Contact Us
News

Equinix Touts Major Shift In Data Center Development Strategy

Data center REIT Equinix is fundamentally rethinking its approach to where and how it builds new data centers.

Placeholder
An Equinix data center facility in Dallas

Facing record demand but with growing headwinds making it harder than ever to build new data centers quickly, the world's largest digital infrastructure provider says it plans to consolidate much of its future data center development on massive, multi-purpose campuses in primary markets. 

This new strategy, outlined by Equinix leadership in its third-quarter earnings call Wednesday evening, marks a significant departure for a firm pursuing dozens of data center builds in 35 different markets. 

“We intend to … accelerate our development of differentiated campuses that support the broad range of our customer’s needs,” Equinix CEO Adaire Fox-Martin. “This means moving from many smaller builds with phased capacity delivery to fewer larger bills, balancing location with access to power on campuses that can service the full range of our customer’s needs.” 

Equinix's business model is quite different from that of the firms building most of the massive campuses for artificial intelligence-focused tech giants.

While Equinix has invested heavily in expanding its hyperscale development program over the past year, the vast majority of the firm’s revenue comes from its retail colocation and interconnection business lines — selling capacity in the heart of major population centers and access to high-performance fiber infrastructure. 

The company’s portfolio and development pipeline have reflected this. Equinix has 57 data center construction projects underway, adding to the 268 facilities it already operates globally. Many of these projects are smaller colocation or connectivity-focused facilities outside of major industry hubs. In the past quarter, Equinix opened new facilities in locations ranging from primary markets like New York and Tokyo to relative digital infrastructure backwaters like Milan and Bordeaux. 

But now, Equinix’s leadership says the firm is fundamentally changing its development strategy. 

Rather than pursue dozens of projects targeting various use cases scattered across global markets, Equinix’s new development model would consolidate new data center construction on large-scale campuses near the largest global data center hubs. The campuses are planned to be scaled up over time and include an array of different kinds of data centers serving Equinix’s various business lines, with single-tenant hyperscale data centers, multi-tenant retail colocation facilities and other use cases all located at the same site. 

“As we look at the intention to build fewer and larger campuses, this is really a multifaceted approach that enables us to look at this through the lens of securing the power that's necessary to execute,” Fox-Martin said on the earnings call. “This is something that will augment our strategy around design and construction and how we deliver capacity to the market.”

Equinix leadership framed the strategy shift as a necessary change to contend with a rapidly evolving data center landscape that, combined with growing power scarcity and other headwinds like continuing supply chain constraints, is making it more difficult and more expensive to build data centers fast enough to keep up with record demand.

Consolidating the firm’s development pipeline to focus on large, multi-purpose campuses in the most supply-constrained markets is expected to lead to far greater efficiency in terms of both time and money, Equinix executives said. New capacity would be delivered faster with more bang for the company's buck — something Fox-Martin said will be critical as the firm accelerates capital spending over the next two years. 

“We're very focused on getting that capital into capacity as quickly as possible,” she said.

With access to power being the primary constraint limiting the pace of new data center development, Equinix Chief Financial Officer Keith Taylor said that the firm’s campus development model means power procurement can now be focused on fewer sites in only the most profitable markets.

At the same time, the massive scale of energy consumption at these campuses presents opportunities to negotiate clear runways for power with utilities and develop creative energy solutions that would likely not make economic sense at smaller facilities. 

Equinix executives also say that this new development approach will allow Equinix’s design and construction teams to operate far more efficiently by creating economies of scale and streamlining the variability in design and logistics that exists across the firm’s development pipeline. 

“There are just too many small phases that we do along the process. The stage of where we are in the industry is inherently inefficient and the average size of the deals that we're seeing today are much larger,” Taylor said on the call. “It just makes sense to aggregate into the major metros in which we focus …  and do it in scale and size. We get an outsized return relative to where we were.”

The campus development model and the subsequent pivot toward large-scale land and power acquisition also help align Equinix’s overall strategy with the company’s growing focus on expanding its portfolio of single-tenant hyperscale data centers — a business line the company brands as xScale. 

Equinix has, until recently, intentionally steered clear of the hyperscale market in the U.S., but that has changed since Fox-Martin took the helm as CEO this spring. The company opened its first North American xScale project earlier this year and is rapidly expanding its hyperscale pipeline. 

This month, Equinix launched a $15B JV that is set to more than triple its U.S. xScale footprint. While xScale now accounts for only around 1% of Equinix’s total revenues, the firm’s leadership hopes to increase that share to as much as 6% in the coming years. 

According to Fox-Martin, the growth of xScale will help Equinix contend with supply chain constraints that threaten speed-to-market across its various business lines. She says a steady pipeline of hyperscale projects ensures that the company remains one of the world’s largest buyers of critical data center equipment that needs to be ordered years in advance, giving the company the buying power to command priority treatment from manufacturers and avoid delays. 

“We have a huge opportunity to maintain our already-high degree of relevance in the supply chain for construction and design,” Fox-Martin said. “We manage a whole series of very strategic suppliers to enable us to build as quickly as possible and deliver revenue as quickly as possible for all of our new builds — xScale has a benefit of ensuring that as we're building at this kind of scale and this kind of size, supply chain position and stature remains in the top quadrant.”

Equinix’s leadership outlined its shifting development strategy following the release of Q3 results that exceeded Wall Street expectations. The data center provider posted its 87th consecutive quarter of revenue growth. Its $2.2B in Q3 revenue represented a 7% increase from a year earlier.