equinix - initiation report

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North America Equity Research 01 May 2009 Equinix Overweight EQIX, EQIX US Analyst Day Handbook Price: $70.23 Price Target: $72.00 Telecom Services Mike McCormack, CFA AC (1-212) 622-1442 [email protected] Scott Goldman (1-212) 622-2664 [email protected] Manish Jain (1-212) 622-8692 [email protected] J.P. Morgan Securities Inc. 30 50 70 90 110 $ Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Price Performance YTD 1m 3m 12m Abs 32.3% 23.2% 25.3% -21.9% Equinix, Inc. (EQIX;EQIX US) 2008A 2009E (Old) 2009E (New) 2010E (Old) 2010E (New) EPS ($) Q1 (Mar) 0.15 0.28A 0.40A Q2 (Jun) 0.06 0.20A 0.25A Q3 (Sep) 0.19 0.24A 0.25A Q4 (Dec) 2.74 0.28A 0.27A FY 3.31 0.99A 1.17A 1.35 1.51 Source: Company data, Reuters, J.P. Morgan estimates. Note: Prior EPS figures are based on non-GAAP results. Revised estimates reflect GAAP accounting. Company Data Price ($) 70.23 Date Of Price 30 Apr 09 52-week Range ($) 101.00 - 32.72 Mkt Cap ($ mn) 2,720.64 Fiscal Year End Dec Shares O/S (mn) 39 Price Target ($) 72.00 Price Target End Date 31 Dec 09 See page 25 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research. EQUINIX AT YOUR FINGERTIPS. On May 5, Equinix will host an analyst day in New York City. This report provides an overview of what we believe are key issues facing Equinix as well as a quick reference to relevant company and industry data. This includes 1) a checklist of questions we hope will be addressed at the meeting; 2) management’s 2009 guidance and our review of first-quarter 2009 results; and 3) company financial and operating data (annual and quarterly income statement projections, the balance sheet, cash flow projections, and key operating metrics). KEY ISSUES. We believe the key issues facing Equinix are: 1) the challenges posed by continued economic weakness; 2) the company’s long-term expansion plans; 3) revenue growth opportunities through expanding ARPU and improving penetration of high-margin interconnection services; 4) the potential impact of nascent technologies on data center capacity needs; and 5) the ability to generate free cash flow amid high capital spending plans. INVESTMENT OPINION. We believe Equinix operates the premier carrier neutral data center assets. The company’s scale and brand enable it to attract a strong client base, including the world’s largest bandwidth providers and many of the largest and fastest growing content providers and enterprises. We believe Equinix’s strong balance sheet should enable it to grow faster than the overall colocation market as it invests for growth both domestically and internationally. In addition, we are attracted to the defensive nature of Equinix’s recurring revenue business, which should help mitigate the impact of broader economic weakness.

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Initiation report

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North America Equity Research 01 May 2009

Equinix

Overweight EQIX, EQIX US

Analyst Day Handbook

Price: $70.23

Price Target: $72.00

Telecom Services

Mike McCormack, CFAAC

(1-212) 622-1442 [email protected]

Scott Goldman (1-212) 622-2664 [email protected]

Manish Jain (1-212) 622-8692 [email protected]

J.P. Morgan Securities Inc.

30

50

70

90

110

$

Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

Price Performance

YTD 1m 3m 12mAbs 32.3% 23.2% 25.3% -21.9%

Equinix, Inc. (EQIX;EQIX US) 2008A 2009E

(Old)2009E

(New)2010E

(Old)2010E

(New)EPS ($) Q1 (Mar) 0.15 0.28A 0.40A Q2 (Jun) 0.06 0.20A 0.25A Q3 (Sep) 0.19 0.24A 0.25A Q4 (Dec) 2.74 0.28A 0.27A FY 3.31 0.99A 1.17A 1.35 1.51Source: Company data, Reuters, J.P. Morgan estimates. Note: Prior EPS figures are based on non-GAAP results. Revised estimates reflect GAAP accounting.

Company Data Price ($) 70.23Date Of Price 30 Apr 0952-week Range ($) 101.00 - 32.72Mkt Cap ($ mn) 2,720.64Fiscal Year End DecShares O/S (mn) 39Price Target ($) 72.00Price Target End Date 31 Dec 09

See page 25 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.

EQUINIX AT YOUR FINGERTIPS. On May 5, Equinix will host an analyst day in New York City. This report provides an overview of what we believe are key issues facing Equinix as well as a quick reference to relevant company and industry data. This includes 1) a checklist of questions we hope will be addressed at the meeting; 2) management’s 2009 guidance and our review of first-quarter 2009 results; and 3) company financial and operating data (annual and quarterly income statement projections, the balance sheet, cash flow projections, and key operating metrics).

• KEY ISSUES. We believe the key issues facing Equinix are: 1) the challenges posed by continued economic weakness; 2) the company’s long-term expansion plans; 3) revenue growth opportunities through expanding ARPU and improving penetration of high-margin interconnection services; 4) the potential impact of nascent technologies on data center capacity needs; and 5) the ability to generate free cash flow amid high capital spending plans.

• INVESTMENT OPINION. We believe Equinix operates the premier carrier neutral data center assets. The company’s scale and brand enable it to attract a strong client base, including the world’s largest bandwidth providers and many of the largest and fastest growing content providers and enterprises. We believe Equinix’s strong balance sheet should enable it to grow faster than the overall colocation market as it invests for growth both domestically and internationally. In addition, we are attracted to the defensive nature of Equinix’s recurring revenue business, which should help mitigate the impact of broader economic weakness.

2

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Analyst Day Handbook Equinix will host an analyst day for the investment community on May 5 in New York City. The scheduled list of speakers includes Steve Smith (CEO and President), Keith Taylor (CFO), Jarrett Appleby (Chief Marketing Officer), and Dave Pickut (Chief Technology Officer). In addition, each of the regional presidents, including Pete Ferris (U.S.), Eric Schwartz (Europe), and Samuel Lee (Asia-Pacific) are scheduled to provide an update on market-specific activity. Other speakers include Brian Little (Chief Information Officer) and Mark Adams (Chief Development Officer).

This report is designed to provide an overview of what we believe to be the key issues facing the company and a quick-reference guide to relevant company and industry data. Included are:

key issues we hope will be addressed on the analyst day;

management’s financial guidance;

our review of first-quarter 2009 results;

a summary of recent company news;

price performance and sector valuation data; and

company financial and operating data (key operating metrics, quarterly income statement projections, the balance sheet, and cash flow projections).

3

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Key Issues on Which to Focus We believe key issues currently facing Equinix are: 1) the challenges posed by continued economic weakness; 2) the company’s long-term expansion plans; 3) revenue growth opportunities through expanding ARPU and improving penetration of high-margin interconnection services; 4) the potential impact of nascent technologies on data center capacity needs; and 5) the ability to generate free cash flow amid high capital spending plans.

Key Questions for Equinix • Economic Impact. What impacts is Equinix feeling from the global recessionary

environment? How levered is Equinix to enterprise trends (i.e. should Equinix’s business track enterprise spending patterns)? Geographically, which region is most susceptible to the economic slowdown? What is Equinix’s exposure to various industry verticals? Have the challenges within the financial services sector impacted Equinix’s business? How does corporate downsizing impact growth opportunities? How much of churn is driven by the economy versus competition?

