Data Center Stocks

Telecom Exchange

2011-07-12T07:50:00.004-04:00

By Lisa Huff

I recently attended an event in New York City – Telecom Exchange. The format was originally developed by Hunter Newby and Rory Cutaia when they were at Telx. This year it was hosted by Jaymie Scotto & Associates (JSA). Unlike most trade shows, this affair puts large and small companies on equal footing. In order to provide a “network-neutral” environment, JSA arranged the exhibit tables in alphabetical order and they were the same size with the same-sized branding. No giveaways were allowed at the tables. To be frank, to me it was a refreshing change. Instead of spotlighting the next new thing, the event forced you to focus on networking with industry players and real business opportunities.

Some of my thoughts on the experience:

Containerized/modularized data centers: One prominent executive from a data center connectivity supplier said to me: “Brick and mortar data centers are dead.” We only had a short time to expand on this comment, but what I think he meant was that data center operators will need to move to more modular solutions in order to lower their PUE. According to him, if you move all your high-density applications to a containerized solution, your PUE can be as low as 1.1, whereas, any traditional building would be hard to get below a PUE of 1.5. His premise is that companies will need to lower their total cost of ownership of their data center and therefore will move to these solutions or be out of business. He hasn’t convinced me yet, but I intend to do some more research on the subject.

Allied Fiber (AF) and Dupont Fabros Technology (DFT): Allied Fiber is known for connecting data centers nationwide, but has never connected the “last mile” into the facility. That has now changed. AF and Dupont Fabros have struck a deal for AF to connect into DFT’s Piscataway, New Jersey facility with a straight path to Chicago, bypassing Manhattan. The agreement gives AF access to DFTs underground fiber ducting and DFT access to AFs direct fiber link to Chicago, lowering latency for both providers.

EtherCloud: Tinet, A Neutral Tandem Company, has now taken its Ethernet Exchange one step further. With its EtherCloud offering, it can provide end-to-end international connectivity to any company. It allows global coverage using VPLS through Juniper equipment in the core and Cisco in the access. Tinet is one of less than a handful of companies that can now provide direct Ethernet services on three continents.

Global reach: Telehouse America is known for its data center and managed services business in the US, but is quickly growing its reach internationally. It now has facilities on four continents – Asia, Europe, North America and Africa. Similar to Tinet, Telehouse is building out its Ethernet networks globally.

Co-location and Managed Services in Southeastern PA

2011-06-23T22:21:00.002-04:00

By Lisa Huff

There is a building complex just off route 183 in Southeastern PA that many don’t realize is a gem for co-location and managed services. Long known for his entrepreneurial spirit, Mr. Albert Boscov (of Boscov’s department stores) saw its potential and seized it in 2005. The two buildings are 292,000 square feet and house two data center co-location facilities along with several other businesses. What is unique about this property is that it is served by seven (7) telecom carriers – not only important to potential clients, but rare in rural PA. The facility also has two main telecom rooms and two separate power feeds.

Directlink Technologies, one of the buildings’ tenants, is owned by Boscov (President) and CEO Arthur Quinlan. Its co-location data center is 110,000 square-feet of raised floor, half of which is currently occupied. The company boasts of being carrier-neutral, SAS70 Type II certified with network latency of less than 2 ms to New York City (Hudson) and less than 15 ms to Chicago.

IPR International is another co-location/managed services provider that decided to lease space in the Boscov building. With corporate headquarters in Wayne, PA (just northwest of Philadelphia) and its continuous computing center in Wilmington, DE, IPR opted for a disaster recovery (DR) data center in Bernville, PA. While IPR started out as mostly backup and DR services, it can now provide everything from co-location up through totally managed services.

Another company, Distributed Systems Services (DSS), has its own facility in Berks County. DSS started in IT services and later expanded into data center co-location and managed services. Its 15,000 square-foot data center is housed in a 350,000 square-foot building. It is considered a Tier 3 data center and has three telecom carriers for data center connection to “the cloud.”

Reading, PA may not be an Internet hub, but is centrally located between two Internet Exchanges (New York and Ashburn) and within three hours driving distance of four major metropolitan areas – Baltimore, Philadelphia, New York and Washington DC. Compared to New York City, Berks county PA salaries for technical jobs are about 50 percent less, rental space is three to eight times cheaper and electricity costs about a third as much. These facilities could be just the answer for enterprises looking to outsource their IT – particularly those large healthcare and financial institutions in the northeastern US.

Telx and Carrier Ethernet Exchanges

2011-05-11T08:04:00.001-04:00

By Lisa Huff

Telx defines itself as “The Interconnection Company,” so it’s no surprise that it is the leader in the emerging Carrier Ethernet Exchange market. What is most interesting to me is how simple Telx has made their Ethernet Exchange connection. I recently saw this first-hand at its 111 8^th Ave NYC data center.

