Shares of data center service providers drop after Equinix cuts revenue outlook for the year

Wednesday, October 6, 2010

Sector Snap: Data center stocks decline

SEATTLE — Shares of data center service providers sank Wednesday, led by Equinix Inc., which had cut its revenue estimates for the third quarter and full year late Tuesday.

Foster City, Calif.-based Equinix said it lost more customers in North America than expected; it also had to cut prices deeply to win long-term contracts.

Its stock plunged $34.98, or 33 percent, to $70.16 in early afternoon trading.

Pacific Crest analyst Chad Bartley called the sell-off “overdone,” but wrote in a note to investors Wednesday that the missed outlook is cause for concern.

Other data center companies’ stocks tumbled Wednesday, including Rackspace Hosting Inc., Akamai Technologies Inc., Savvis Inc. and Teradata Corp.

Terremark Worldwide Inc. and Internap Network Services Corp. were also hit with declines.

“We think Equinix’s challenges are largely company-specific; however, we do think competition and pricing pressure should be watched closely in the case of Savvis and Terremark,” Bartley wrote.

Still, Bartley said Rackspace, Terremark and Savvis are better-positioned than Equinix — Rackspace doesn’t do colocation, a big part of Equinix’s business, and its customers are smaller companies. Terremark, too, targets smaller businesses than Equinix does. And Savvis has already suffered from high turnover among customers in recent years.

JMP Securities analyst Patrick Walravens reiterated his “Market Outperform” rating on Rackspace in a client note Wednesday.

“We think the reality is that Rackspace and Equinix have very different sources of differentiation,” Walravens wrote. “Equinix’s primary source of differentiation is network density for colocation services. Rackspace’s primary source of differentiation is its high touch customer service model, which it calls ‘Fanatical Support.’”

Shares of Rackspace still plunged $3.24, or 12.4 percent, to $22.97.

Akamai shares dropped $3.63, or 7.6 percent, to $44.28. Savvis’ stock fell $2.39, or 11 percent, to $19.24. Shares of Teradata declined $2.32, or 5.8 percent, to $37.38.

Terremark saw shares sink 49 cents, or 4.8 percent, to $9.64 and Internap’s stock was down 39 cents, nearly 8 percent, to $4.51.

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