• Expansion Plans. What criteria are used to determine build strategy? What is current utilization by region and which markets are nearing peak capacity? At what utilization level do you begin to think about market expansion? How does Equinix weigh expansion domestically versus outside the U.S.? What is the lead time needed to build a new data center and make it operational?

• Revenue Growth. What are the primary drivers of continued ARPU growth? Can Europe reach ARPU levels comparable to other regions? What are current pricing trends in colocation and interconnection and how have they changed over time? Does Equinix pricing differ by market? Why is interconnection revenue (as a % of total) lower than that of Equinix’s closest peer? What strategies are in place to increase interconnection uptake, particularly in Europe? What customers/verticals are driving interconnection growth? Is sales staff provided incentives to sell more interconnection services?

• Margin Opportunity. What is the long-term gross and EBITDA margin opportunity of the business? How do margins compare between new and established data centers? What operational costs are involved with establishing a new data center? What kind of incremental margins can the business generate? Is there seasonality in the cost structure? What impact does increasing interconnection have on margins? How have fluctuations in power costs impacted the business? What flexibility do you have to pass changes in power costs to customers? What hedges are in place to protect against power cost variability?

• Technology Threats. What technologies, if any, pose a threat to data center demand in the coming years? What impact is increasing interest in virtualization having on customer data center needs? Will growing demand for cloud computing services impact Equinix’s long-term business opportunity? How do you anticipate power needs will change over the next few years? Will this cause further capacity constraints?

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

• Cash Flow Generation. When does Equinix expect to turn free cash positive on a sustainable basis? How should investors think about the balance of continued growth versus generation of cash flow? Given results to-date, what are Equinix’s plans for the $90M of unannounced capital in the current budget? What are the long-term capital needs of the business? Do expansion opportunities warrant increasing leverage once credit markets improve?

Economic Impact We believe Equinix is moderately levered to the overall enterprise market, which is currently suffering from lengthening of sales cycle and delays in decision making due to economic woes. Equinix management highlighted lower bookings in its fourth quarter, which prompted management to uncharacteristically lower 2009 revenue expectations at that time. These booking trends extended into the first couple of months of 2009, though rebounded in March. Importantly, management noted that lengthening sales cycles are showing signs of stabilization. We believe that Equinix’s recurring revenue business model is attractive, but are concerned with the impact of the economy on customer purchasing patterns. We hope to get a better sense for the potential impacts of further corporate downsizing on Equinix results at the Analyst Day.

Expansion Plans While economic conditions may limit demand visibility, we anticipate Equinix to update the investment community on expansion plans beyond current projects. Excluding Europe, Equinix added 6,100 sellable cabinets in 2007 and 4,100 in 2008. With planned expansion in Chicago, Los Angeles, and New York, as well as Hong Kong, Singapore, and Sydney in the Asia-Pacific region, we forecast a similar increase of sellable capacity in 2009. Including Europe, net sellable cabinet capacity is expected to increase more than 15%, to nearly 62,000 from 2008 through 2010. We look for an update on 2010 expansion projects, which currently only include 1,400 cabinets in London. Future plans should also provide an outlook for capital expenditure requirements, providing more clarity on 2010 cash flow needs/generation.

Table 1: Data Center Expansion Plans -- 2009-2010 $ in millions

Data Center

Target Open

Sellable cabinets

Total Capex

Comments

Los Angeles 4

2Q09 800 $90-$95 phase I mechanical and electrical infrastructure will be built to support 1,700 cabinets; 800 will be available 2Q09, 900 will be shifted to future phases, along with the additional 1,300 sellable cabinets previously announced

New York 4 phase II

2Q09 1,100 $80-$90 300 cabinets available 1Q09 and remaining 800 cabinets available 2Q09

SG2 phase I

3Q09 700 $45 additional capacity for 1,000 cabinets in future phases

Paris 3 phase I

2Q09 1,300 $30-$35 additional capacity for 1,300 cabinets in future phases

London 5 phase I

1Q10 1,400 $80-$90 additional capacity for 4,100-4,600 cabinets in future phases

Source: Company reports.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Revenue Growth In addition to market expansion, we continue to be focused on the pricing environment for colocation and interconnection services. Historically, management has indicated that the company benefits from 3%-5% annual price increases and recent commentary suggests this benefit is unchanged despite the economy. However, these increases account for only a portion of the increasing ARPU trends at Equinix. Growing cross connects per cabinet and increasing power usage are also contributing to higher revenue per cabinet. As a result, weighted average monthly recurring revenue (MRR) per cabinet for the U.S. and Asia-Pacific regions rose 8.5% from a year ago in the most recent quarter, the largest increase in more than two years. However, ARPU figures differ significantly by region, with the U.S. the highest and more than double that of Europe; Asia-Pacific MRR per cabinet is approximately three-fourths that of the U.S., but is growing at a faster pace given the smaller base and rapid interconnection growth. Interconnection represents an important opportunity for Equinix, particularly in Europe where peering has largely been done for a fraction of U.S. pricing by not-for-profit Internet Exchange Points. We look for an update on the company’s progress in developing the interconnect opportunity in its European properties.

Figure 1: U.S. Revenue Trends and Sequential Growth $ in millions

$0$20$40$60$80

$100$120$140

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09-15%-10%-5%0%5%10%15%

U.S. U.S. Grow th

Source: Company reports and J.P. Morgan estimates.

Figure 2: Non-U.S.. Revenue Trends and Sequential Growth $ in millions

$0$10$20$30$40$50$60

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09-15%

-5%

5%

15%

25%

35%

Asia-Pacific EuropeAsia-Pacific Growth Europe Growth

Source: Company reports and J.P. Morgan estimates.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 3: ARPU Trends - U.S. and Asia-Pacific

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q090.0%

2.0%

4.0%

6.0%

8.0%

10.0%

ARPU Grow th

Source: Company reports and J.P. Morgan estimates.

Margin Opportunity Equinix’s business model employs a predominantly fixed cost structure, with labor and rent accounting for more than half of the cash costs. As a result, Equinix demonstrates considerable operating leverage as it increases utilization of existing data centers, leveraging its fixed costs over a larger base. This leverage is offset by on-going start-up costs associated with its active expansion strategy. Incremental EBITDA margins were 41% in 2007, rising to 48% in 2008, and we forecast 55% incremental contributions in 2009; notably incremental margins were 85% in 1Q09. EBITDA margins in the U.S. reached 50.4% in 1Q09, nearing the 51% long-term expectations set in late 2007. Asia-Pacific has also reached its long-term objective, at 45.4% in the quarter. We anticipate both of these regions to experience near-term volatility in margins as expansion comes online, though ultimately we believe margins can surpass current levels. Operating at 34% margins, Europe continues to represent an important margin opportunity. Increasing the contribution from interconnection services should provide a lift over time, though lower ARPU, in part due to a different model for power revenue, could limit European margin expansion.