But first, what exactly is a Carrier Ethernet Exchange? It occurred to me that this question needed to be answered when I was on a panel on this subject at OFC/NFOEC. While many of the attendees should be interested in what they are and how they are progressing, they didn’t seem to be. The Metro Ethernet Forum’s formal definition of an Ethernet Exchange is “an interconnect point among service providers where Carrier Ethernet Services are exchanged.” This really just means that if you’re an end user, you want this service so you can have a direct Ethernet connection. Today, most enterprises are still encapsulating their native Ethernet data into TDM/SONET/SDH then de-encapsulating it at the other end. However, more and more, end users are seeing the benefits of Ethernet Services and perhaps eventually, the entire public network may be running native Ethernet.

While Telx is best known as one of the premier wholesale co-location providers, it was also at the forefront of Ethernet exchanges. Telx is a carrier-neutral data center co-location provider and has several facilities around the New York metro area which enables it to supply seamless Ethernet connection not only between carriers, but between any of its co-location enterprise customers as well. Its Ethernet Exchange services have a range of options depending on customer’s needs. It charges by the port and can connect customers at 100 Mbps, Gigabit or 10G data rates through its Cisco ASR 9000 equipment. Telx expects to incorporate 40G as needed – probably not until 2012/2013 timeframe, though. No equipment is oversubscribed and low latency options are available for premiums.

Telx considers Equinix and CENX its main competitors in the Ethernet exchange market. While it is rather difficult to quantify this market, Ethernet exchanges services are expected to have around a 20-percent CAGR over the next five years starting at 100’s of millions of dollars in 2011. Plenty of revenue to support the few entrants that have decided to focus on it so far.

FiberMedia To Become a Bigger Factor in the New York Market

2011-04-20T10:51:00.000-04:00

By Lisa Huff

I recently had the privilege of sitting down with FiberMedia’s senior VP of sales and head of global operations and get a tour of its new co-location and managed services data center in Secaucus, New Jersey. Luckily for FiberMedia, this property was originally one of TD Waterhouse’s data centers so not much renovation was needed before it could be opened so it was brought on-line quickly. The other new data center is in Westchester, New York. These add to FiberMedia’s four other data centers in Jersey City, NJ, Brooklyn, NY, New York City and Cleveland, OH.

Fiber Media prides itself on customizing solutions for its customers with flexible data center designs that manage their bandwidth. The Secaucus facility is carrier neutral with multiple fiber connections. Carriers include some of the largest telecommunications companies in the world as well as smaller regional providers. Among them are AboveNet, AT&T, Cogent, Fibernet, Global Crossing, Hibernia, Keyspan, Level 3, Qwest, RCN, Sprint, Telia, Verizon and XO Communications.

The Secaucus data center is currently 32,000 square-feet with another 8,000 for expansion. It has two points of entry so customers have less traffic past their areas. The data center is SAS70 certified. FiberMedia has customers that cross several vertical markets including financial, media, content delivery/distribution networking (CDN) and healthcare.

FiberMedia recently received an infusion of cash from a new strategic partner, The Stevens Group, LLC and it seems that with this new partnership has attracted top new talent as well. In the last six months, it has made several new hires – CEO, CFO and VP of Sales all of which have extensive experience in other IT services businesses.

FiberMedia appears to have a very specific plan for its co-location and managed services business. In addition to its two new data centers, it released a new managed cloud service. I have to admit that on the surface, this looked like just a lot of marketing hype to me, but after speaking with John Panzica, VP of Sales, about it, I understand that it’s not just your run-of-the-mill service. What it allows its customers to do is to totally manage their compute and storage demands remotely on the fly. I’m not sure any other company is offering this – at least I haven’t heard this from anyone else, yet.

Before this visit, I had heard of FiberMedia, but didn’t really think they were much of a player in the New York marketplace. Now, based on their willingness to invest capital to build state-of-the-art data centers and to provide differentiated managed services, I believe they may give the other co-los a run for their money.

Infinera and the Dawn of Terabit Networks

2011-04-11T08:54:00.000-04:00

by Lisa Huff

At OFC, I sat in on an Infinera press conference and I have to say I was impressed. Of course, I’ve always been impressed with Infinera’s PIC technology, but they seem to have now taken it to an entirely different level. Its new PICs incorporate 5x100G devices and over 600 functions on two chips and on the horizon are 10x100G PICs with perhaps more than 1,000 functions.

Infinera has long stood out in the telecom industry because while it is an equipment manufacturer, its base technology is routed in optical components research and development. This used to be the case for all telco OEMs including Alcatel, Lucent and Nortel, but all of these companies shed their components development arms in the early 2000s, and of course Alcatel and Lucent are now merged and Nortel is a shell of its former self. Through all of this, Infinera has prospered by successfully leveraging its component expertise to sell its CWDM and DWDM products and innovate to produce new ones.

Infinera had 10x10G, or 100G, long before many of its competitors and now has 5x100G PICs that it expects to have in production before year’s end. In fact, this technology was recently demonstrated in a live network trial with Interoute in Europe. Interoute expects to deploy Infinera’s 500G solution in 2012.

