Tuesday, January 19th, 2016

Time	Event
12:30p	Data Center Network Startup Big Switch Raises $48.5M Big Switch Networks, an open networking software startup attempting to disrupt the incumbent data center networking industry, has raked in another hefty round of venture capital funding. The company has raised $48.5 million in a Series C round, its largest yet, from a group of investors that includes the likes of Khosla Ventures, Redpoint Ventures, and Michael Dell’s MSD Capital, as well as Shanghai-based private equity giant CID Group and the Taiwanese contract hardware manufacturer Accton, among others. Including the latest round, Big Switch has now raised a total of $94 million. Founded in 2010, Big Switch is one of a group of data center networking startups that emerged in recent years, positioning themselves as offering lower-cost alternatives to networking solutions traditionally offered by incumbents like Cisco, Juniper, Dell, and HP. Read more: Brocade CEO: Specialized Data Center Network Gear on Its Way Out These startups make network operating systems and network management software, referred to as software defined networking, which can be run on low-cost white-box switching hardware. At first, they generally target web-scale data center operators, companies that provide cloud infrastructure or applications and other web services that need highly agile, reconfigurable, and scalable data center networks. Lately, however, like nearly all data center technology vendors, they have been focusing on the promising enterprise data center market. Some of the incumbent vendors have introduced networking products that ship with software by these startups, seeking to address the same market segments. Read more: Why Cisco is Warming to Non-ACI Data Center SDN Big Switch claims it is in a period of extreme growth. The company said it grew more than 300 percent in 2015, successful with customers worldwide in tech, financial services, government, service providers, and higher education. Switch doesn’t make a network OS like Cumulus Networks, another company in this new group of network vendors. Its products are Big Monitoring Fabric, a piece of network monitoring software, and Big Cloud Fabric, software that can be used to create massive-scale data center network fabrics on white-box or brite-box switches, managed by an SDN controller. The company said its new round of funding will fuel further scaling, geographic expansion, and deepening its reach into markets already using the new style of data center networking. (Comment on this)
1:00p	JP Morgan: Data Center REIT Stocks Undervalued JP Morgan sees data center REITs as undervalued but expects faster earnings growth to help close the “valuation gap” with both wireless tower companies and traditional REITs, according to a recently published research note by the firm’s data center stock analysts. In the note JP Morgan analyst Richard Choe wrote that third-party data center growth was still in the early innings: “Data center REITs offer expertise regarding data center design, build, power, and cooling system, land management, and security. The vast majority of enterprises keep IT infrastructure in-house and in the early stages of a transition to outsourcing IT infrastructure to third-party data centers, providing a long potential runway for growth for the data center REIT industry.” The note highlighted three data center stocks. “CyrusOne remains our top pick and we are constructive on QTS [Realty Trust],” Choe wrote. “We expect Digital Realty [Trust] to be a solid and steady performer for the year.” According to JP Morgan, size matters when it comes to selecting top data center stock investments. “Digital Realty on January 4th issued solid 2016 guidance and we look for even better growth guidance from CyrusOne and QTS when they report in February.” CyrusOne (CONE) has a Fortune 1000 enterprise focus as part of its organizational DNA, having originally being spun out of Cincinnati Bell. It has been delivering high-power density colocation shell space in a range of $6 million to $7 million per megawatt. This strategy has rewarded investors with 50 percent dividend growth in the past year. Rendering of the entrance to CyrusOne’s Austin III data center (Image: CyrusOne) QTS (QTS) acquires infrastructure-rich, “mega-scale” campuses at a low cost basis and repurposes them into modern data center campuses. It calls its strategy C3, C1 being wholesale data center space, C2 retail colo, and C3 cloud and managed services. QTS has the most even distribution of rental revenue, with about 30 percent wholesale, 40 percent colocation, 20 percent cloud, and 10 percent other. Officials of QTS Realty Trust ringing the opening bell at the New York Stock Exchange to celebrate their IPO in late 2013 (Photo: QTS) Digital Realty (DLR) operates on a global scale that dwarfs the two rivals. Its recent $1.9 billion acquisition of Telx represents a pivot toward colocation and interconnection, in addition to its large wholesale, or “Scale” data center offerings. Digital owns 130 data centers in 30 markets worldwide, totaling more than 23 million square feet of raised floor. Digital