Figure 4: EBITDA by Region and Consolidated EBITDA Margins $ in millions

$0

$25

$50

$75

$100

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

20.0%25.0%30.0%35.0%40.0%45.0%50.0%

U.S. Asia-Pacific Europe EBITDA Margin

Source: Company reports and J.P. Morgan estimates.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Technology Threats We hope to gain a better understanding of how newer technologies are shaping data center supply and demand trends. Two technologies in particular have garnered a fair level of interest: virtualization and cloud computing. Virtualization allows for the partition of hardware servers into two or more independent servers, enabling the creation of virtual environments that act independently of each other. In theory, virtualization could reduce demand for data center services as companies can meaningfully reduce their hardware requirements by better utilizing existing servers, reducing the need for additional capacity. Virtualization applies mostly to enterprise users rather than network providers, limiting its overall impact. However, virtualization increases power and cooling needs, partially offsetting the benefit of fewer servers. Cloud computing is a more nascent technology which refers to the delivery of resources and applications over the Internet (i.e. “the cloud”). We believe the technology can be both a threat and an opportunity for data center operators such as Equinix. Growing adoption of cloud computing could drive increased data center demand as service providers use data centers to house software and data servers. However, like virtualization, cloud computing provides a means to increase server utilization, potentially reducing capacity needs.

Cash Flow Generation Given the capital-intensive expansion plans, Equinix continues to burn cash on a quarterly basis. However, we believe Equinix has ample liquidity to pursue planned expansion plans, with flexibility in guidance to increase or lower spending needs as market conditions warrant. Specifically, the company has incorporated roughly $90M of capital in its 2009 plan, which is currently unassigned to specific projects. Equinix had an unrestricted cash balance of $284M in 1Q09 and expects to exit 2009 with more than $200M of unrestricted cash. Included in the guidance is $55M of anticipated debt capital lease obligations. As of 1Q09, Equinix’s net leverage was 2.6x its annualized adjusted EBITDA, below the company’s target leverage of 3x-4x EBITDA. While capital raising is unlikely in the near-term, we hope to get a better sense of whether current demand supports expansions requiring more capital. Based on current expectations, we forecast Equinix to turn free cash positive in 2010.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 5: Capital Spending and Leverage Trends $ in millions

$0

$25

$50

$75

$100

$125

$150

$175

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

0.0x

2.0x

4.0x

5.9x

Expansion Ongoing Leverage

Source: Company reports and J.P. Morgan estimates. Note: leverage based on net debt to trailing twelve month EBITDA.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Management Guidance Table 2: Management Guidance

2Q09E 2009E Total Revenue $206M-$210M $855M-$875M Cash Gross Margins 63%-64% 62%-63% Cash SG&A Expenses approx. $39M $160M-$170M EBITDA $92M-$94M $370M-$385M Capital Expenditure $110M-$120M $325M-$375M Expansion $90M-$110M $265M-$315M On-going $20M $60M Source: Company reports.

Review of First Quarter 2009 Results Equinix posted another strong quarter as revenue met expectations while EBITDA exceeded guidance. Notably, ARPU trends continued to impress while MRR churn fell, albeit temporarily, after feeling economic impacts in the fourth quarter.

• EBITDA easily outpaces guidance. Adjusted EBITDA of $91.4M easily beat our $86.5M estimate as margins jumped 180 bps sequentially. Results also exceeded the $86M-$88M guided range. With revenue in-line with our forecast, the outperformance was largely driven by lower cash sales and marketing, which fell due to lower branding expense and the timing of bookings in the quarter. Though management maintained the full year revenue outlook, EBITDA guidance was narrowed, raising the low end by $5M, to $370M.

• ARPU remains strong. Recurring revenue per cabinet (non-Europe) rose 8.5% from a year ago, to $1,740. The increase was the largest in more than two years. The ARPU exceeded our $1,716 expectations and contributed to better-than-expected recurring revenue; we anticipate continued ARPU strength in 2009. On a sequential basis, revenue per cabinet rose 3.0%, with growth in the U.S. at 2.3% while Asia-Pacific rose 4.6%. European ARPU, reported for the first time, rose 3.3% sequentially, to $886.

• MRR churn dips, but expected to increase in near-term. Monthly recurring revenue churn fell 90 bps sequentially to 1.5%, the lowest in more than a year. Management noted that churn will likely rise to a more normalized 2% level in 2Q09 and 3Q09, particularly as a legacy account in its Silicon Valley IBX relocates. Nevertheless, management is optimistic it can resell the capacity, potentially at higher price points.

• Attractive growth and potentially conservative guidance. We continue to believe Equinix is an attractive growth story with market leadership and a recurring revenue model that should allow it to whether economic conditions better than its peers. We believe second quarter guidance could prove conservative as it implies decelerating ARPU growth across each of the regions. In addition, increasing the low end of EBITDA guidance provides us with greater comfort that management's can extract further cost savings, and serves as a contrast to last quarter’s tempered revenue outlook.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Table 3: Equinix – 1Q09 Snapshot $ in millions, except per share data and Customer data in '000s:

KEY METRICS % Change Seq. 1Q09A 1Q09E Versus Est. 4Q08A % Change

EOP Customers 2,384 2,352 1.4% 2,272 4.9% Customer Churn 0.7% 1.1% -36.2% 1.0% -28.2%

FINANCIAL METRICS % Change Seq. 1Q09A 1Q09E Versus Est. 4Q08A % Change Revenue Recurring Revenue $191.3 $191.1 0.1% $182.8 4.6% Non-Recurring $7.9 $8.4 -5.5% $7.9 1.0% Total Revenue $199.2 $199.5 -0.1% $190.7 4.5% Operating Expense Cash Cost of Revenue 71.9 72.7 -1.0% 66.2 8.6% Cash Sales and Marketing 10.6 15.2 -30.0% 15.7 -32.4% Cash General and Administrative 25.3 25.1 0.5% 24.6 2.7% Equity-Based Compensation 11.5 13.7 13.1 Depreciation and amortization 42.0 44.3 -5.2% 44.1 -4.8% Total Operating Expenses 161.4 171.0 -5.6% 163.8 -1.5%

EBITDA 91.4 86.5 5.7% 84.1 8.7%

Margin 45.9% 43.4% 44.1%

Operating Income 37.9 28.5 32.8% 26.9 40.8% Margin 19.0% 14.3% 14.1%

Average shares outstanding - Diluted 38.7 43.9 -11.7% 43.7 -11.3% Earnings per Share - Diluted $0.37 $0.20 56.0% $0.32 -4.8% Capital expenditures 75.0 102.0 -26.5% 165.6 -54.7%

Source: Company reports and J.P. Morgan estimates. Note: 1Q09 results exclude a $5.8M reversal of a restructuring reserve and a $2.7M loss on an investment.

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Corporate Events (2008 – present) • December 1, 2008 —Launches First Roaming Mobile Data Exchange

Service. Equinix expanded its Global Roaming Exchange (GRX) Peering service to customers located in the company’s Washington, D.C. IBX data center campus. Features include redundant LAN infrastructure, Private Bilateral Peering and Dedicated GPE portal.

• November 24, 2008 — Equinix Names Jarrett Appleby Chief Marketing Officer. In this role, Mr. Appleby will be responsible for managing and expanding Equinix’s data center services brand and building upon the company’s global position in the market.

• October 27, 2008 — Launches New Corporate Brand. The new brand and logo “focus on Equinix’s vision of ensuring the vitality of the information-driven world and its mission of protecting and connecting the world's most valued information assets.”

• October 22, 2008 — Construction of New Data Centers in London and Singapore. Equinix plans to build a new 300,000 square foot data center in London and a new 110,000 square foot data center in Singapore.

• August 4, 2008 — Partners with DE-CIX to Launch New Exchange in Munich. Under the partnership, DE-CIX will operate a new Internet exchange, ALP-IX, within Equinix’s Munich IBX. The agreement will bring a peering fabric into the center, enabling Equinix customers in Munich to exchange Internet traffic.