Infinera is focused on $/Gigabit economics and believes in order to maximize this for long haul applications, systems must be multi-channel and monolithic. This is achieved by large scale integration of both active and passive components which has been Infinera’s strength for 10G and below technologies. For 100G, the company has introduced “FlexCoherent®” technology that allows the customer to choose what type of modulation scheme is needed for each of their routes. It is also focused on providing its customers not only ROADMs, but what it calls “flex channels.” Infinera has deemed this technology as “Optical Express,” where intelligence is distributed to every node so each bit can be read.

But Infinera would not have been as successful as it has been if it was just focused on the research and development. Manufacturing of these devices must be reliable and repeatable so, according to its senior management personnel, its engineers “design with manufacturing in mind.”

The next step of development is already underway and will produce a 10x100G product in the near future according to Infinera.

What puzzles me is why other OEMs have not been able to reproduce the results that we’ve seen from Infinera. Is it only the captive components R&D that sets Infinera apart or is it also the fact that its top management has the ability to bridge the business aspects of telecommunications equipment manufacturing with the highly technical world of optical components and networking? I believe it’s both of these along with the fact that Infinera is still a much smaller company than most of its long-haul competitors and can make decisions and move much more quickly. Infinera is a company to watch especially related to long-haul and metro connections of data centers.

Avago’s Interesting Demos at OFC/NFOEC

2011-03-22T19:37:00.002-04:00

By Lisa Huff

As always, the top transceiver manufacturers were represented at OFC, but of the top three datacom transceiver providers, Avago Technologies stood out to me. They had two significant demonstrations:

1. Connecting a 40GBASE-SR4 Ethernet port using its QSFP+ to four standard 10GBASE-SR Ethernet ports with its SFP+ modules. On the surface, this seems pretty easy to do, until you realize that the specifications for the transmitters and receivers in these devices have are very different. The 10G devices could easily overpower the 40G receiver if it’s not designed to handle the higher power. Avago has solved this issue with its parts and hopes to be able to be interoperable with anyone’s transceivers in the near future.

2. A VCSEL-based 25G short-wavelength SFP+ working prototype. At first I was puzzled about this because I couldn’t figure out the application. Well, it turns out there really is none for the 25G part, yet, but showing that it could be done makes you realize that 32G Fibre Channel applications using the SFP+ may not be as far-fetched as we think. And, perhaps we can get a 100GBASE-SR4 (4x25G that isn't in the IEEE standard yet) solution soon.

Stay tuned for more on other developments announced or demonstrated at OFC/NFOEC.

Thoughts on OFC/NFOEC

2011-03-15T21:24:00.000-04:00

By Lisa Huff

I’ve never been enamored with Los Angeles, but when OFC/NFOEC decides to go there, I really have no choice but to follow them. OFC/NFOEC is the premier optical components conference and is starting to move its way up the food chain again. Those of us who have been in the industry since before 2000 know that equipment manufacturers and service providers were regularly a part of OFC. But after 2000, this changed and the optical value chain was split – components relegated to OFC and/or NFOEC (until they combined into one), equipment manufacturers concentrating on Interop and Supercom and service providers opting for Supercomm. Now, Supercomm has closed its doors and Interop has become more and more software-centric. So both OEMs and service providers are looking for a trade show of value and they may have found it in OFC/NFOEC.

Notable communications equipment OFC/NFOEC exhibitors this year were ADVA, Ciena, Cisco, Fujitsu, Hitachi, Huawei, Infinera, Juniper, Mellanox Technolgies, Nokia Siemens Networks and Optelian. Many others gave speeches including Alcatel-Lucent, ADVA, Brocade, Ciena, Cisco, Cray, Force10 Networks, Fujitsu, Hewlett Packard, IBM, Infinera, Juniper, Nokia Siemens Networks and SunLabs/Oracle. Service providers participated by way of technical and business presentations as well – among them were AT&T, Deutsche Telecom, NTT and Verizon.

End users of networking equipment even showed up – NYSE Euronext, USA provided the plenary speaker for the Service Provider Summit and Facebook and Google again told us how much more bandwidth they need – Terabit Ethernet. There was an entire afternoon dedicated to large data center business issues at The Optical Business Forum, which included speakers from Abovenet, Allied Fiber, CENX, Equinix, Juniper, PacketExchange, Verizon, XO Communications Zayo Bandwidth and Zayo Networks.

So this seems to be a transition year for OFC/NFOEC where it has started to include more practical programming to expand its audience into data communications, data centers and up the value chain with equipment manufacturers and service providers. It appears to be working too, because the attendance was up by all accounts.

I’ll review some exciting new developments by systems and components suppliers in future posts.

Ethernet Technology Summit and OFC/NFOEC Events

2011-02-22T20:43:00.001-05:00

By Lisa Huff

The next few weeks I’ll be very busy. First I’ll be chairing Session 105 (Ethernet Chipsets/Components) at the Ethernet Technology Summit. While most of the conference is about R&D projects, I’ve chosen to focus my short presentation on current opportunities for components suppliers.

In March, I’ll be heading to OFC/NFOEC 2011. There I have three different sessions I’m involved in. My short course on “Data Center Cabling – Transitioning from Copper to Fiber” will be held Monday morning. A short excerpt of this short course can be accessed through an archived Webinar I did recently. Monday afternoon I’ll be participating in the Computercom Symposium by presenting “The State of the Short-Reach Optics Market.” On Tuesday, the kick-off of the Optical Business Forum (see previous post for details) will take place and I’ll be moderating the Carrier Ethernet Exchanges session.

