportunity for both Western and Chinese hyperscale cloud platforms to capture market share in a large addressable market like Japan, with the third largest GDP in the world behind the US and China.”

There’s already a “pipeline of new hyperscale data center builds” in Tokyo and Osaka, but Japan is in the “early stages” of cloud adoption, Tan told DCK in an email. “There is still plenty of runway for growth in the next five to ten years.”

Equinix is planning to build two data centers in Tokyo and one in Osaka, which it said will be “initial facilities” in the $1 billion joint venture it signed with GIC, expected to close in the second half of the year. The Japan-focused deal follows a similar one Equinix and GIC signed last year (also for $1 billion) targeting the European hyperscale data center market.

The Redwood City, California-based colocation giant will contribute its existing development assets in Tokyo and Osaka, as well as land and development rights for another site in Tokyo to the JV.

Once closed, the Singapore fund will own 80 percent of the JV, with Equinix owning the remainder.

The three future facilities will provide close to 140MW of power capacity total, Equinix said.

Structure expects there will be about 45MW of hyperscale data center demand annually in Tokyo and about 30MW in Osaka for the next five years.

Its recent report on the Japanese colocation market estimated that the hyperscale colocation market in Tokyo was about $471 million last year, projected to grow an average of 20 percent annually through 2025.

Structure estimated that the hyperscale market in Osaka was about $107 million in 2019, but that it would grow faster than Tokyo, at 35 percent a year on average for the next five years.

While its first-quarter revenue took a relatively small hit from the COVID-19 pandemic, Equinix reported strong results for the period overall.

The world’s largest data center provider has been providing free remote-hands services to some of its customers struggling to get to their equipment in its facilities amid global lockdowns, company executives said on an earnings call Wednesday. It also paid one-time bonuses to employees working at the facilities and a stipend to employees sent to work from home to help deal with whatever difficulties the crisis had created for them. Together, these costs amounted to a $3 million hit to Equinix’s total revenue for the quarter.

While acknowledging that he and his colleagues “continue to navigate an uncertain environment,” Equinix CEO Charles Meyers said he was optimistic about the Redwood City, California-based data center REIT’s prospects for the second quarter and the rest of the year, given its limited “exposure” to industries hard hit by the lockdowns and the momentum behind digital-transformation initiatives the pandemic is expected to fuel.

“We’re feeling good about the early start to Q2,” Meyers said on the Equinix earnings call Wednesday. “We’re feeling good about where we’re headed.”

Similar themes ran across three other large US-based data center providers’ earnings reports for the first quarter, only the tail end of which saw the lockdowns ramp up globally. CoreSite, CyrusOne, and QTS all reported earnings last week, all reporting strong sales and revenue growth and describing minor exposure to the most pandemic-struck industries, while warning that the environment continues shifting.

All said they’ve already started seeing growth in demand the crisis has spurred directly, with companies expanding their digital capabilities to support remote workers or increase their capacity to serve customers who now rely on digital tools more than ever before. In many cases, data center customers have “pulled forward” infrastructure upgrades that were already in place but were scheduled for implementation over longer periods of time.

Meyers highlighted expansions by Zoom, to extend “coverage and scale to support their explosive market demand,” and by TikTok, which is “deploying edge nodes to support coverage and scale of its content delivery platform.” Both were “good examples of COVID-related demand on platform Equinix,” he said.

Equinix reported $1.44 billion in revenue for the quarter – up 6 percent year over year – and pointed out that this was its “69th consecutive quarter of revenue growth.” AFFO per share (the REIT equivalent of earnings per share) was $6.21 – up from $5.95 per share for the same quarter last year.

The company adjusted its previous revenue guidance for the full year to account for COVID-19 risk, for weakened foreign currencies (particularly the Euro, the British pound, and the Brazilian real), and for revenue generated by Packet, the bare-metal cloud and edge computing company it acquired earlier this year (chart by Equinix):

The $50 million downward adjustment of the guidance due to COVID-19 risk is a rough estimate of what Equinix executives currently expect the pandemic’s total impact will be to its business this year.

