Data Center Pre-Earnings Market Update

Implications: While the US macro economic fundamentals are weakening, the market for data centers remains strong.  Further, the restriction in access to finance is limiting supply growth significantly.  The benefits of this environment will be reaped by the established players.

Analysis: I see few signs of a slowdown in the demand for data center space and ancillary equipment. As the article cites, in the most recent quarter, three of the leading publicly listed data center specialists raised revenue guidance: providers Digital Realty Trust (DLR), Equinix(NMS:EQIX) (EQIX) and Switch and Data (SDXC(NAS:SDXC)).  And these providers are continuing to invest as aggressively as their balance sheets allow.  Related equipment providers like Broadcom(NMS:BRCM) also continue to report sustained revenue growth.  The sector definitely has it's laggards, with Savvis(NAS:SVVS) the easiest target. But the challenges of these companies are complex and not necessarily due to slowing growth.  While it is obvious that the data center market will be influenced by a downturn in the economy, to what extent will that influence be?  There is no reason to expect a cliff or precipitous decline given current evidence or the strong fundamentals of this industry.