Come see us in Santa Clara this week or Los Angeles the week of March 7^th.

The Optical Business Forum

2011-02-17T22:59:00.003-05:00

By Lisa Huff

I've got a number of events coming up, including the short course on data center cabling I'll be teaching at OFC/NFOEC. Also wanted to let you know about The Optical Business Forum I've been working on for OFC, which will incorporate many of the data center technologies I've written about here.

This year's Optical Business Forum will be the first in what we’re hoping will be a yearly affair covering the most important topics in the area of optical transport for business communications. This year’s summit will be held right on the exhibit floor and consists of a keynote address on High-Bandwidth Ethernet Services by Rajiv Datta, Senior Vice President and Chief Technology Officer of AboveNet Inc. Following the keynote are three focused sessions:

Who is Buying Optical Bandwidth Services?
The Economics & Business Case for Connecting Data Centers
Carrier Ethernet Exchanges

The program includes speakers from AboveNet, Allied Fiber, CENX, Equinix, Juniper Networks, Packet Exchange, Telx Ethernet Exchange, Verizon Digital Media Services, XO Communications, Zayo Fiber Solutions and zColo. Moderators include Craig Clausen from NPRG, Michael Howard from Infonetics and myself.

Join us at OFC/NFOEC and hear what you’re customers’ customers are saying.

Optical Interconnection Players Strengthening Their Businesses

2011-01-12T23:34:00.000-05:00

By Lisa Huff

Molex just purchased Luxtera’s AOC business completing the circle that all the other optical interconnect players started. During the telecom bust in the early 2000’s, Amphenol, FCI, Molex and Tyco Electronics all either de-emphasized their optical interconnect businesses or exited them all together. Now, they have all re-entered. Why?

While they are all working on more high-speed copper solutions like the one Tyco showed for 25G and beyond at SC10, I beleive they also see the writing on the wall. While they won’t admit it, I think they know that beyond 100G copper cable interconnects may have FINALLY reached the end of their useful life. At 40G and 100G, for example, there is still no twisted-pair solution and the direct-attach copper can only reach about 7m reliably.

It has been interesting watching the choices these traditional connector companies have made:

Amphenol: It never exited the optical interconnect business, but left the transceiver products to Avago, Finisar, JDSU and others until recently. It has a stronghold on the short-reach copper direct-attach market so has inroads at customers for its AOCs and modules.
FCI: Exited the optics business entirely for a few years but then started again from scratch and subsequently purchased MergeOptics in February 2010. MergeOptics is what was left of Infineon Technologies and still has strong technical abilities in short-reach products. It also has the building blocks to provide all-optical interconnects all the way from the chip (see my previous posts on MergeOptics). They can provide both AOCs and transceiver modules so have the ability to cover all high-speed markets in InfiniBand, Ethernet and Fibre Channel.
Molex: Purchased Luxtera’s AOC business recently. So while FCI and Tyco are stressing short-wavelength technologies, Molex has turned to custom long-wavelength ones. Luxtera’s technology is based on 1490nm devices, which really doesn’t matter if you’re purchasing an AOC, but will matter if you want transceiver modules. According to company representatives, they will eventually get back into supplying transceiver modules, but there has been no evidence of this as of yet. Perhaps the possession of Luxtera AOCs will prompt this.
Tyco Electronics: Tyco exited the transceiver business in the early 2000’s, but still had a very active fiber-optic interconnect business – especially for premise wiring (AMP NETCONNECT). It acquired Zarlink Semiconductor’s optical products group in May 2010. Zarlink is on the forefront of parallel-optics technology and was one of the first to introduce AOCs. It does not appear that Tyco intends to supply optical transceiver modules again.

I would never bet against copper re-inventing itself in order to meet the demands of future high-speed networks, but with optical 10G dominating the market currently and 40/100G optical products starting to emerge, it will be an uphill battle for copper solutions to gain traction. And beyond 100G, all bets are off. I’m thinking that these companies are reaching the same conclusions and that if they don’t add optical capabilities soon, they may render themselves obsolete within the next ten years or so. That's not to say that there won't be a vibrant businesses in both copper structured cabling and interconnects over the next ten years - there will be. But I think that R&D dollars will be better spent on optical interconnect technologies rather than trying to figure out how to run 25G signals using copper interconnects (including backplanes.) Or how to convince end-user customers in the US that a shielded structured cabling solution for 40G is better than a short-reach optical one because it will be cheaper - but at what cost to power, cooling and space?

What do you think? I'd love to hear your thoughts.

Old Data Centers Never Die

2011-01-07T09:26:00.001-05:00

From ZDNet:

>>>Given the nature of JetBlue’s operations there, this datacenter facility had to be fully redundant on all levels, so there had been a considerable investment in the infrastructure of the facility to allow for 24/7 operations with high availability. But what do you do with this kind of facility when you no longer need it (which is not the same question as deciding if the facility has reached its end of life).