“There's a lot going on with the global pandemic, and there has been some uncertainty that's created,” the company’s CFO, Keith Taylor, said on the call this week.

While the company’s sales pipeline is “very, very healthy,” the adjustment is a result of an exercise in “scenario planning,” he said. “And of course, we've thought about different things. Could there be an extension of the book-to-bill cycle? Could there be a weakening of the pipeline?”

Equinix’s exposure to industries currently most impacted by the pandemic, which it identified as travel, energy, and retail, is 3 percent of total revenue, the company said.

Some customers have asked for bill payment concessions as a result of the pandemic, Taylor said, but not to an extent that would be worrisome. “Absolutely there are customers out there that have asked for concessions,” he said. “It hasn’t amounted to anything significant at this point in time, but we are assuming that there will eventually be [more] customers who will ask for concessions.”

According to Meyers, the company had “healthy bookings” from the enterprise vertical during the first quarter, although not without any “COVID-related friction.”

Equinix saw “lighter” bookings from new customers toward the end of the quarter, he said, attributing it to the company’s sales team adjusting to doing their job remotely, without face-to-face customer meetings.

The team is having to learn a new set of skills, he said, in order to be able to “get an account over the line fully without physical interaction.”

Equinix is greatly expanding its presence in Canada, going from footprint in only one metro north of the US border to eight.

The Redwood City, California-based colocation giant has agreed to pay US$750 million to take 13 data centers off the hands of BCE, the massive telecommunications and media conglomerate, corporate parent of Bell MTS and Bell Canada.

About 600 companies hosting their technical infrastructure in the Bell data centers across 13 sites will become Equinix customers, 500 of them net new for the buyer, Equinix said in a statement Monday. It expects to close the transaction sometime in the second half of 2020.

The novel coronavirus pandemic has had minimal impact on Equinix’s financial performance in the first quarter, and executives said they expected to continue reporting strong results throughout the rest of the year. The Bell data center deal demonstrates that at least for now Equinix, the world’s largest data center provider by revenue, isn’t retrenching or slowing expansion in the face of the global economic downturn and uncertainty caused by the crisis. The announcement comes three months after it closed acquisition of Packet, a bare-metal cloud and edge computing startup, using its technology to expand into bare-metal cloud services.

The deal continues a multi-year trend of record M&A activity in the data center provider market. While the value of individual deals has gone down substantially in the last two years (there aren’t many big multi-billion data center portfolios left on the market), the number of deals continues growing. More deals were struck in the first quarter of 2020 alone than in all of 2019 – which was a record year in terms of the number of deals, according to Synergy Research Group.

If and when it closes the BCE data center acquisition, Equinix expects it to add $105 million in annualized revenue. It intends to grow that revenue over time by bringing its software-defined interconnection platform to the 13 Canadian sites, providing “integrated networking and hybrid multi-cloud services” to customers through a partnership with Bell, and using the footprint as a platform for future expansion of its business across Canada.

Besides adding capacity to its existing footprint in Toronto, the portfolio (400,000 square feet of data center space total) will give Equinix instant presence in new metros, including Calgary, Alberta; Kamloops and Vancouver, British Columbia; Millidgeville, New Brunswick; Montreal, Quebec; Ottawa, Ontario; and Winnipeg, Manitoba.

Equinix currently operates about 210 data centers in 55 metros worldwide.

Jennifer Bissell-Linsk (Bloomberg) -- The same trends behind soaring stock prices for Amazon.com Inc. and Zoom Video Communications Inc. are benefiting shares in the companies associated with their real estate.

Communication towers and data center stocks -- sometimes referred to as “where the internet lives” -- have seen some of the biggest gains in the S&P 500 so far this year as stay-in-place measures to combat the coronavirus have accelerated the demand for digital services and connectivity.

Whereas the pandemic has severely hit many commercial property owners, shares in real estate investment trusts related to technology are outperforming. The combined market value gained by just five of those stocks is almost the same as the amount lost by 30 REITs specializing in malls and shopping centers, according to data compiled by Bloomberg News.

“If you’re a real estate investor and your mandate is to own real estate, you’re obviously not doing very well owning offices or owning retail,” Cowen analyst Colby Synesael said in a phone interview.