Realty’s 100,000-square-foot data center in Dublin’s Profile Park. (Photo: Digital Realty Trust) For data center stock investors, JP Morgan favors smaller REITs that can deliver double-digit growth and deserve a higher earnings multiple. However, Chao and his team like Digital Realty for its “…scale, stability and dividend.” Read more: IBM, AT&T to Help Digital Realty Reel in Enterprise Cloud Users Notably, wholesale data center provider DuPont Fabros Technology (DFT), connectivity-focused CoreSite Realty (COR), as well as the newest addition to this sector, interconnection and colocation giant Equinix (EQIX), are not part of JP Morgan’s coverage universe. These three major data center REITs were not discussed in the research note. See my overview of the entire data center REIT sector from an investor’s point of view on Seeking Alpha. Read more: Equinix CEO Unveils Aggressive Plan to Court Enterprises Data Center Stocks Undervalued REITs are required to pay out at least 90 percent of taxable income as dividends to shareholders in return for earnings not being taxed at the corporate level. They also report non-GAAP financial metrics, which are valuable tools to compare individual REITs against sector peers. Funds from Operations (FFO) adds back building depreciation and amortizations to earnings to more accurately reflect REIT cash flows. Adjusted FFO, or AFFO, adjusts for the landlord’s share of recurring property-level CapEx. AFFO is sometimes referred to as FAD or CAD, funds/cash available for distribution. This cash flow is used to pay out the dividend distributions that REIT investors crave. Within JP Morgan’s coverage universe, on average, the data center REITs trade at 14.8x EV/EBITDA vs. the overall REIT industry clocking in at an 18.5x multiple. Chao noted, “The data center REITs trade on average at 14.6x P/2016E FFO and 16.7x P/2016E AFFO vs. the general REIT industry at 17.1x and 20.7x, respectively. In terms of growth, data center REITs are expected to post AFFO growth of 12.4 percent y/y in 2016 vs. just 7.1 percent y/y for the general REIT industry.” EV, or Enterprise Value, is the total market capitalization, which includes all forms of equity and debt. Wireless Towers v. Data Center REITs Wireless data has been growing at exponential rates, with the Internet of Things — machine to machine information exchange — adding fuel to the fire. This has spurred investor interest in third-party wireless tower landlords: American Tower (AMT), Crown Castle International (CCI), and SBA Communications (SBAC). According to Chao, “…the data center REITs trade at a discount due to shorter relative contract lengths, slightly higher churn, and an enterprise IT focus that leads to more abstract demand. We believe the valuation discount to wireless towers and overall REIT industry is too great given the solid business models…” JP Morgan “…believe[s] CyrusOne and QTS should trade at a premium to towers and overall REIT industry due to their solid business models and, more importantly, substantially higher growth rates.” However, investors should keep in mind that wireless tower companies also have a tenant concentration risk. In every market around the world, there are typically either three or four wireless carriers, which can represent over 95 percent of annual base rents. For example, wireless carrier Sprint recently announced a “radical plan” to reconfigure its network, Re/code reported. Sprint intends to lease towers from privately held Mobilitie, which will locate (where possible) on government-owned right-of-ways . American Tower and Crown Castle were specifically mentioned as REITs likely to lose business from these Sprint moves. At the close of trading, shares of AMT, CCI, and SBAC dropped 4.1 percent, 5.1 percent, and 7.6 percent, respectively. Regardless of whether or not this report is 100 percent accurate, it helps to illustrate how carrier CapEx spending is the lifeblood of the wireless tower industry. Notably, SBAC has no Sprint CapEx spending in its 2016 initial guidance, yet SBAC shares were hit hardest on Friday. So, other factors, such as Brazil exposure, or increased ForEx headwind concerns could have contributed to the SBAC decline. Bottom Line Chao noted, “The overall data center industry appears to be in a stable supply and demand environment. Data center utilization in key strategic markets is ~80% or higher. We see high utilization rates as a positive sign for pricing.” JP Morgan expects to see, “…low- to mid-double-digit growth rates in revenue, EBITDA, FFO, and AFFO for CyrusOne and QTS in 2016 on a standalone basis. For Digital Realty, we look for mid-single-digit growth rates. Given Digital Realty’s size and substantial wholesale revenue with long-term contracts and 2-3 percent escalators, the company’s ability to grow at a faster rate looks limited near-term.” Meanwhile, shareholders get paid quarterly dividend distributions, in addition to the anticipated share price appreciation from earnings growth and multiple expansion. As of this writing, Digital Realty, CyrusOne, and QTS Realty distributions equate to forward yields of 4.5 percent, 3.57 percent, and 2.96 percent, respectively. (Comment on this)