• July 29, 2008 — Announces Partnership with London Internet Exchange. The partnership will enable LINX members to access Equinix’s colocation services. Similarly, Equinix customers joining LINX will be able to connect on site to directly exchange traffic, or peer, with LINX’s member base.

• July 23, 2008 —Chief Business Officer Margie Backaus Announces Plans to Step Down at the End of 2008. Margie Backaus decided to step down from her role as chief business officer and will transition out of the company at the end of the year.

• April 23, 2008 — Appoints Chief Development Officer Eric Schwartz as President of Equinix Europe. In this role, Mr. Schwartz will oversee the management, strategy and growth for Equinix in Europe, which currently includes 17 data centers in the United Kingdom, France, Germany, Switzerland and the Netherlands, and approximately 500 customers.

• April 23, 2008 — Announce Interconnection and Peering Partnership with AMS-IX. Equinix customers will be able to directly exchange traffic, or peer, with AMS-IX’s Internet service providers and high-quality traffic exchange participants.

• March 17, 2008 —Provides Data Center and Connectivity Infrastructure for Hulu’s New Online Video Service. Hulu will use Equinix’s data center environment to connect directly with network service providers.

• February 6, 2008 — Equinix Expands Operations to the Netherlands with Acquisition of Network-Neutral Data Center Provider Virtu. Equinix

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

announced the acquisition of Virtu Secure Webservices B.V., a provider of network-neutral data center services in the Netherlands. The agreement provides Equinix with data center operations in the cities of Enschede and Zwolle, and by mid-2008, in Amsterdam.

Valuation We are attracted to Equinix’s business model and believe the company is best positioned among peers to cater to large network providers which are likely to create an increasing amount of IP traffic in the coming years. As a result, the company is poised to take market share in colocation services, providing highly visible revenue growth. Our December 2009 price objective of $72 is derived from a discounted cash flow analysis which employs an 8.9% WACC and a 8.0x terminal EBITDA multiple, which we believe is justified given the company’s relatively attractive growth, access to liquidity to support its future growth strategy, and higher historical trading multiple.

Investment Risks Downside risks to our rating include:

• Increasing competition. A number of other data center providers are investing heavily to expand their data center operations, including some operating in similar markets as Equinix. Increase supply could lead to less customer growth and potential pricing pressure, limiting Equinix’s revenue growth opportunity.

• Capital Intensity. Increasing data center supply is a capital intensive business. Should demand fail to materialize to support ample utilization of newly added data centers, Equinix’s growth could be lower than anticipated.

• Integration. Equinix recently completed two transactions which provide an entrée into the European market. While lower margins in the European operations currently provide an opportunity for Equinix, the company must adapt to a different market environment and may not be able to realize planned operating efficiencies. In addition, the interconnection service is a much lower portion of revenue in Europe and Equinix may not be able to achieve expected revenue synergies

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Company Models

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 1: Equinix. — Normalized Operating Forecast $ in millions, except per share data

1Q08 2Q08 3Q08 4Q08 2008 1Q09 2Q09E 3Q09E 4Q09E 2009E 2010E

RevenueRecurring Revenue $150.4 $163.4 $173.5 $182.8 $670.1 $191.3 $201.1 $208.0 $222.0 $822.4 $952.8Non-Recurring 7.9 8.6 10.2 7.9 34.6 7.9 8.3 10.7 11.9 38.9 48.7Total Revenue 158.2 172.0 183.7 190.7 704.7 199.2 209.4 218.7 233.9 861.3 1,001.6

Operating ExpensesCash Cost of Revenue 61.8 66.1 70.6 66.2 264.7 71.9 76.5 81.3 87.3 317.1 355.9Cash Sales and Marketing 11.5 10.9 12.1 15.7 50.2 10.6 12.6 15.1 16.2 54.6 73.0Cash General and Administrative 22.7 25.9 24.1 24.6 97.3 25.3 26.8 27.6 30.5 110.2 127.4Equity-Based Compensation 12.3 17.0 12.6 13.1 55.1 11.5 16.2 17.0 18.3 63.0 74.7Depreciation and amortization 35.9 38.8 42.1 44.1 160.8 42.0 47.9 48.0 50.8 188.7 218.3One-time Items 0.0 0.0 0.8 2.3 3.1 (5.8) 0.0 0.0 0.0 (5.8) 0.0Total Operating Expenses 144.2 158.7 162.2 166.1 631.3 155.5 180.1 189.2 203.1 727.9 849.3

Gross Profit 96.5 106.0 113.1 124.5 440.0 127.3 132.9 137.3 146.6 544.1 645.7margin 61.0% 61.6% 61.6% 65.3% 62.4% 63.9% 63.5% 62.8% 62.7% 63.2% 64.5%

Adjusted EBITDA 62.3 69.1 76.2 81.8 289.3 97.2 93.4 94.6 99.9 385.2 445.3margin 39.4% 40.2% 41.5% 42.9% 41.1% 48.8% 44.6% 43.3% 42.7% 44.7% 44.5%

Operating Income 14.0 13.3 21.5 24.6 73.4 43.7 29.3 29.5 30.9 133.4 152.2margin 8.9% 7.7% 11.7% 12.9% 10.4% 21.9% 14.0% 13.5% 13.2% 15.5% 15.2%

Interest income & other 3.4 2.4 0.4 1.1 7.4 0.9 0.9 1.1 1.2 4.1 2.2Interest expense (13.6) (12.8) (13.9) (14.7) (55.0) (13.5) (14.1) (14.1) (14.0) (55.6) (54.1)Other income (expense) 2.0 (0.9) (0.5) 0.7 1.3 (4.1) 0.8 0.8 0.8 (1.9) 3.0One-time items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Pretax Income 5.9 2.0 7.6 11.6 27.1 27.1 16.9 17.3 18.9 80.1 103.3

Income taxes 0.5 (0.3) 0.2 (104.9) (104.5) 11.6 7.3 7.4 8.1 34.4 42.4Tax rate 8.0% -13.1% 2.5% -900.7% -385.7% 42.9% 43.0% 43.0% 43.0% 43.0% 41.0%

Net Income 5.4 2.2 7.4 116.5 131.5 15.5 9.6 9.8 10.8 45.7 61.0

Average shares outstanding - Basic 36.3 36.6 37.0 37.3 36.8 37.9 38.1 38.3 38.5 38.2 39.3Average shares outstanding - Diluted 37.3 37.8 37.9 43.7 43.7 38.7 38.9 39.1 39.3 39.0 40.3

Earnings Per Share - Basic $0.15 $0.06 $0.20 $3.13 $3.58 $0.41 $0.25 $0.26 $0.28 $1.20 $1.55Earnings Per Share - Diluted $0.15 $0.06 $0.19 $2.74 $3.31 $0.40 $0.25 $0.25 $0.27 $1.17 $1.51

Source: Company reports and J.P. Morgan estimates.