With more people at home, the demands on technology and its infrastructure have been tremendous, whether it’s allowing for online shopping, mobile streaming or working remotely. As a result, certain REITs have emerged as defensive plays for investors, Synesael said.

American Tower Corp., Digital Reality Trust Inc., Equinix Inc., Crown Castle International Inc. and SBA Communications Corp. have added roughly $50 billion in total market capitalization this year, and valuations for towers and data centers have never been higher.

Data centers, for instance, are trading at a roughly 15% premium to the overall REIT average on a price to estimated adjusted funds from operations basis, according to Berenberg analyst Nate Crossett. Historically they’ve traded at a 7% discount.

As a global data center company, Equinix has boasted of its work building out coverage and scale for clients that have gone on to become household names in the work-from-home era including Zoom and Cisco Systems Inc.’s Webex.

“Two significant customers of ours is Zoom and Webex -- both of whom obviously saw exceptional increases in their demand as work from home took off,” Chief Executive Officer Charles Meyers said in an interview. “We played a very key role in helping them ramp up their capacity to meet that demand. That was true also in networking cloud providers.”

Meyers said it’s difficult to anticipate how much more revenue the company could see over time. In terms of demand, he pointed to recent overall online traffic trends, which surged 25% to 30% over a 30- to 45-day period-- growth that normally would take nine months to a year to achieve.

Digital Realty Chief Financial Officer Andy Power said in an interview that the company had seen a pickup in data center demand from clients filling near-term gaps but that longer-term, he was “pleasantly surprised” at how larger enterprises were also taking this moment to plan for the future.

“We’re seeing the criticality of our infrastructure playing out front and center while many of our other asset classes [in real estate] are seeing sloping rent,” he said. Even for clients in struggling industries such as travel, the company has seen increased deployments. “Our services are fundamentally mission critical for their businesses. You cannot book an airline ticket or any hotel reservation without the infrastructure we’re essentially providing.”

Bloomberg Intelligence analyst Lindsay Dutch said the need for increased connectivity during the pandemic has demonstrated the importance of digital infrastructure, which is a long-term driver for the stocks.

“If you think of everyone on their computers, trying to connect to their workplace and do all these Zoom calls and stream Netflix -- that creates more traffic and the need for power,” she said.

Before the virus, shares in tech-related REITs had already been rising, catching the attention of investors, Cowen’s Synesael said.

For communication towers, he noted a sea change in 2018 when Vanguard Group began adding towers to its investment portfolio, prompting more investors to do the same ahead of the U.S. rollout of 5G spectrum.

Unlike data centers, tower stocks aren’t seeing a fundamental change in earnings from the pandemic, Synesael said. However, they are still benefiting from trends Covid-19 has accelerated like mobile data use, which Synesael expects to continue.

Despite their relative premium, Berenberg’s Crossett said that on an absolute basis “there’s still plenty of room to run” for data center stocks.

“To the extent that there’s a pullback, I would be adding to these names,” he said.

Jim Smith, who headed Equinix’s relatively recent foray into leasing large chunks of data center capacity to about a dozen largest cloud platforms, has stepped down from the role. He’s replaced by Krupal Raval, who for the last year or so served as the xScale unit’s VP of finance.

Equinix CEO Charles Meyers revealed the leadership change on the company’s second-quarter earnings call Wednesday but stopped short of providing the reason behind it.

“Jim Smith has made the decision to step down from his role as managing director of the [xScale] program but does remain as an advisor to the initiative,” Meyers said.

The two-year-old program is an attempt by Equinix, which gets most of its revenue from high-margin retail colocation and interconnection services, to benefit more from the recent years’ boom in the wholesale data center space, driven by record expansion by the hyperscale platforms.

Because it’s a capital-intensive, low-margin business, Equinix has formed joint ventures with investors to fund its xScale projects, making money partially from returns on its portion of the capital investment and partially by charging the JV for managing, operating, and leasing the facilities.

Both Smith and Raval used to work at Digital Realty, the world’s second-largest data center provider and Equinix’s biggest rival. Smith was Digital’s CTO and senior VP of portfolio operations before leaving the company in 2015. Raval, most recently, was CFO for Asia-Pacific, until leaving in 2016 to join Smith’s hyperscale team at Equinix.