8:02p	Cybercrime Fastest-Growing Cause of Data Center Outages Cybercrime is quickly rising as one of the leading causes of data center outages. After having risen from being behind 2 percent of outages in 2010 to 18 percent in 2013, cybercrime caused 22 percent of data center outages in 2015, reported in a recent survey conducted by the Ponemon Institute and sponsored by Emerson Network Power. Cybercrime is now the fastest-growing cause of data center outages, the report’s authors said in a statement. The biennial report’s primary focus is cost of data center downtime to the operators, and that cost is quickly rising. Among operators of the 60-plus data centers surveyed, the average total cost per minute of unplanned downtime went from about $8,000 in 2013 to about $9,000 last year. Cybercrime is now the fastest-growing cause of data center outages Click To Tweet Read more: Seven Biggest Cloud Outages of 2015 Average cost of a single data center outage rose from $690,000 in 2013 to $740,000 in 2015. Data center outages cause companies to lose money in a variety of ways, the most costly one being business disruption. The other ones are lost revenue, reduced employee and IT productivity, and money spent on outage detection, recovery, post-outage activities, equipment, and third-party services. The researchers surveyed data center operators in a variety of sectors, including colocation, communications, consumer products, e-commerce, education, financial services, healthcare, industrial, and government, among others. Read more: Verizon Data Center Outage Delays JetBlue Flights The cost of downtime varies widely depending on many factors, the primary one being the data center’s function and the nature of the business its operator is in. To illustrate, the maximum cost of a data center outage among survey participants in 2015 was about $2.4 million – more than three times the average. Maximum cost of an outage has gone up about 80 percent since 2010, according to the report. Companies in the financial services industry stand to lose the most in data center outages, followed by communications, healthcare, e-commerce, and data center colocation verticals, in that order. Read more: Six Facts in High-Availability Data Center Design Downtime costs also depend on duration of the outage (longer outages are more costly), and size of the data center. Operators of smaller data centers generally lose more money per square foot than operators of larger facilities. While the frequency of data center outages caused by cybercrime is growing, UPS failure remains the leading cause of data center downtime. Including UPS systems and batteries, these types of failures caused 25 percent of outages in 2015 reported by survey participants. This is up from 24 percent in 2013 but down from 29 percent in 2010. The third most common cause of data center downtime is human error, accounting for 22 percent of outages last year. The fourth, fifth, sixth, and seventh most common culprits are mechanical system failure, weather, generator failure, and IT equipment failure, respectively. Download the full report here. (Comment on this)
8:11p	Nine Main Challenges in Big Data Security Aleksandr Panchenko is Head of Complex Web QA Department for A1QA. Every year the protection of private and confidential information gains more and more attention. According to the World Quality Report 2015-16, the only global report for application quality, security is the most highly ranked priority in the IT strategies used by survey respondents. Until recently, a company’s applications were mainly internal and its security was viewed as low risk. However, with the increased adoption of web-based, mobile and cloud-based applications, sensitive data has become accessible from different platforms. These platforms are highly vulnerable to hacking, especially if they are low-cost or free. Nowadays, organizations are collecting and processing massive amounts of information. The more data is stored, the more vital it is to ensure its security. A lack of data security can lead to great financial losses and reputational damage for a company. As far as Big Data is concerned, losses due to poor IT security can exceed even the worst expectations. What are the Main Challenges When it Comes to Big Data Security? Almost all data security issues are caused by the lack of effective measures provided by antivirus software and firewalls. These systems were developed to protect the limited scope of information stored on the hard disk, but Big Data goes beyond hard disks and isolated systems. Nine Big Data Security Challenges Most distributed systems’ computations have only a single level of protection, which is not recommended. Non-relational databases (NoSQL) are actively evolving, making it difficult for security solutions to keep up with demand. Automated data transfer requires additional security measures, which are often not available. When a system receives a large amount of information, it should be validated to remain trustworthy and accurate; this practice doesn’t always occur, however. Unethical IT specialists practicing information mining