Enter Webair, a NY -based hosting provider that was looking to expand their operations. Today, less than 16 months after JetBlue made the decision to move out, Webair announced that they have opened up the facility as their new flagship datacenter and executive headquarters, basing their Network Operations Center in the new (to them) facility which they have dubbed “NY1″.

Returns on Capital Expenditures vs. Capex Reductions

2011-01-04T22:17:00.002-05:00

By David Gross

Just about every IT, networking, power, and cooling vendor serving this industry promises to both "reduce capex and opex". But these goals are often meaningless, especially in the case of capital budgets, which often require board approval, and are set for the year. Moreover, the number one objective of a capital investment is to get the highest possible return, as measured by IRR, not to spend less than you did during the last upgrade cycle. And in the case of opex, it's very easy, and very common, for salespeople to make spreadsheets showing big opex reductions that are not always achievable in practice, especially when most data centers are already very capital-intensive and highly automated.

Far more attention getting than droning on about opex, capex, ROI, and TCO like the herd, is to focus on more specific financial metrics that your product can improve upon. IRR and NPV are good places to start. Because most sales presentations confuse payback period with ROI, have no time value of money, and do a poor job showing tradeoffs, they have limited credibility. IRR, which in my experience is known by some, but not all sales and marketing people, is the most important metric for any capital investment. While it might take some education to explain what it represents to some buyers, if all the community college students taking introductory finance courses can learn it, I'm sure the CIO you're selling to can as well.

CoreSite Hires New CFO, Stock Falls 4.85%

2011-01-04T20:26:00.001-05:00

By David Gross

CoreSite announced this morning that Jeff Finnin, Chief Accounting Officer at industrial real estate firm ProLogis, is taking over as CFO, replacing Deedee Beckman. The stock took a hit today, and its aftermarket performance hasn't been great. It could be perceived as a little strange for the company to be changing CFOs a couple months after the IPO. That said, Finnin has a very similar to background to the woman he's replacing - they're both traditional accountants, not bankers or fund raisers - and Beckman also came to CoreSite from ProLogis.

Beckman will remain on the job another two weeks, with Finnin taking over on the 24th. This seems to be a fairly cordial turnover, and the replacement's prior experience is remarkably similar to his predecessor's. I find little reason here for investors to have had such a sharp reaction.

Data Center Stocks Drop 4.35% in the 4th Quarter

2011-01-03T14:55:00.001-05:00

By David Gross

Data Center Stocks fell just over 4% in the 4th quarter, with our DataCenterStocks.com Services Index falling from 100.0 to 95.35. However, it was all because of the Equinix warning in early October.    The index fell to 88.95 at the opening bell October 6th, and rose 7.53% for the rest of the quarter.

The REITs had a weak quarter, with DuPont Fabros, Digital Realty, and CoreSite all dropping between 15% and 17%.   Some of this is attributable to rising Treasury yields, which reduced the spread between risk-free government bonds, and data center REIT dividend yields. 30 year Treasury yields rose from 3.7% to 4.36% during the quarter, and when this happens, dividend investors often demand higher returns due to the added risk of a REIT over a Treasury Bond.   Interestingly, the leading apartment and office REITs did not take much of a hit during the quarter. However, the big difference between those stocks and the data center REITs is that the data centers were raising rents during the recession, while the apartments and offices were not.   Now the apartment and office owners, including Avalon Bay and Boston Properties, are benefiting from expectations that their pricing power will improve.

Managed services and hybrid managed-colo providers had a good quarter, with Terremark advancing 25%, and leading all stocks in our index.   Rackspace and Savvis were also up over 20%.    Internap also had a strong quarter, rising 24%, while no one else with a CDN presence had a particularly good quarter. Akamai and Limelight were down, and Level 3 bobbed up and down with all the Netflix news, but finished in the delisting zone at 98 cents a share.

		DataCenterStocks.com Services Index
Company	Ticker	Mkt Cap	Dec 31 Close	Oct 1 Open	Quarterly Chg
Equinix	EQIX	$3,704,643,400	81.26	102.35	-20.61%
Digital Realty	DLR	$4,499,442,000	51.54	61.70	-16.47%
DuPont Fabros	DFT	$1,259,822,100	21.27	25.15	-15.43%
Rackspace	RAX	$3,925,307,700	31.41	25.98	20.90%
Savvis	SVVS	$1,409,724,800	25.52	21.08	21.06%
Level 3	LVLT	$1,626,800,000	0.98	0.94	4.59%
Akamai	AKAM	$8,544,750,500	47.05	50.18	-6.24%
Navisite	NAVI	$139,792,800	3.71	3.34	11.08%
Terremark	TMRK	$850,944,500	12.95	10.34	25.24%
Limelight	LLNW	$571,471,600	5.81	5.89	-1.36%
AboveNet	ABVT	$1,471,438,200	58.46	52.09	12.23%
CoreSite	COR	$233,380,400	13.64	16.39	-16.78%
Internap	INAP	$315,612,800	6.08	4.90	24.08%
Total		$28,553,130,800

Index Value October 1		100.00
Index Value December 31		95.65

Zacks Upgrades Equinix to "Outperform"

2010-12-30T15:10:00.001-05:00

By David Gross

I'd rather read the Internal Revenue Code than a typical sell-side research note. At least the I.R.S. is specific, and doesn't create buzzwords and catchphrases like "first mover", "secular growth", and "low hanging fruit".   And even though we've had a series of tax reforms through the years, no one's ever referred to a "next generation" tax code .   Also, when it tells you to do something, the tax collection agency is far better at telling you what to do next than an investment research firm. "You owe us" leaves far less doubt about where to send your money than the analyst note informing you that a stock is a "near-term accumulate".