Equinix reported $1.47 billion in revenue for the second quarter, up six percent from last year, and net income of $133 million.

Similar to first quarter, the company didn’t feel substantial negative business impact from the COVID-19 pandemic, its executives said. Only 3 percent of its revenue comes from companies in the industries most impacted by the pandemic, which according to Equinix are travel, energy, and retail.

On the earnings call, Meyers and Equinix CFO Keith Taylor maintained that the xScale program continues to go well. The first two xScale facilities, in Europe, were just recently completed, Taylor said.

During the second quarter, a single hyperscaler pre-leased the entire Paris 9 data center that’s still under construction, they said. Equinix will likely make the asset part of xScale “very soon,” Meyers said.

“And we continue to see good customer interest in pipeline on the other facilities,” he added.

Its European $1 billion xScale joint venture is with GIC, Singapore’s state-owned investment fund. Equinix and GIC have also agreed to launch a similar venture in Japan, an underserved cloud market where Chinese and American cloud giants are rushing to expand. The Japan JV deal is on track to close by the end of the year, the executives said.

Equinix is expanding into India, one of the world’s fastest growing markets for digital services.

The Redwood City, California-based colocation and interconnection giant announced Tuesday a $161 million acquisition of a two-data center campus in Mumbai by GPX Global Systems. Equinix’s Asia-Pacific footprint so far has consisted of facilities in Japan, China, Singapore, Indonesia, and Australia.

The campus ticks all the right boxes for Equinix strategy wise. According to the US company, several world-leading cloud service providers host their infrastructure there, as well as leading networks, CDNs, all local carriers, 130 internet service providers, and four internet exchanges.

The two facilities now have capacity to house 1,350 IT cabinets and room to add 500 more. At full buildout, the campus will provide 90,000 square feet of data center space.

The acquisition price represents a multiple of 15x projected EBITDA at full utilization, according to Equinix. It expects to close the transaction in the first quarter of 2021.

Indian market for digital services is growing quickly, and there’s been an uptick in investment in data centers in the country by both specialist data center providers and international cloud companies.

Equinix has been positioning itself as an operator of facilities where companies can interconnect with all the networks they need, including the networks of cloud providers. The GPX campus offers access to AWS Direct Connect, Google Cloud Dedicated Interconnect, and Oracle Cloud Infrastructure FastConnect.

American hyperscalers have had data centers in India for years. But there’s now a new wave of investment in infrastructure by these companies. Google said in July that it will invest $10 billion in all types of digital infrastructure and services in the country over the next three years.

An Indian Microsoft executive said earlier this year that the company was planning more data center investment there. AWS is reportedly planning two additional data centers in India.

The opportunity for data center and cloud providers is to serve both domestic and international companies in India.

Small businesses have been digitizing rapidly in the country, according to a blog post by Google and Alphabet CEO Sundar Pichai, an India native. In addition to its own already robust IT industry concentrated in Mumbai, Chennai, and New Delhi, there’s a heavy presence of multinational enterprises.

Data center provider Equinix said its systems have been subject to a ransomware attack.

They were the colocation giant’s own systems, and the attack did not affect any of its customers, the company said in a blog post Wednesday evening US Pacific time.

“Equinix is currently investigating a security incident we detected that involves ransomware on some of our internal systems. Our teams took immediate and decisive action to address the incident, notified law enforcement and are continuing to investigate. Our data centers and our service offerings, including managed services, remain fully operational, and the incident has not affected our ability to support our customers. Note that as most customers operate their own equipment within Equinix data centers, this incident has had no impact on their operations or the data on their equipment at Equinix. The security of the data in our systems is always a top priority and we intend to take all necessary actions, as appropriate, based on the results of our investigation.”

The Redwood City, California-based company is the world’ largest data center provider by revenue. It operates more than 200 data centers across 55 markets around the world.

The company didn’t offer any detail about the ransomware incident. Bleeping Computer claims to have gotten a copy of the ransom note Equinix received. According to the news site, the note included a screenshot of folders with the encrypted files. Folder names indicate that they contain a lot of sensitive data, such as financial, legal, and payroll information.

