Colocation giants shrug off inflation as demand surges

At least some of you realize not every server has to go into AWS, Azure or GCP

Colocation giants Equinix, Digital Realty, and Iron Mountain shrugged off ongoing supply-chain shortages, soaring energy prices, and the looming threat of inflation, boasting instead robust demand and record revenues.

“There are a number of macroeconomic facts that we continue to proactively manage, including rising interest rates, inflation, and geopolitical conflict,” Equinix CEO Charles Meyers said on the company’s Q1 2022 earnings call, according to a Seeking Alpha transcript.

Among the issues executives from all three companies touched on during their respective earnings was the effect rising inflation and, by extension, interest rates may have on the colocation providers’ bottom line.

“We have no meaningful near-term exposure to rising interest rates,” CFO Keith Taylor added on the Equinix conference call last week. “We continue to deliver projects against our return expectations with limited delays given our ability to access and secure critical infrastructure components.”

Iron Mountain CFO Barry Hytinen was similarly unfazed by rising inflation, casting it as a net positive for his company during its Q1 2022 earnings call.

“Inflation is really hurting all of us in many different ways,” he said, according to a transcript. “For the business, it’s actually a net positive because we’re able to price ahead of inflation, and we have a high-gross-margin business, so it naturally expands the margins of the business.”

Hytinen's positive attitude in the face of rising inflation can likely be attributed to Iron Mountain’s acquisition of IT Renew, an outfit specializing in datacenter lifecycle management, Dell’Oro analyst Lucas Beran told The Register.

“Even though we see the COVID situation improving in the West, delays from the past two years have created a large backlog of projects with a limited labor pool to execute on,” he said.

IT Renew provides Iron Mountain with a steady supply of components from hyperscale datacenters, Beran explained. As a result, the company isn’t “subject to the same level of supply chain challenges” as other providers and may insulate it from rising inflation.

Executives at Digital Realty also acknowledged the challenges associated with rising interest rates on their Q1 2022 earnings call last week.

It’s becoming harder to be a colocation provider, CFO Andy Power said, according to a transcript. “You have the inflationary pressures; you have supply chain challenges; you have labor challenges; and you even have moratoriums in certain parts of the world.”

Equinix, Digital Realty, Iron Mountain expand datacenter footprint

These macroeconomic hurdles come amid better-than-expected Q1 revenues for the colocation providers. Equinix ended the first quarter of 2022 with revenues of $1.7 billion, up six percent year-on-year, and $147 million of net income. Iron Mountain netted $42 million of income on $1.25 billion in revenues, up 16 percent and said to be a record quarterly total for the biz. And Digital Realty posted revenues of $1.1 billion, up four percent, on $76.9 million in net income; it said its quarter marked a record in terms of bookings.

For Iron Mountain, this growth is fueled by higher demand for datacenter capacity. The company now expects to lease an additional 130 megawatts of datacenter infrastructure in 2022, up from its initial guidance of 50 megawatts.

This is a substantial increase from previous years — Iron Mountain leased about 49 megawatts of new and expanded capacity in 2021, according to Hytinen — and indicative of the exponential growth the company is going through. By the end of Q1, the company claims it leased an additional 35 megawatts. This includes a single tenant, which leased 27 megawatts of infrastructure from the company’s London-2 location.

And looking down the pipeline, Iron Mountain already has an additional 72 megawatt lease slated to come online at the company’s North Virginia campus in mid-2024.

“We now project full-year data center revenue growth of at least 20 percent year on year, with even higher rates of growth for storage,” Hytinen said.

Digital Realty, by comparison, has 44 projects underway accounting for more than 300 megawatts of additional capacity across 28 metros.

“Fifty-eight percent of this capacity is already pre-sold, reflecting strong customer demand. We’re expanding our development in the Americas, adding further capacity in New York, North Virginia, and Toronto,” Digital Realty CEO Bill Stein said, according to a transcript.

Demand also remains strong in Europe, the Middle East, and Africa, where the company has active projects in 17 of 18 markets, he added. “We are also proactively managing risks to help insulate Digital Realty against the impact of the current inflationary and rising interest rate environment.”

Equinix, meanwhile, plans to spend $2.265 billion to $2.515 billion in capex in 2022 to fuel its datacenter operations and expansion into new markets.

The company currently has “43 projects underway across 29 metros in 20 countries, including new projects in Atlanta, Mumbai, Sydney, Tokyo, and Washington DC,” Meyers boasted, adding that number is only expected to rise following the completion of its MainOne acquisition last month and the planned acquisition of several Chilean data centers from Entel for $705 million next quarter.

The acquisitions will bring the colocation provider’s coverage to more than 69 metros in 30 countries, Meyers added. ®

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