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North America Equity Research

01 May 2009

Equinix
Analyst Day Handbook
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) managements 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 companys 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 companys scale and brand enable it to attract a strong client base, including the worlds largest bandwidth providers and many of the largest and fastest growing content providers and enterprises. We believe Equinixs 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 Equinixs recurring revenue business, which should help mitigate the impact of broader economic weakness.

Overweight
EQIX, EQIX US Price: $70.23 Price Target: $72.00

Telecom Services Mike McCormack, CFA


AC

(1-212) 622-1442 michael.mccormack@jpmorgan.com

Scott Goldman
(1-212) 622-2664 scott.goldman@jpmorgan.com

Manish Jain
(1-212) 622-8692 manish.x.jain@jpmchase.com J.P. Morgan Securities Inc.
Price Performance
110 90 $ 70 50 30
Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

YTD Abs 32.3%

1m 23.2%

3m 25.3%

12m -21.9%

Equinix, Inc. (EQIX;EQIX US) 2008A EPS ($) Q1 (Mar) Q2 (Jun) Q3 (Sep) Q4 (Dec) FY 0.15 0.06 0.19 2.74 3.31 2009E
(Old)

2009E
(New)

2010E
(Old)

2010E
(New)

0.28A 0.20A 0.24A 0.28A 0.99A

0.40A 0.25A 0.25A 0.27A 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 ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date

70.23 30 Apr 09 101.00 - 32.72 2,720.64 Dec 39 72.00 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.

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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; managements 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).

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Key Issues on Which to Focus


We believe key issues currently facing Equinix are: 1) the challenges posed by continued economic weakness; 2) the companys 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 Equinixs business track enterprise spending patterns)? Geographically, which region is most susceptible to the economic slowdown? What is Equinixs exposure to various industry verticals? Have the challenges within the financial services sector impacted Equinixs 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 Equinixs 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 Equinixs long-term business opportunity? How do you anticipate power needs will change over the next few years? Will this cause further capacity constraints?

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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 Equinixs 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 Equinixs 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 Los Angeles 4 New York 4 phase II SG2 phase I Paris 3 phase I London 5 phase I Target Open 2Q09 Sellable cabinets 800 Total Capex $90-$95 Comments 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 300 cabinets available 1Q09 and remaining 800 cabinets available 2Q09 additional capacity for 1,000 cabinets in future phases additional capacity for 1,300 cabinets in future phases additional capacity for 4,100-4,600 cabinets in future phases

2Q09 3Q09 2Q09 1Q10

1,100 700 1,300 1,400

$80-$90 $45 $30-$35 $80-$90

Source: Company reports.

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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 companys progress in developing the interconnect opportunity in its European properties.
Figure 1: U.S. Revenue Trends and Sequential Growth
$ in millions

$140 $120 $100 $80 $60 $40 $20 $0 1Q07 2Q07 3Q07 4Q07 U.S.
Source: Company reports and J.P. Morgan estimates.

15% 10% 5% 0% -5% -10% -15% 1Q08 2Q08 3Q08 4Q08 1Q09 U.S. Grow th

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


$ in millions

$60 $50 $40 $30 $20 $10 $0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
A sia-P acific A sia-P acific Gro wth Euro pe Euro pe Gro wth

35% 25% 15% 5% -5% -15%

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

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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

$1,800 $1,700 $1,600 $1,500 $1,400 $1,300 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

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

Grow th

Margin Opportunity
Equinixs 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

$100 $75 $50 $25 $0 1Q07 2Q07 U.S. 3Q07 4Q07 Asia-Pacific 1Q08 2Q08 Europe 3Q08 4Q08 1Q09

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

EBITDA Margin

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

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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, Equinixs net leverage was 2.6x its annualized adjusted EBITDA, below the companys 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.

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 5: Capital Spending and Leverage Trends


$ in millions

$175 $150 $125 $100 $75 $50 $25 $0 1Q07 2Q07 3Q07
Expansion

5.9x

4.0x

2.0x

0.0x 4Q07 1Q08 2Q08


Ongoing

3Q08 4Q08
Leverage

1Q09

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

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Management Guidance
Table 2: Management Guidance
Total Revenue Cash Gross Margins Cash SG&A Expenses EBITDA Capital Expenditure Expansion On-going
Source: Company reports.

2Q09E $206M-$210M 63%-64% approx. $39M $92M-$94M $110M-$120M $90M-$110M $20M

2009E $855M-$875M 62%-63% $160M-$170M $370M-$385M $325M-$375M $265M-$315M $60M

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-thanexpected 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 quarters tempered revenue outlook.