15

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 6: Equinix. — Cash Flow Statement $ in millions, except per share data

1Q08 2Q08 3Q08 4Q08 2008 1Q09 2Q09E 3Q09E 4Q09E 2009E 2010E

Net income 5.4 2.2 7.4 116.5 131.5 15.5 9.6 9.8 10.8 45.7 61.0

+ Depreciation & amortization 35.5 38.3 41.6 44.1 159.4 42.0 48.3 48.4 51.2 189.9 219.8

+ Stock-based compensation 12.3 17.0 12.6 13.1 55.1 11.5 16.2 17.0 18.3 63.0 74.7

+ Amortization of debt issuance costs 1.4 1.2 1.2 1.1 4.9 2.4 1.4 1.4 1.5 6.8 6.5

+Accretion of asset retirement obligation and accrued restructuring charges 0.4 0.4 0.4 2.3 3.6 0.0 0.4 0.4 0.4 1.1 1.0

+ Other items 0.5 (1.2) 1.8 1.6 2.7 (3.1) 0.0 0.0 0.0 (3.1) 0.0Cash from operations 55.5 58.0 65.0 178.8 357.2 68.3 75.9 77.1 82.1 303.4 363.0

+ Change in working capital/other 7.5 7.0 (1.6) (103.1) (90.2) 18.4 10.0 10.0 (15.0) 23.4 (30.0)Cash after working capital requirements 63.0 65.0 63.3 75.7 267.0 86.7 85.9 87.1 67.1 326.8 333.0

Expansion capital 115.6 72.6 81.9 98.1 368.2 64.7 93.0 68.0 70.0 295.7 262.5Ongoing capital 10.0 11.9 13.5 67.5 102.9 10.3 20.0 13.0 14.0 57.3 60.2

- Capital expenditures 125.6 84.5 95.4 165.6 471.1 75.0 113.0 81.0 84.0 353.0 322.7Free Cash Flow (62.7) (19.5) (32.1) (89.9) (204.1) 11.7 (27.1) 6.1 (16.9) (26.2) 10.4

- Dividends 0.0 0.0 0.0 0.0 0.0 0.00 0.0 0.0 0.0 0.0 0.0Free Cash Flow After Dividends (62.7) (19.5) (32.1) (89.9) (204.1) 11.74 (27.1) 6.1 (16.9) (26.2) 10.4

+ Change in debt 37.8 30.4 19.6 30.1 117.8 (7.4) (32.3) 0.0 (18.7) (58.4) (50.0)

+ Change in equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

+ Acquisitions/divestitures (23.2) 0.0 0.0 0.0 (23.2) 0.0 0.0 0.0 0.0 0.0 0.0

+ Other investing 12.7 (131.8) 13.0 32.1 (73.9) (2.9) 0.0 0.0 0.0 (2.9) 0.0

+ Other financing 6.8 11.6 6.8 0.7 14.1 3.8 8.0 8.0 8.0 27.8 30.0Net change in cash before foreign exchange (28.6) (109.3) 7.3 (27.0) (169.4) 5.2 (51.4) 14.1 (27.6) (59.7) (9.6)

Effect of exchange rate (1.2) (0.4) 2.2 4.7 5.4 (3.4) (0.0) (0.0) (0.0) (3.4) (2.0)

Net change in cash (29.8) (109.7) 9.6 (22.3) (164.0) 1.8 (51.4) 14.1 (27.6) (63.1) (11.6) Source: Company reports and J.P. Morgan estimates.

16

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 7: Equinix — Balance Sheet $ in millions

3/31/08 12/31/07 12/31/06

Assets

Current assetsCash and cash equivalents $222 $291 $83Short-term Investments 30 93 49Accounts receivable - net 60 60 27Prepaid expenses & other current assets 45 0 8Total current assets 357 444 166

Long-term investmentsProperty and equipment, netGoodwillDebt issuance costs, net 0 21 3Other assets 180 44 14Total assets 2,417 2,145 772

Liabilities and shareholders' equity

Current liabilitiesAccounts payable and accrued expenses 79 65 27Accrued PP&E 53 77 23Current portion of accrued restructuring charges 0 12 13Current portion of debt, credit facilities and CLO 0 1 2Current portion of mortgage payable 52 11 2Other current liabilities 72 36 10Total current liabilities 256 202 78

Accrued restructuring charges, less current portion 0 20 28Debt facilities and CLO, less current portion 132 96 93Mortgage payable 371 319 97Convertible subordinated debt and secured notes 611 678 86Deferred rent and other 113 56 35Total liabilities 1,484 1,371 417

Shareholders' equityPreferred stock 0 0 0Common stock 0 0 0Additional paid-in capital 1,541 1,377 905Deferred stock-based compensation 0 0 0Accumulated other comprehensive income (167) (4) 4Accumulated deficit (440) (600) (553)Total shareholders' equity 933 773 355

Total liabilities and shareholders' equity 2,417 2,145 772

Source: Company reports and J.P. Morgan estimates.

17

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 4: Equinix — Operating Forecast $ in millions, except per share data

1Q08 2Q08 3Q08 4Q08 2008 1Q09 2Q09E 3Q09E 4Q09E 2009E 2010E

Customers 1,881 1,994 2,090 2,228 2,228 2,272 2,384 2,460 2,571 2,571 2635gross adds 160 144 178 110 592 161 149 171 135 616 687disconnects 47 48 40 66 201 49 73 60 70 252 305

ending customers 1,994 2,090 2,228 2,272 2,272 2,384 2,460 2,571 2,635 2,635 3,017average customer 1,938 2,042 2,159 2,250 2,077 2,328 2,422 2,516 2,603 2,454 2,826churn 0.8% 0.8% 0.6% 1.0% 0.8% 0.7% 1.0% 0.8% 0.9% 0.9% 0.9%

Customer Growthy/y growth 49.4% 52.2% 23.0% 20.8% 20.8% 19.6% 17.7% 17.7% 15.4% 15.4% 14.5%q/q growth 6.0% 4.8% 6.6% 2.0% 4.9% 3.2% 4.5% 2.5%

Per average customerCross connects 17.1 14.6 14.5 14.5 15.7 17.5 17.5 17.5 17.5 17.7 17.7Cabinet billed (wgt average) 12.1 12.0 12.1 12.1 13.3 18.9 18.6 18.2 17.8 15.2 16.8

U.S. 19,511 20,570 21,522 22,193 22,193 23,150Europe 5,050 NA NA NA NA 6,868Asia Pacific 8,475 9,184 9,765 10,352 10,352 10,769

Cross connects 33,036 29,754 31,287 32,545 32,545 40,787 42,436 44,074 45,607 45,607 46,747adds 1,800 (3,282) 1,533 1,258 1,309 8,242 1,649 1,638 1,533 13,062 1,140average cross connects 25,618 31,395 30,521 31,916 25,372 36,666 41,611 43,255 44,841 39,076 46,177

Cross Connect Growthy/y growth 112.4% 80.2% 80.9% 78.8% 78.8% 2.7% 42.6% 40.9% 40.1% 40.1% 14.6%q/q growth 81.5% -9.9% 5.2% 4.0% 4.2% 4.0% 3.9% 3.5% 2.5%

Cabinets (ex-Europe)Cabinet capacity 30,100 33,300 33,800 34,200 34,200 55,300 56,550 57,950 58,750 58,750 62,250

adds 0 3,200 500 400 4,100 700 1,250 1,400 800 4,150 3,500average sellable cabinets 30,100 31,700 33,550 34,000 32,150 44,750