The note reportedly made a threat that the encrypted files would be posted online and made publicly available had Equinix not paid the ransom within three days of the attack. Bleeping Computer concluded that the attack came this past weekend. A link in the ransom note lead to a ransomware payment site that indicated that the amount being asked was $4.5 million, or 455 bitcoin, which would double if not paid after a certain period, Bleeping Computer said.

While most ransomware attacks target individual users, attacks on large IT organizations and their data centers have been on the rise. Aluminum producer Norsk Hydro; data center provider CyrusOne; University of California, San Francisco; and the Texas court system have been victims of some of the most recent such attacks.

An IT organization has multiple options when its data center gets attacked by ransomware. To learn what those options are, and what are the pros and cons of each, read the DCK special guide to ransomware.

DCK is working to find more information on the incident. Contact us confidentially via Signal: +1.925.788.0235

If you’ve paid attention to the business of high-frequency trading infrastructure in recent years (and no-one will judge you if you haven’t), Friday’s news of New York’s exchanges threatening to move out of New Jersey data centers may give you a sense of Déjà vu.

Threatening to leave the state if it imposed a new tax on trades was a tactic CME Group’s executive chairman, Terry Duffy, used in 2016, when Illinois wanted to start charging $1 or $2 per trade executed on exchanges in the state.

Now, NYSE and other exchanges that host matching engines in New Jersey data centers are using the same tactic to fight a new state proposal to tax electronic trades. Like other states, New Jersey has a massive gap in the state budget caused by the pandemic-induced economic crisis, and its legislators are looking for every possible way to close it.

Equinix, which operates a New Jersey data center that’s become a trading hub, has also joined the “coalition” of companies protesting the bill, Bloomberg reported. So have market makers Citadel Securities and Virtu Financial. The proposal would put a tax of one-fourth of a penny on every electronic transaction processed in the state by any company processing at least 10,000 transactions a year.

State Assemblyman John McKeon, a Democrat and the tax bill’s lead sponsor, thinks the state should be paid for having been “blessed to have the geography that is able to serve [the function of being home to electronic trading engines] for the financial markets… ,” according to The Wall Street Journal. (The “blessing” appears to be the fact that New Jersey is physically close to Wall Street but much cheaper – and safer– to operate in than Manhattan.)

Needless to say, exchange operators disagree.

On Friday The Journal and Reuters both reported having obtained copies of an internal NYSE memo that announced plans for a week-long test starting at the end of the month, in which one of its exchanges (NYSE Chicago, the smallest of the five) will run out of a backup data center in Chicago instead of the primary one in Jersey.

NYSE isn’t alone, according to the memo, which reportedly described “an industrywide effort in which US exchanges will test their backup sites in the Midwest on Sept. 26, a Saturday when the market is closed,” wrote The Journal.

Nasdaq said it will simulate a regular trading day on that date, using its backup data center in Chicago as the primary site running its matching engines for equities and options, Bloomberg reported. Citing notices they sent to clients, Bloomberg said Nasdaq and Cboe “emphasized the importance of the test to ensure markets were ready to relocate.”

Their concern is easy to understand from a business perspective – if not from the perspective of a business in a position to help a state struggling amid a crisis of historic proportions. Making trades more expensive to execute would cut into their profit margins and could theoretically lead to traders executing fewer trades, resulting in less revenue for the operators in the long term.

Had the exchanges actually gone through with what the memo implies they are threatening they could do, the impact would go far beyond trading. While NYSE operates its own data centers, much of the trading ecosystem that has grown in New Jersey lives in colocation data centers, whose operators charge a premium for space near the trading engines and the opportunity to interconnect and become part of the ecosystem.

One of the densest nerve centers of this ecosystem is Equinix’s NY4 data center in Secaucus, which explains the colocation company’s decision to join the coalition against the proposed tax. If the exchanges moved elsewhere, so would a good chunk of the state’s data center services market.

