While most industries were negatively affected by the recession, the data storage sector actually benefited from slashed budgets, as many companies began to outsource their data storage needs during the downturn in an effort to cut costs.
“[Customers] are outsourcing more because of the difficulty and the expense of putting up their own data centers. That has driven more and more business to the colocation and managed services providers,” said Mark Kelleher, a managing director and senior analyst at Brigantine Advisors. “You had this downturn and people kind of reached out for this model and explored it, and I think people are getting comfortable with it.”
Kelleher cites the U.S. government as just one of the many the organizations that began to reach out to companies like Terremark (TMRK) and Equinix (EQIX) for their data storage needs.
“The government is getting into the outsourcing business. They don’t want to be doing their own data centers anymore. It’s just too costly to do it,” Kelleher said. “You’ve got to put the protection up, so let other people do it; let other people worry about securing it and protecting it, and making sure it doesn’t get hit by an earthquake, and making sure the power doesn’t fail.”
As a result, many of the data storage companies within Kelleher’s coverage universe have grown extremely strong in the post-market meltdown, rolling over debt and growing off of their internal cash flows to build back stock prices.
“Now these companies are carrying fairly good balance sheets and they need that because they have to keep constructing, they have to keep building,” he said. “The demand is so strong.”
Report Overview: Data hosting centers and data storage
September 15, 2016
Interview Highlights: Hendi Susanto of Gabelli & Company on Data Hosting Centers and Data Storage
September 19, 2016
Interview Highlights: David B. Rodgers of Robert W. Baird & Co. on Data Hosting Centers and Data Storage
September 20, 2016
Interview Highlights: Ryan Hutchinson of Guggenheim Securities on Data Hosting Centers and Data Storage
September 20, 2016
Interview Highlights: Erik Suppiger of JMP Securities on Data Hosting Centers and Data Storage
September 21, 2016
