Equinix, Inc. (EQIX Quick QuoteEQIX - Free Report) has provided an update on its $3-billion xScale data-center program, which includes facilities that are either open or currently under development in Brazil, Europe and Japan.

Notably, the robust growth of the digital economy has resulted in a spike in demand for global connectivity and hybrid multi-cloud solutions. In fact, leveraging on Equinix’s global platform of more than 220 data centers, prominent cloud service providers like Alibaba Cloud, Amazon Web Services, Google Cloud, IBM Cloud, Microsoft Azure and Oracle Cloud Infrastructure, have partnered with the company to establish direct connections to their strategic business partners and customers.

Hence, the planned global expansion of the company’s footprint is a strategic fit. It will cater to the growing demands of hyperscale companies that are deploying infrastructure at Equinix’s facilities and will also enhance Equinix's dynamic ecosystem by connecting such strategic providers with its 10,000 customers.

EMEA xScale Joint Venture Details

In efforts to develop and operate xScale data centers in the Europe, Middle East and Africa (EMEA) region, the company entered into a $1-billion initial joint venture (“JV”) with GIC, Singapore's sovereign wealth fund. Through this JV, the company aimed to offer 106 megawatts of capacity across six xScale facilities. These sites include two each in Paris, London and Frankfurt.

The PA8x opened in Paris in first-quarter 2019 while PA9x was unveiled this February. PA9x is fully leased by a single hyperscale tenant, and will offer more than 29,600 square feet of co-location space. It will support 10 megawatts of power at completion.

In London, LD13x was opened in fourth-quarter 2019 and LD11x was unveiled this February. Meanwhile, the company’s xScale data centers in Frankfurt FR9x and FR11x are anticipated to open in fourth-quarter 2021 and second-quarter 2022, respectively.

Asia-Pacific xScale JV Details

Markedly, following the success of this JV, the company completed a similar greater-than-$1-billion JV with GIC in fourth-quarter 2020 for operations in the Asia Pacific region. This collaboration was announced in April 2020.

The entities have collaborated to develop and operate three xScale data centers in Japan that will offer a total of 138 megawatts of power to hyperscale customers. This includes a recently-opened and a planned future xScale data centerin Tokyo, as well as a facility currently under development in Osaka. 

Specifically, on Mar 1, Equinix unveiled its first xScale data center in Tokyo, named TY12x. The first phase opening was successful with the facility securing an anchor tenant for full capacity in the initial phase and a notable portion of phase-two capacity. On completion of all phases, it will provide more than 186,000 square feet of co-location space and support 54 megawatts of power.

This apart, the OS2x xScale data center in Osaka is anticipated to open in fourth-quarter 2021. 

Latin America xScale Facility Details

Also launching its xScale data-center footprint in Latin America, Equinix plans to open an xScale facility in São Paulo, Brazil during third-quarter 2021. SP5x is in close proximity to the company’s SP4 IBX data center and will support five megawatts of power in the first phase.

Our Take

Markedly, Equinix owns 20% of the Europe and Japan JVs, and receives fees for managing and operating these facilities. Hence, the recent openings of data centers in Tokyo, Paris and London will likely boost joint-venture fees for Equinix in the upcoming periods.

Also, the xScale joint-venture approach is a strategic fit to pursue hyperscale deployments in desired markets and will provide incremental cash flows while limiting strain on the company’s balance sheet.

Since this structure reduces capital required and enhances returns, more capital is available for expansion of the company’s retail business. In fact, this data-center provider has been adding new products and services to help enterprises re-architect networks, and to support their digital transformations.

While investments in business and new products, and enhancement of its go-to-market footprint are likely to propel long-term growth, the same is expected to hinder margin growth in the near term.

Equinix currently carries a Zacks Rank #3 (Hold). In the past year, the company’s shares have gained 11.8% compared with the real estate market’s growth of 1.2%.

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