At a press conference Friday New Jersey Governor Phil Murphy said the state’s dialogue with the industry had just begun, and that the tax wasn’t imminent, according to Bloomberg. The proposed tax would be temporary, to tide the state over as it struggles through the financial crisis, he said. (“It’s not a forever thing.”)

But in August Murphy also cautioned against relying on any potential new tax on electronic trades for closing the state budget gap, since exchanges would likely try to overturn any such law in court.

Suing would be plan B. Plan A for the exchanges appears to be building negotiating leverage by demonstrating that they can shift platforms out of state without great disruption. How effective the tactic will be remains to be seen.

While it’s unclear how much Terry Duffy’s threat to move CME’s trading engines out of Illinois had to do with it, the 2015 trading tax proposal went nowhere. But these are very different times.

Anthos, the platform at the core of Google’s hybrid cloud play, has received much attention for its ability to simplify multicloud architectures. But Google is also catering to Anthos use cases involving colocation data centers, a focus highlighted by Equinix’s recent announcement of support for Anthos on its bare-metal-as-a-service platform, designed by its recently purchased company Packet.

Here’s what Google Anthos means for the colocation industry, and why organizations might want to take advantage of it to manage colocated infrastructure.

What Is Google Anthos?

Anthos is a platform that uses Kubernetes, the open source container orchestrator, to create a single control plane across diverse infrastructure. With Anthos, you can take multiple public clouds and/or private servers and manage them as if they were a single cloud.

Although Anthos is a Google product, it works with other public clouds -- including Azure and AWS -- in addition to Google Cloud. That’s one of the key differentiators between Anthos and hybrid cloud solutions from other companies, such as Microsoft Azure Stack, which supports only Azure’s cloud services.

Anthos and Colocation

To date, most of the press surrounding Google Anthos has focused on its potential for simplifying multicloud architectures, in which organizations want to use multiple public clouds at once. By providing a single management interface and application deployment solution that will work with any mix of public clouds, Anthos makes it easier to embrace multicloud.

But what about companies that run workloads in colocation facilities and don’t have a need for multicloud architectures? Google wants Anthos to simplify their management and deployment strategies, too, by allowing them to leverage modern management tools while still keeping workloads running on colocated infrastructure.

In other words, with Anthos, colocation customers can use the modern Kubernetes-based tooling that is built into Anthos to manage workloads hosted in colocation facilities. They don’t need to rely on solutions like VMware, which is less vendor-agnostic, or turn their infrastructure into a private cloud using OpenStack if they want to be able to deploy and manage applications in colocation centers in the same way that they would in the cloud.

What’s more, because Google has now announced support for running Anthos on bare-metal servers, colocation users have another reason to leverage the platform: It will allow them to avoid paying the “hypervisor tax” that comes with virtualization, while still managing their workloads using Google’s tooling. Even better, in cases where colocation providers actively support Anthos, users can take advantage of interconnection to enhance network performance, too. Again, Equinix (through Packet, which it acquired earlier this year) has already announced interconnection-enabled support for Anthos, and other colocation vendors may follow.

Anthos, Private Cloud, and Colocation

To put all of this another way, Google Anthos is emerging as an alternative to traditional private cloud solutions, like OpenStack and VMware, for organizations that want to manage colocated servers in an easy way. And because Anthos can now run on bare metal, it offers performance advantages that other private cloud frameworks, which require virtualization, generally cannot. (OpenStack provides somewhat comparable bare-metal support through Ironic, but setting up Ironic and integrating it into other OpenStack services is more complex and time-consuming than deploying Anthos.)

There are, of course, reasons why companies may not want to use Anthos to manage colocated servers. For one, it’s designed for the deployment of containerized applications using Kubernetes. If your applications aren’t already running as containers, migrating them to fit the Anthos framework may be more effort than it’s worth.

Anthos is also, again, a Google product. Although it is compatible with clouds that compete with Google’s, and it offers more product flexibility than solutions like VMware, it’s still not a totally vendor-agnostic solution. The spectre of lock-in may be a turn-off for some teams.

Nonetheless, it seems a safe bet that Google Anthos will become increasingly important to the colocation industry over the next couple of years, as organizations realize that the platform is more than just a multicloud solution.