Cabinet billing 23,500 25,100 26,400 27,650 27,650 44,500 45,540 46,081 46,713 46,713 48,233adds 1,500 1,600 1,300 1,250 5,650 650 1,040 541 632 2,863 1,520average cabinets billing 22,750 24,300 25,750 27,025 24,825 36,075 45,020 45,810 46,397 37,181 47,473

Billing Growthy/y growth 27.7% 30.7% 28.8% 25.7% 25.7% 20.4% 81.4% 74.5% 68.9% 68.9% 8.4%q/q growth 6.8% 6.8% 5.2% 4.7% 2.4% 2.3% 1.2% 1.4% 3.3%

weighted average billed cabinets 23,480 24,600 26,100 27,320 27,320 44,050 45,240 45,781 46,413 45,371 47,933

Churncabinet churn 1.6% 2.0% 2.0% 1.3% 1.7%MRR churn 2.1% 2.0% 2.0% 2.4% 2.1% 1.5%

Exchange portsU.S. 489 514 534 485 485 505Europe 69 69 70 71 71 75Asia Pacific 117 120 136 146 146 161Total exchange ports 675 703 740 702 702 741

10GE ports 102 114 114 183 183 224

Revenue (U.S. and Asia Pacific)Colocation 87.1 96.5 102.6 112.3 398.5 118.2Interconnection 20.6 21.8 22.7 23.9 88.9 23.8Managed Service 4.2 4.0 4.0 3.9 16.2 4.1Rental 0.2 0.1 0.1 0.1 0.6 0.2

Recurring Revenue 112.1 122.4 129.3 140.3 504.2 146.3 154.0 158.2 168.8 627.3 724.2Non-Recurring 5.2 5.4 7.1 5.3 23.0 5.1 5.3 7.3 8.5 26.2 34.1Total Revenue 117.4 127.9 136.4 145.5 527.2 151.4 159.2 165.5 177.3 653.4 758.4

Revenue BreakdownColocoation 74.2% 75.5% 75.2% 77.2% 75.6% 78.1%Interconnection 17.5% 17.0% 16.6% 16.4% 16.9% 15.7%Managed Service 3.6% 3.2% 2.9% 2.7% 3.1% 2.7%Rental 0.2% 0.1% 0.1% 0.1% 0.1% 0.1%

Recurring Revenue 95.5% 95.8% 94.8% 96.4% 95.6% 96.6% 96.7% 95.6% 95.2% 96.0% 95.5%Non-recurring revenue 4.5% 4.2% 5.2% 3.6% 4.4% 3.4% 3.3% 4.4% 4.8% 4.0% 4.5%Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Reported revenue/wgt avg cabinet billing $1,603 $1,650 $1,654 $1,689 $1,649 $1,740y/y growth 7.0% 7.7% 5.8% 6.8% 6.8% 8.5%

Recurring revenue/wgt avg cabinet billing $1,592 $1,659 $1,652 $1,711 $1,538 $1,739 $1,755 $1,771 $1,850 $1,780 $1,890y/y growth -7.7% 7.0% 5.6% 8.2% -4.0% 9.2% 5.8% 7.2% 8.1% 15.7% 6.2%q/q growth 0.7% 4.2% -0.4% 3.6% 1.6% 1.0% 0.9% 4.5% 2.2%

Source: Company reports and J.P. Morgan estimates.

18

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Appendix Equinix at a Glance Figure 8:Recurring Revenue & Growth

$0M

$25M

$50M

$75M

$100M

$125M

$150M

$175M

$200M

$225M

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

85.0%

95.0%

Rec. Rev 87.9 99.3 131.6 150.4 163.4 173.5 182.8 191.3

Grow th 35.1% 42.0% 72.2% 85.9% 85.9% 74.8% 38.9% 27.2%

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Figure 2: EBITDA and Margin

$0M

$20M

$40M

$60M

$80M

$100M

30.0%

32.5%

35.0%

37.5%

40.0%

42.5%

45.0%

47.5%

50.0%

EBITDA 35.3 40.6 47.1 62.3 69.1 77.0 84.1 91.4

Margin 38.4% 39.2% 33.9% 39.4% 40.2% 41.9% 44.1% 45.9%

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Customers & Growth

0

500

1,000

1,500

2,000

2,500

3,000

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Cust 1,373 1,811 1,881 1,994 2,090 2,228 2,272 2,384

Growth 15.5% 44.0% 45.8% 49.4% 52.2% 23.0% 20.8% 19.6%

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Billable Cabinets and Utilization Rate

K

5K

10K

15K

20K

25K

30K

35K

40K

45K

50K

68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

Blb Cab 19,200 20,500 22,000 23,500 25,100 26,400 27,650 44,500

Ut Rt 77.0% 79.0% 73.0% 78.0% 76.0% 78.0% 81.0% 80.0%

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Cross Connects and Growth

K

5K

10K

15K

20K

25K

30K

35K

40K

45K

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Cr Con 16,514 17,295 18,199 27,986 29,754 31,287 32,545 40,787

Grow th 20.1% 19.3% 22.5% 80.0% 80.2% 80.9% 78.8% 45.7%

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

ARPU and Growth

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

$1,750

$1,800

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

ARPU 1,532 1,564 1,581 1,603 1,650 1,654 1,689 1,740

Growth 6.2% 6.0% 6.0% 7.0% 7.7% 5.8% 6.8% 8.5%

2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Source: Company reports and J.P. Morgan estimates. Note: Beginning in 1Q09, results include European operations.

19

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 9: Revenue Contribution by Region 1Q08

63%11%

26%

U.S. Asia-Pacific Europe

1Q09

63%13%

24%

U.S. Asia-Pacific Europe

Source: Company reports.

Figure 10: EBITDA Contribution by Region 1Q08

74%

9%

17%

US Asia-Pacific Europe

1Q09

69%

13%

18%

US Asia-Pacific Europe

Source: Company reports.

20

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 11: Revenue Breakdown by Service

Colocation82%

Interconnection18%

M anaged infrastructure

0%

Rental0%

U.S.

Colocation77%

Interconnection9%

M anaged infrastructure

14%

Rental0%

Asia-Pacific

Europe

Colocation90%

Interconnection3%

M anaged infrastructure

7%

Rental0%

Source: Company reports.

Figure 12: Year-To-Date Returns of Data Center Providers

-3%

9% 14%32%

58%68% 75%

-20%

0%

20%

40%

60%

80%

100%

S&P TMRK DLR EQIX SDXC SVVS RAX DFT

319%

Source: FactSet.