In the tradition of vague analyst-speak, Zacks recently announced it had upgraded Equinix from neutral to outperform.   Its reasoning - the company beat consensus revenue by 0.4%, issued encouraging guidance, and is still expanding.   No wait, that's not quite right. It was "continuous efforts to expand the current facilities".   Not sure how to interpret this.    I mean, I've been to the Ashburn campus in the last few days and any effort - continuous or not - to expand DC2 will push them through the pine trees and into DFT's ACC4 building.

The note then goes through Equinix's financial ratios, remarks how it's well-positioned or something, but I can't tell you what it said after that because I received an e-mail about a Nigerian prince leaving me the sum of exactly $1,307,465.27, which was a lot more interesting. And specific!

Equinix is up, or in Wall Street language "moving in positive territory" by 57 cents this afternoon, on very light volume of 400,000 shares.

Microsoft Gets Final Approval for West Des Moines Data Center

2010-12-29T12:55:00.000-05:00

By David Gross

This summer, Microsoft announced that it was resuming construction on the Iowa data center it had postponed completing during the recession. Now The Des Moines Register is reporting that Microsoft has received final approval for the West Des Moines data center, and that the company is obligated to complete construction on the facility by December 2012.

The City of West Des Moines is kicking in $8 million worth of roads and water main extensions to serve the facility, which will be financed through bonds secured by the site's property taxes. The project will cost $200 million to complete, which suggests this will only be phase 1, or a scaled down version of the initially proposed 500,000 square foot site.

The data center has been a high profile economic development project for the State of Iowa, which also hosts a Google facility two hours west in Council Bluffs.

PAETEC Opens 5th Data Center in Milwaukee

2010-12-27T11:02:00.000-05:00

By David Gross

With the Cincinnati Bell-Cyrus One and Windstream-Hosted Solutions deals of the past year, we've seen growing interest in the data center market among independent telcos. But many CLECs aren't just providing connectivity into facilities, they're expanding their own regional data center offerings. Paetec, which at $1.5 billion in annual revenue is one of the larger remaining CLECs, recently announced it had opened its 5th data center, a 92,000 square foot project in Milwaukee.

The new facility is Paetec's first in the Midwest, and is targeted at businesses throughout the region, from Chicago to St. Louis to Minneapolis. The company's existing buildings are in Pennsylvania, Massachusetts, and Texas, and is plans to expand to Arizona next year.

XO Connects with Baltimore Technology Park

2010-12-27T10:49:00.000-05:00

By David Gross

XO announced last week that it is providing connectivity to Baltimore Technology Park, a carrier-neutral co-lo facility located in that city's downtown. BTP, and its sister site, the Philadelphia Technology Park, offer regional versions of what providers like Equinix and CoreSite offer in the big data center markets, allowing local businesses to cross-connect and colocate without having to reach Northern New Jersey or Northern Virginia. By bringing in XO and the same selection of carriers available at an Equinix site, albeit without the massive peering exchange, these data centers offer regional Fortune 500 businesses, hospitals, universities, and other local businesses a comparable service to what financial traders and major websites get at Equinix sites in the larger markets.

In September, Lisa and I visited the Philadelphia Technology Park, which is located within the Philadelphia Navy Yard. More information on that site, as well as the one in Baltimore, is available at http://www.philadelphiatechnologypark.com/ and http://www.baltimoretechnologypark.com.

Everything Saves Energy Costs

2010-12-22T16:48:00.000-05:00

By David Gross

It's always amusing to see what techniques are used to sell products in this industry. For many years, the made up "TCO" metric, developed in sales and marketing, not finance, has made its way into all kinds of places. The term "ROI" has also been used and abused, with very little mention of the metric that really matters to any capital expenditure, which is IRR. When technology, sales, and financial measurement have met, the results haven't been pretty.

The latest financial tag being attached to products is saving energy costs. And I'm not just talking about new CRACs (Computer Room A/C), UPS systems, or PDUs, but cabling, networks, really anything that is physically near a data center, can be sold as a device to cut your energy bill. As I pointed out a few weeks ago, there are some tremendously energy efficient network products which make little sense to deploy unless you want to re-design your network. A Voltaire 4036 InfiniBand switch, for example, has a nameplate capacity of .18 Watts per Gbps, less than a tenth of a typical Ethernet switch. Only problem is that deploying an InfiniBand cluster doesn't make financial or operational sense for many data centers.

