On Wednesday after the market closes, datacenter provider Equinix (EQIX) will report earnings and once again will give us an initial look at the rest of the sector. If you recall, last quarter Equinix had one of the strongest quarters in the internet infrastructure sector, beating estimates handily and increasing its 2008 guidance. Indeed, the colocation space has been on a tear all year, with most participants being well funded and engaging in massive buildouts to meet a raging wildfire of demand.
But the game has changed for everyone about a month ago with the implosion of the credit markets, and the effect on this sector remains unclear. Here is Equinix's guidance within the context of the rest of the year:
Frankly, given the advance sales of newly opened space and the healthy demand thus far, Equinix's revenue and EBITDA guidance seems entirely reasonable. While I doubt they will raise their targets yet again, I don't see a reduction as that likely either. Their gross margin is unlikely to vary much since there is no indication of pricing pressure in the sector. Their earnings per share are still small enough in magnitude that they can be impacted heavily by currency fluctuations, and I don't pretend to have a clue what those numbers will be this quarter nor does the company give guidance.
However, those capex numbers are huge and are what may have to change. After all, if the credit markets remain this tight, they can't possibly keep spending at such a level. Of course, their ongoing capex needs are much smaller, on the order of 10% of revenue. All the rest represents their vast expansion plans, and it is those that will require further funding or else be reduced in scope. The company likely has enough cash to handle its current expansion plans, but it will be interesting to hear what they have to say about what happens next. If I had to guess though, I'd say they'll express caution just like everyone else probably will. After all if their customers slow down their own buildouts to save cash, then their current expansion plans may not need an immediate followup.
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