21

North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 13: U.S. Telecom Services Valuation Comparisons $ in millions, except where otherwise stated

Price 52-Week 2008 YTD Shares Market Net Adj. Ent. Net Debt/ Company Rating/PT 4/29/09 Range Return Return Out Dividend Yield 2009E 2010E Cap Debt Value (1) Capital

Diversified Global CarriersAT&T OW - $28.00 25.52 41-21 -31.4% -10.5% 5,920 1.64 6.4% 60% 62% 151,078 70,538 218,101 32%Verizon Communications OW - $36.00 30.41 40-23 -22.4% -10.3% 2,841 1.72 5.7% 68% 80% 86,395 64,782 141,106 46%

ILECsQwest Communications Int'l N - NA 3.68 6-2 -48.1% 1.1% 1,705 0.32 8.7% 34% 40% 6,273 12,801 17,802 72%

Rural CarriersFrontier Communications Co. N - $9.00 7.14 13-5 -31.3% -18.3% 310 1.00 14.0% 78% 93% 2,213 4,562 6,775 67%Windstream Corp. OW - $11.00 8.33 15-6 -29.3% -9.5% 437 1.00 12.0% 61% 66% 3,641 5,086 8,635 59%

Competitive CarriersCogent Communications OW - $11.00 8.95 23-3 -72.5% 37.1% 46 - - - - 410 123 488 25%Level 3 Communications, Inc. UW - NA 1.07 4-1 -77.0% 52.9% 1,606 - - - - 1,719 5,884 7,496 78%tw telecom N - $8.00 9.05 20-4 -58.3% 6.8% 148 - - - - 1,341 1,021 2,183 47%

Wireless CarriersClearwire (CLWR) N - NA 5.44 18-3 -64.0% 10.3% 695 - - - - 3,780 144 3,925 4%Leap Wireless (LEAP) OW - $38.00 35.16 62-14 -42.3% 30.8% 68 - - - - 2,394 2,221 4,615 48%MetroPCS (PCS) OW - $22.00 16.54 22-10 -23.7% 11.4% 355 - - - - 5,876 2,377 8,253 29%Ntelos (NTLS) N - $16.00 17.01 32-14 -16.9% -31.0% 42 0.84 4.9% 44% 43% 719 542 1,262 43%Sprint Nextel (S) N - NA 4.24 10-1 -86.1% 131.7% 2,859 - - - - 12,122 17,891 30,013 60%

Wireless TowersAmerican Tower (AMT) N - $30.00 33.29 47-32 -31.2% 13.5% 409 - - - - 13,614 4,029 17,643 23%Crown Castle (CCI) N - $23.00 23.61 43-30 -57.7% 34.3% 286 - - - - 6,745 5,893 12,638 47%SBA Communications (SBAC) OW - $24.00 24.78 39-24 -51.8% 51.8% 117 - - - - 2,894 2,476 5,370 46%

Data CentersEquinix (EQIX) OW - $72.00 70.39 101-33 -47.4% 32.3% 44 - - - - 3,076 914 3,990 23%Switch & Data (SDXC) N - $7.00 11.64 19-4 -53.9% 57.5% 35 - - - - 406 171 577 30%

S&P 500 875.68 1,440-667 -38.5% -3.1% 3.1%

Company 2008 2009E 2010E 2008 2009E 2010E 2008 2009E 2010E 2008 2009E 2010E 09E/08 10E/09E

Diversified Global CarriersAT&T $2.16 $2.19 $2.34 11.8x 11.7x 10.9x 1.0x 0.8x 0.9x 124,027 122,488 120,507 -1.2% -1.6%Verizon Communications $2.54 $2.61 $2.81 12.0x 11.7x 10.8x 1.0x 0.8x 0.9x 97,096 108,630 110,192 11.9% 1.4%

ILECsQwest Communications Int'l $0.43 $0.36 $0.28 8.6x 10.2x 13.4x 0.7x 0.7x 1.2x 13,475 12,542 11,934 -6.9% -4.8%

Rural CarriersFrontier Communications Co. $0.58 $0.59 $0.62 12.3x 12.2x 11.5x 1.0x 0.8x 1.0x 2,237 2,115 2,006 -5.4% -5.2%Windstream Corp. $1.04 $0.88 $0.83 8.0x 9.4x 10.0x 0.7x 0.6x 0.9x 3,172 3,067 2,982 -3.3% -2.8%

Competitive CarriersCogent Communications ($0.62) ($0.20) $0.26 NM NM 34.9x NM NM 3.0x 215 248 281 15.2% 13.2%Level 3 Communications, Inc. ($0.20) ($0.31) ($0.26) NM NM NM NM NM NM 4,274 3,879 3,641 -9.2% -6.1%tw telecom $0.06 $0.09 $0.16 NM NM NM NM NM NM 1,159 1,190 1,246 2.6% 4.8%

Wireless CarriersClearwire (CLWR) ($3.43) ($2.25) ($3.37) NM NM NM NM NM NM 231 270 832 17.1% 208.1%Leap Wireless (LEAP) ($2.17) $0.51 $3.08 NM NM 11.4x NM NM 1.0x 1,959 2,709 3,955 38.3% 46.0%MetroPCS (PCS) $0.45 $0.71 $1.27 36.6x 23.2x 13.0x 3.0x 1.5x 1.1x 2,752 3,540 4,466 28.7% 26.2%Ntelos (NTLS) $1.14 $1.42 $1.53 14.9x 12.0x 11.1x 1.2x 0.8x 1.0x 540 565 588 4.7% 4.1%Sprint Nextel (S) $0.09 ($0.29) ($0.31) 47.0x NM NM 3.8x NM NM 35,635 32,564 31,345 -8.6% -3.7%

Wireless TowersAmerican Tower (AMT) $0.60 $0.60 $0.78 NM NM 42.8x NM NM 3.7x 1,594 1,684 1,812 5.7% 7.6%Crown Castle (CCI) $0.16 $0.12 $0.81 NM NM 29.1x NM NM 2.5x 1,527 1,647 1,775 7.9% 7.7%SBA Communications (SBAC) ($0.80) ($0.42) ($0.25) NM NM NM NM NM NM 475 555 610 16.9% 9.8%

Data CentersEquinix (EQIX) $3.31 $1.17 $1.51 21.2x NM 46.5x 1.7x NM 4.0x 705 861 1,002 22.2% 16.3%Switch & Data (SDXC) $0.04 $0.08 $0.27 NM NM 43.0x NM NM 3.7x 172 207 246 20.8% 18.9%

S&P 500 71.50E 57.00E 76.00E 12.2x 15.4x 11.5x 1.0x 1.0x 1.0x

Rating Key: O = Overweight, N = Neutral, U = Underweight(1) Adjusted EV excludes a value for investments that do not contribute to revenue and EBITDA.(2) Free cash flow before dividends. Free cash flow excluding impact of discretionary capital expenditures for towers.

Revenue GrowthEarnings Multiples Financial Highlights and Profitability

EPS From Continuing Operations P/E Ratio Relative P/E Multiple Revenue

Dividend Valuation and LeverageFundamentalsPayout Ratio

Source: Company reports and J.P. Morgan estimates.

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Mike McCormack, CFA (1-212) 622-1442 [email protected]

Figure 14: U.S. Telecom Services Valuation Comparisons (cont.) $ in millions, except where otherwise stated

Source: Company reports and J.P. Morgan estimates.

