Equinix makes $1.2 billion Net hub push
Internet firm Equinix announces a $1.2 billion contract with construction firm Bechtel to build a worldwide series of Internet hubs and hosting centers.
Equinix is one of a group of firms that aims to eliminate Internet congestion with new technology. The contract will give the company momentum in its goal to change the way the Internet's various networks connect, analysts said.
The deal is also good news for Bechtel, which is capturing an increasing share of the Internet's financial boom itself. The construction company won another $1 billion contract from online grocer Webvan in July to build a nationwide series of automated grocery warehouses.
The investment will help establish Equinix's name and credibility around the world, company executives said.
"It's really key for us to open facilities with all the same look and feel and quality of service," said Al Avery, Equinix's CEO. "When customers walk into one of these [data exchanges] in the U.S., they're going to want to see the same thing in Hong Kong and everywhere else."
The idea is still relatively new, but has attracted enough attention from the likes of Microsoft and Cisco Systems to win the company more than $12 million in an initial round of funding. Another round of cash is on its way, but the company has not said how much or who is contributing this time around.
Even if the second round of funding is considerably larger than the first, there will still be a big gap between the company's cash on hand and the $1.2 billion needed to pay Bechtel for its network services. The company plans to finance the deal through debt, a spokeswoman said.
That's a large overhang of red ink for a start-up--but it's what the company needed to do to establish itself as a solid player in the communications market, analysts said.
"It's a real estate play," said Probe Research telecommunications analyst Hilary Mine. "You've got to pay to play. But I think they'll have the demand to fill the space."
Others agreed. "It's the sumo syndrome," said John Coons, analyst with market researcher Dataquest. "The bigger they get early on, the harder they're going to be to throw out of the ring. I wouldn't worry about them having the business to pay back the debt."
Equinix has opened one exchange facility near Washington, with another in New Jersey slated to open in a few weeks. A third in the Silicon Valley area will open early next year, with the rest of the 30 centers being built and deployed over the next three years, Avery said.