can gather personal data without asking users for permission or notifying them. Access control encryption and connections security can become dated and inaccessible to the IT specialists who rely on it. Some organizations cannot – or do not – institute access controls to divide the level of confidentiality within the company. Recommended detailed audits are not routinely performed on Big Data due to the huge amount of information involved. Due to the size of Big Data, its origins are not consistently monitored and tracked. How Can Big Data Security be Improved? Cloud computing experts believe that the most reasonable way to improve the security of Big Data is through the continual expansion of the antivirus industry. A multitude of antivirus vendors, offering a variety of solutions, provides a better defense against Big Data security threats. Refreshingly, the antivirus industry is often touted for its openness. Antivirus software providers freely exchange information about current Big Data security threats, and industry leaders often work together to cope with new malicious software attacks, providing maximum gains in Big Data security. Here are some additional recommendations to strengthen Big Data security: Focus on application security, rather than device security. Isolate devices and servers containing critical data. Introduce real-time security information and event management. Provide reactive and proactive protection. What’s Next for Big Data Security? Of immediate concern to companies using Big Data is the security of cloud-based systems. Intel Security has recently published the McAfee Labs’ Threat Predictions Report that contains their expectations for the near-future of data security. Of particular concern in this report is the supposition that legitimate cloud file hosting services such as Dropbox, Box, and Stream Nation, are at risk of being used as control servers in upcoming cyber espionage campaigns. If targeted, these popular cloud services could enable the malware to transfer commands without raising suspicion. Malicious attacks on IT systems are becoming more complex and new malware is constantly being developed. Unfortunately, companies that work with Big Data face these issues on a daily basis. Nevertheless, every problem has a solution and finding an effective and suitable answer for your organization is indeed possible. Industry Perspectives is a content channel at Data Center Knowledge highlighting thought leadership in the data center arena. See our guidelines and submission process for information on participating. View previously published Industry Perspectives in our Knowledge Library. (Comment on this)
8:55p	Edge Data Center Firm EdgeConneX Expands into Europe EdgeConneX, a young data center service provider that rolled out more than 20 so-called edge data centers around the US over the last two years, has started an expansion push into Europe, announcing the launch of a data center in Amsterdam. The company, which has the likes of Cox Communications and Comcast as its investors and customers, has been launching sites in second-tier US markets that are removed from major internet hubs, such as New York, Northern Virginia, or Silicon Valley. It provides data center capacity for online video companies and cloud service providers to cache data locally for serving customers in those markets, rather than paying a lot of money to backhaul the content from the distant hubs. By attracting both online content providers and local internet service providers that deliver that content to local users to its data centers, EdgeConneX expands the “edge” of the internet. Other players, such as vXchnge, are targeting a similar opportunity, although not at the speed and scale EdgeConneX is. Read more: How Edge Data Centers are Changing the Internet’s Geography Amsterdam is not an edge data center market. It is one of the most important interconnection hubs in Europe and in the world, but Amsterdam is only the first step in the company’s European expansion. Next on the slate are Ireland, Italy, France, Austria, Germany, and the UK, the company said. “Our Amsterdam facility will be our first edge data Ccenter in Europe and we look to replicate our US model internationally, supporting a highly distributed data center architecture at the edge of the internet,” Clint Heiden, chief commercial officer at EdgeConneX, said in a statement. “We are excited to see the adoption of our strategy by leading European broadband and internet providers. Our Amsterdam edge data center is a collaborative ecosystem effort and is the first step to bringing our business model benefits to all of Europe. Read more: vXchnge Buys Eight Sungard Facilities in Edge Data Center Markets After about one and a half years of breakneck expansion in the US, EdgeConneX has slowed its data center rollout. Company representatives told us in February 2015 that they expected to have north of 30 data centers by the end of the year – up from 20, most of which came online in 2014. EdgeConneX now has 23 data centers in the US, according to Tuesday’s announcement. (Comment on this)

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