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On November 9, Equinix Asia-Pacific announced the opening of the second data center (HK2) in Hong Kong, a US$63 million investment following the launch of HK1 in 2000, a US$45 million investment.

According to Equinix, the company’s data centers across Asia Pacific are currently at 70% utilization, with HK1 reaching its maximum capacity.  

With HK2, Equinix targets to serve three business verticals: banking and financial services, cloud computing service providers and digital media companies -- businesses that host latency-sensitive and mission-critical applications on Equinix’s data centers.

In an interview with Asia Cloud Forum, Equinix Asia-Pacific President Samuel Lee (pictured) explains how the company justified the need to build HK2, and how they justified the US$63m investment in the midst of an unstable economy outlook.

Samuel Lee: We support our investment decision with internal studies such as our quarterly business results. Each quarter, 70% of Equinix’s new bookings come from its installed base -- existing customers that extend their data center footprint locally or overseas. As such, we can well predict the demand for our data center service.

As we do business forecast, our salespeople approach our existing customers and ask what their business plans will be in the next 12 months. We ask questions like “Which countries will you have new projects in?” “What are these new projects?” and “How much [data center] space will you need?” 

We then review the schedule of our sales pipeline and compare that with the fill rate of our HK1 data center [currently reaching its maximum capacity]. By looking into HK1’s fill date, we can predict when HK1 will be sold out, and plan for the launch of HK2 or even HK3 (it takes 12 to 18 months to build a data center).

Lee: Equinix did not only invest US$60m in HK2 -- we invested US$200m in the construction of multiple data centers in Asia last year. In fact, most economic crises in the last 10 years actually helped our business for various reasons.

Many of our customers such as banks used to build their own data centers. After the financial crisis, however, they became short of money and it was no longer justifiable to build their own. So they decided to outsource their data centers to companies like Equinix. Therefore, in bad economies, the demand for our services grew, as companies shift their data center capex to us. 

Equinix doesn’t host non-mission critical applications, such as internal email or IT systems of SMBs. Instead, we focus on hosting latency-sensitive and mission-critical applications, whose platforms run the apps that are critical to their businesses. 

Our customer base comprises the top Internet companies such as Google, Yahoo, Amazon, Facebook, and financial institutions like the Hong Kong Mercantile Exchange. These Global 2000 companies would not stop doing businesses during the financial crisis, nor would they scale down their services. 

Our contracts are signed for a minimum of 12 months. Banks tend to sign up for longer contract terms, usually between five to seven years. Thus, even for a one- to two-year financial crisis, our customers continued to pay us for our data center services. 

Our competitors do not have balance sheets as strong as ours. In our recently published earnings for Q3, we have over US$1 billion in cash worldwide, while we forecast to reach US1.6 billion revenue this year -- all these are strong financial indicators for us.

Many of our competitors don’t have as large a customer base as ours. They might have thought data center was good business and entered the competition. But when the financial crisis hit, the banks stopped lending them money. Or, when they finished building the data center, they found it to be empty without customers. And so they kept losing money month by month.

Many of our competitors couldn’t sustain their businesses because of this. Some even withdrew some of the announced projects. These shrank the supply of data center service in the market, leaving the stronger ones with inventory, capital, and an existing customer base in the market.