Now my favorite recent example is from a recent Processor article, where a Cisco exec claims you should deploy Fibre Channel-over-Ethernet because it reduces energy costs 30%.   Yes, deploy a network that's likely to degrade performance of your SAN and LAN, and increase the capital costs of both by forcing you to buy expensive switches and CNAs (Converged Network Adapters).   This made me laugh because this was EXACTLY the argument used for the failed "God Boxes" of the early 2000s.   Buy one big monster instead of multiple smaller devices, and save power because it's one piece of hardware, not seven or eight.   The capital returns on doing this were atrocious, and the market performance of those products reflected this.   Moreover, the power savings are theoretical, not based on operating networks.

It's no secret that energy efficiency is important to any data center. But like anything else, it's a trade-off.   You can have high response times, a 100 Meg network, and lightly loaded racks and use very little energy.

The Processor article goes on to say that locating your data center at a renewable power source is a great way to reduce your carbon footprint.   This comes from a RackForce Networks exec.   Economically, this also cuts your variable power cost down to almost zero, especially with wind power, which has remarkably low O&M costs. However, this does not mean everyone will follow Google, Microsoft, Yahoo, and Verizon to Lake Erie or the Columbia River Valley. The trade-off is that you also have to put more capital into fiber and network than you do in Santa Clara or Ashburn. Not to mention the building itself. For this reason, it makes little sense to talk about energy savings generically, but rather to determine how the trade-offs change when you go from Equinix or DLR to your own building, and vice versa.

The 10X10 MSA: Niche, Distraction or the Right Answer? (Continued)

2010-12-22T14:34:00.000-05:00

By Lisa Huff

While Vipul has a point that this new MSA is probably a distraction, it is difficult to deny that there is a market for cost-effective devices with optical reaches between 100m and 10km. In fact, 100m to 300m is the market that multi-mode fiber has served so well for the last 20 years. And, 300m to 2km has been a niche for lower-cost 1310nm single mode products like 1000BASE-LX. So I have a slightly different opinion about this 10x10 MSA and whether it’s a niche, distraction or the right answer.

In a recent article written on Optical Reflection, Pauline Rigby quotes Google’s senior network architect, Bikash Koley. About 100GBASE-SR10, he says 100m isn’t long enough for Google – that it won’t even cover room-to-room connections and that “ribbon fibres are hard to deploy, hard to manage, hard to terminate and hard to connect. We don’t like them.” There is an answer for this ribbon-fiber problem – don’t use it. There are many optical fiber manufacturers that now provide round multi-fiber cables that are only “ribbonized” at the ends for use with the 12-position MPO connector and are much easier to install – Berk-Tek, A Nexans Company, AFL and even Corning have released products that address this concern. But, the 100m optical reach is another matter.

I have to agree with Google about one other thing – 4x25G QSFP+ solutions are at least four years away from reality (and I would say probably even longer). This solution will eventually have the low-cost, low-power and high-density Google requires, but not quick enough. I think something needs to be done to address Google’s and others requirements between 300m and 2km in the short term, but I also believe that it needs to be standardized. There is no IEEE variant that would currently cover a 10x10G single mode device. However, there is an effort currently going on in the IEEE for 40G over SMF up to 2km. Perhaps the members of the MSA should look to work with this group to expand its work or start a new related project to cover 100G for 2km as well? I know this was thrown out of the IEEE before, but so were 1000BASE-T and 10GBASE-T initially.

So what I'm saying is that the market is more than a niche - hundreds of millions of dollars of LOMF sales at 1G and 10G would attest to that. And it's more than a distraction because there is a need. But I don't think it's entirely the right answer without an IEEE variant to back it up.

Let us know what you think.

CoreSite Declares Dividend, Yield Just Under 4%

2010-12-21T16:29:00.000-05:00

by David Gross

CoreSite declared a dividend of 13 cents this week, giving the company an annualized yield just under 4% based on today's closing price of $13.60. The stock has risen nearly ten percent since yesterday morning when the dividend was announced. Nonetheless, it remains below the $16 level at which it IPO'd a couple months ago.

Overall, the last few weeks have been rough for data center REITs. In addition to CoreSite struggling to get back to its IPO price, Digital Realty is down over 4% over the last month, and DuPont Fabros is down over 7%. DLR's yield is up to 4.33% as a result of its weak performance during autumn. It began the season over $61, and is down to $48.94 as we head into winter.

The 10X10 MSA: Niche, Distraction or the Right Answer?

2010-12-21T15:04:00.001-05:00

By Vipul Bhatt, Guest Blogger

{For today’s blog, our guest author is Vipul Bhatt. Lisa has known Vipul for several years, since when he was the Director of High Speed Optical Subsystems at Finisar. He has served as the Chair of Optical PMD Subgroup of IEEE 802.3ah Ethernet in the First Mile (EFM), and the Chair of Equalization Ad Hoc of IEEE 802.3ae 10G Ethernet. He can be reached at vjb@SignalOptics.com.}

If you are interested in guest blogging here, please contact us at mail at datacenterstocks.com

Last week, Google, JDSU, Brocade and Santur Corp announced the 10X10 Multi-Source Agreement (MSA) to establish sources of 100G transceivers. It will have 10 optical lanes of 10G each. Their focus is on using single mode fiber to achieve a link length of up to 2 km. The key idea is that a transceiver based on 10 lanes of 10G will have lower power consumption and cost because it doesn’t need the 10:4 gearbox and 25G components. But is this a good idea? What is the tradeoff? Based on my conversations with colleagues in the industry, it seems there are three different opinions emerging about how this will play out. I will label them as niche, distraction, or the right answer. Here is a paraphrasing of those three opinions.