Company 2008 2009E 2010E 09E/08 10E/09E 2008 2009E 2010E 09E/08 10E/09E 2009E 2010E

Diversified Global Carriers AT&T (T) 42,945 42,880 43,412 -0.2% 1.2% 13,979 16,133 15,785 15.4% -2.2% 10.7% 10.4%

Verizon Communications (VZ) 23,842 25,678 26,521 7.7% 3.3% 7,377 7,222 6,084 -2.1% -15.8% 8.4% 7.0%

ILECs Qwest Communications Int'l (Q) 4,545 4,322 4,042 -4.9% -6.5% 1,439 1,616 1,360 12.3% -15.8% 25.8% 21.7%

Rural Carriers Frontier Communications Corp. (FTR) 1,213 1,134 1,069 -6.5% -5.8% 451 399 334 -11.5% -16.2% 18.0% 15.1%

Windstream Corp. (WIN) 1,646 1,521 1,472 -7.6% -3.3% 764 713 666 -6.6% -6.6% 19.6% 18.3%

Competitive Carriers Cogent Communications (CCOI) 60 77 94 28.2% 22.5% 18 37 62 106.0% 66.1% 9.1% 15.1%

Level 3 Communications, Inc. (LVLT) 1,022 1,023 994 0.1% -2.8% (55) 112 108 NM -3.8% NM 6.3%

tw telecom 399 416 440 4.3% 5.7% 31 61 77 96.8% 26.7% 4.5% 5.8%

Wireless Carriers Clearwire (CLWR) (387) (852) (1,018) NM NM (674) (2,302) (3,343) NM NM NM NM

Leap Wireless (LEAP) 414 606 920 46.5% 51.8% (445) (187) (1) NM NM NM NM

MetroPCS (PCS) 783 1,037 1,434 32.4% 38.3% (507) (9) 337 NM NM NM NM

Ntelos (NTLS) 227 231 242 1.8% 4.9% 53 81 83 54.1% 2.2% 11.3% 11.6%

Sprint Nextel (S) 7,664 6,105 5,697 -20.3% -6.7% 2,297 2,825 4,368 23.0% 54.6% 23.3% 36.0%

Wireless Towers American Tower (AMT) 1,092 1,166 1,276 6.7% 9.5% 804 887 999 10.3% 12.7% 6.5% 7.3%

Crown Castle (CCI) 867 980 1,066 13.0% 8.8% 470 661 737 40.7% 11.5% 9.8% 10.9%

SBA Communications (SBAC) 269 331 372 22.8% 12.4% 165 214 259 29.5% 20.7% 7.4% 8.9%

Data Centers Equinix (EQIX) 292 379 445 29.7% 17.4% (204) (26) 10 -87.2% -139.6% -0.9% 0.3%

Switch & Data (SDXC) 57 72 88 28.2% 21.9% (109) (19) 21 -82.9% NM -4.6% 5.1%

Company 2008 2009E 2010E 2008 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E

Diversified Global Carriers AT&T 1.8x 1.8x 1.8x 5.1x 5.1x 5.0x 9.4x 9.6x 49.0 42.8 4,448

5,091

Verizon Communications 1.5x 1.3x 1.3x 5.9x 5.5x 5.3x 12.0x 14.2x 32.3 28.9 4,371

4,890

Diversified Global Carriers Qwest Communications Int'l 1.3x 1.4x 1.5x 3.9x 4.1x 4.4x 3.9x 4.6x 10.2 8.9 1,742

2,002

Rural Carriers Frontier Communications Co. 3.0x 3.2x 3.4x 5.6x 6.0x 6.3x 5.5x 6.6x 2.1 1.9 3,267

3,566

Windstream Corp. (WIN) 2.7x 2.8x 2.9x 5.2x 5.7x 5.9x 5.1x 5.5x 2.9 2.7 3,011

3,197

Competitive Carriers Cogent Communications (CCOI) 2.3x 2.0x 1.7x 8.2x 6.4x 5.2x 11.0x 6.6x NA NA NA NA

Level 3 Communications, Inc. (LVLT) 1.8x 1.9x 2.1x 7.3x 7.3x 7.5x 15.3x 15.9x NA NA NA NA

tw telecom 1.9x 1.8x 1.8x 5.5x 5.2x 5.0x 22.0x 17.3x NA NA NA NA

Wireless Carriers Clearwire (CLWR) 17.0x 14.5x 4.7x NM NM NM NM NM 0.8 1.7 4,869

2,370

Leap Wireless (LEAP) 2.4x 1.7x 1.2x 11.2x 7.6x 5.0x NM NM 5.7 8.3 810

554 MetroPCS (PCS) 3.0x 2.3x 1.8x 10.5x 8.0x 5.8x NM 17.5x 7.4 9.3 1,116

890

Ntelos (NTLS) 2.3x 2.2x 2.1x 5.6x 5.5x 5.2x 8.8x 8.6x 0.4 0.5 2,818

2,662 Sprint Nextel (S) 0.8x 0.9x 1.0x 3.9x 4.9x 5.3x 4.3x 2.8x 47.1 46.6 638

644

Wireless Towers American Tower (AMT) 11.1x 10.5x 9.7x 16.2x 15.1x 13.8x 15.3x 13.6x 24.6 25.4 717,727

693,957

Crown Castle (CCI) 8.3x 7.7x 7.1x 14.6x 12.9x 11.9x 10.2x 9.2x 24.1 24.1 524,571

523,962 SBA Communications (SBAC) 11.3x 9.7x 8.8x 19.9x 16.2x 14.4x 13.5x 11.2x 7.9 8.1 676,141

660,343

Data Centers Equinix (EQIX) 5.7x 4.6x 4.0x 13.6x 10.5x 9.0x NM 296.5x 58.8 62.3 67,917

64,099

Switch & Data (SDXC) 3.4x 2.8x 2.3x 10.2x 8.0x 6.5x NM 19.7x 14.0 14.8 41,194

39,101

(1) Adjusted EV excludes a value for investments that do not contribute to revenue and EBITDA. (2) Free cash flow before dividends. Free cash flow excluding impact of discretionary capital expenditures for towers.

Price/FCF

EBITDA EBITDA Growth Free Cash Flow (3) FCF Growth Free Cash Flow Yield

Access Line MetricsAccess Lines (MM)

Financial Highlights and Profitability

EV/Line or EV/SubEV/Revenue EV/EBITDAValuation Ratios

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Notes:

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Notes:

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

• Market Maker: JPMSI makes a market in the stock of Equinix. • Client of the Firm: Equinix is or was in the past 12 months a client of JPMSI. • Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment

banking services in the next three months from Equinix.

0

31

62

93

124

155

186

Price($)

Apr06

Jul06

Oct06

Jan07

Apr07

Jul07

Oct07

Jan08

Apr08

Jul08

Oct08

Jan09

Apr09

Equinix (EQIX) Price Chart

OW $72

OW $65

OW $54

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.Initiated coverage Nov 26, 2008. This chart shows J.P. Morgan's continuing coverage of this stock; the current analystmay or may not have covered it over the entire period.J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Date Rating Share Price ($)

Price Target ($)

26-Nov-08 OW 40.93 54.00 12-Feb-09 OW 58.10 65.00 23-Apr-09 OW 62.26 72.00

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Mike McCormack, CFA: AT&T Inc. (T), American Tower (AMT), CenturyTel, Inc. (CTL), Clearwire (CLWR), Cogent Communications (CCOI), Crown Castle International (CCI), Embarq Corp (EQ), Equinix (EQIX), Frontier Communications Corp (FTR), Leap Wireless International (LEAP), Level 3 Communications, Inc. (LVLT), MetroPCS (PCS), NTELOS Holdings Corp. (NTLS), Qwest Communications (Q), SBA Communications (SBAC), Sprint Nextel (S), Switch and Data (SDXC), Verizon Communications (VZ), Windstream Communications (WIN), tw telecom inc. (TWTC)

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North America Equity Research 01 May 2009

Mike McCormack, CFA (1-212) 622-1442 [email protected]

J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2009

Overweight (buy)

Neutral (hold)

Underweight (sell)

JPM Global Equity Research Coverage 35% 46% 19% IB clients* 54% 54% 42% JPMSI Equity Research Coverage 35% 51% 14% IB clients* 75% 73% 57%

*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative.

Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

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