It’s a niche: It’s a solution optimized for giant data centers – we’re talking about a minority of data centers (a) that are [already] rich in single mode fiber, (b) where the 100-meter reach of multi-mode 100GBASE-SR10 is inadequate, and (c) where the need for enormous bandwidth is so urgent that the density of 10G ports is not enough, and 100G ports can be consumed in respectable quantities in 2011.

It’s a distraction: Why create another MSA that is less comprehensive in scope than CFP, when the CFP has sufficient support and momentum already? Ethernet addresses various needs – large campuses, metro links, etc. – with specifications like the LR4 that need to support link lengths of well beyond 2 km over one pair of fiber. We [do] need an MSA that implements LR4, and the SR10 meets the needs of a vast majority of data centers, so why not go with CFP that can implement both LR4 and SR10? As for reducing power consumption and cost, the CFP folks are already working on it. And it’s not like we don’t have time – the 10G volume curve hasn’t peaked yet, and may not even peak in 2011. Question: What is the surest way to slow down the decisions of Ethernet switch vendors? Answer: Have one MSA too many.

It’s the right answer: What is the point of having a standard if we can’t implement it for two years? The CFP just isn’t at the right price-performance point today. The 10X10 MSA can be the “here and now” solution because it will be built with 10G components that have already traversed the experience curve. It can be built with power, density and cost figures that will excite the switch vendors, which may accelerate the adoption of 100G Ethernet, not distract it. As for 1-pair vs. 10-pairs of fiber, the first swelling of 100G demand will be in data centers where it’s easier to lay more fiber, if there isn’t plenty installed already. The 2-km length is sufficient to serve small campuses and large urban buildings as well.

Okay, so what do I think? I think the distraction argument is the most persuasive. An implementation that is neither SR10-compliant nor LR4-compliant is going to have a tough time winning the commitment of Ethernet switch vendors, even if it’s cheaper and cooler than the CFP in the short term.

Google Moving Out, Small Businesses Moving In

2010-12-17T00:01:00.000-05:00

By David Gross

David Chernicoff over at ZDNet has a good article out on data center planning, where he notes that many of the small to mid-size businesses he's spoken to are planning to outsource some of their operations.   This is similar to the experience Lisa and I have had talking to data center managers who run internal centers, and are hitting capacity limits.   It also is an important point for investors to consider, many of whom are still fretting about the data center services industry with Google, Facebook, and other brand name tenants investing so heavily in their own buildings.

One of the factors to consider with this developing market segment is that these small businesses are not going to be buying a powered base building sort of service, nor are they likely to hit up Equinix for a few cabinets. More realistically, they'll go to IBM, Horizon Data Centers, a hosting provider, or even someone like Rackspace, and start handing over applications slowly.   Additionally, connectivity is a major concern once these small businesses move beyond simple e-mail outsourcing, and a data center that has dedicated links to other facilities closer to the customer will allow that customer to cross-connect closer to the office, and avoid high dedicated circuit costs from a telco.

Economically, an internal data center for Google, Apple, or Facebook produces a financial return by turning an operating cost for a building lease into a capital cost, while an outsourcing arrangement for a small business turns a capital cost for servers into an operating cost.   As a result, the heaviest users are hitting a point where outsourcing makes less sense, while the lightest users are hitting a point where outsourcing makes more sense.   The result is that the public data center of the future will have a tenant roster that looks less like what you might find in an office building in Santa Clara, and more like what you'd see in a typical suburban office park.

AboveNet Expanding Services at Data Centers

2010-12-16T20:45:00.001-05:00

By David Gross

For years, facility-based CLECs have struggled to fill many of the optical links they've run to corporate office buildings. With 5-10 tenants in some locations, it can be a struggle for a provider to generate enough revenue to get a good return on the capital invested in the fiber lateral that hits the building. The data center has provided a great opportunity to overcome this challenge by offering so many corporate customers in one physical location. And few providers have seized this opportunity as well as AboveNet has. This is one factor behind the company's 16% net margins - actual profit, not EBITDA. This is the highest I've ever seen for a bandwidth provider.

Earlier this week, AboveNet announced a new sales initiative to provide optical connectivity services at over 400 data centers across the country. Its footprint follows many of the major public data center markets, including DC, New York, and Silicon Valley. A more detailed map of the company's data center POPs is available here.

DAC Report

2010-12-15T18:59:00.000-05:00

By David Gross

We're happy to announce that our latest report, Direct Attach Copper Cable Assemblies for 10, 40, and 100 Gigabit Networks, is now available. We've posted a table of contents on the "DAC Report" page if you are interested in learning more.