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Table 3: Equinix 1Q09 Snapshot


$ in millions, except per share data and Customer data in '000s: KEY METRICS % Change 1Q09A 1Q09E Versus Est. EOP Customers 2,384 2,352 1.4% Customer Churn 0.7% 1.1% -36.2% FINANCIAL METRICS 1Q09A Revenue Recurring Revenue Non-Recurring Total Revenue Operating Expense Cash Cost of Revenue Cash Sales and Marketing Cash General and Administrative Equity-Based Compensation Depreciation and amortization Total Operating Expenses EBITDA Margin Operating Income Margin Average shares outstanding Diluted Earnings per Share - Diluted Capital expenditures $191.3 $7.9 $199.2 71.9 10.6 25.3 11.5 42.0 161.4 91.4 45.9% 37.9 19.0% 38.7 $0.37 75.0 1Q09E $191.1 $8.4 $199.5 72.7 15.2 25.1 13.7 44.3 171.0 86.5 43.4% 28.5 14.3% 43.9 $0.20 102.0 % Change Versus Est. 0.1% -5.5% -0.1% -1.0% -30.0% 0.5% -5.2% -5.6% 5.7% 32.8% 4Q08A $182.8 $7.9 $190.7 66.2 15.7 24.6 13.1 44.1 163.8 84.1 44.1% 26.9 14.1% 43.7 $0.32 165.6 Seq. % Change 4.6% 1.0% 4.5% 8.6% -32.4% 2.7% -4.8% -1.5% 8.7% 40.8%

4Q08A 2,272 1.0%

Seq. % Change 4.9% -28.2%

-11.7% 56.0% -26.5%

-11.3% -4.8% -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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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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 companys 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 Equinixs data center services brand and building upon the companys global position in the market. October 27, 2008 Launches New Corporate Brand. The new brand and logo focus on Equinixs 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 Equinixs 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 Equinixs colocation services. Similarly, Equinix customers joining LINX will be able to connect on site to directly exchange traffic, or peer, with LINXs 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-IXs Internet service providers and high-quality traffic exchange participants. March 17, 2008 Provides Data Center and Connectivity Infrastructure for Hulus New Online Video Service. Hulu will use Equinixs 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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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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 Equinixs 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 companys 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 Equinixs 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, Equinixs growth could be lower than anticipated. Integration. Equinix recently completed two transactions which provide an entre 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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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Company Models

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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 1: Equinix. Normalized Operating Forecast


$ in millions, except per share data
1Q08 Revenue Recurring Revenue Non-Recurring Total Revenue Operating Expenses Cash Cost of Revenue Cash Sales and Marketing Cash General and Administrative Equity-Based Compensation Depreciation and amortization One-time Items Total Operating Expenses Gross Profit margin Adjusted EBITDA margin Operating Income margin Interest income & other Interest expense Other income (expense) One-time items Pretax Income Income taxes Tax rate Net Income Average shares outstanding - Basic Average shares outstanding - Diluted Earnings Per Share - Basic Earnings Per Share - Diluted
Source: Company reports and J.P. Morgan estimates.

2Q08

3Q08

4Q08

2008

1Q09

2Q09E

3Q09E

4Q09E

2009E

2010E

$150.4 7.9 158.2

$163.4 8.6 172.0

$173.5 10.2 183.7

$182.8 7.9 190.7

$670.1 34.6 704.7

$191.3 7.9 199.2

$201.1 8.3 209.4

$208.0 10.7 218.7

$222.0 11.9 233.9

$822.4 38.9 861.3

$952.8 48.7 1,001.6

61.8 11.5 22.7 12.3 35.9 0.0 144.2 96.5 61.0% 62.3 39.4% 14.0 8.9% 3.4 (13.6) 2.0 0.0 5.9 0.5 8.0% 5.4 36.3 37.3 $0.15 $0.15

66.1 10.9 25.9 17.0 38.8 0.0 158.7 106.0 61.6% 69.1 40.2% 13.3 7.7% 2.4 (12.8) (0.9) 0.0 2.0 (0.3) -13.1% 2.2 36.6 37.8 $0.06 $0.06

70.6 12.1 24.1 12.6 42.1 0.8 162.2 113.1 61.6% 76.2 41.5% 21.5 11.7% 0.4 (13.9) (0.5) 0.0 7.6 0.2 2.5% 7.4 37.0 37.9 $0.20 $0.19

66.2 15.7 24.6 13.1 44.1 2.3 166.1 124.5 65.3% 81.8 42.9% 24.6 12.9% 1.1 (14.7) 0.7 0.0 11.6 (104.9) -900.7% 116.5 37.3 43.7 $3.13 $2.74

264.7 50.2 97.3 55.1 160.8 3.1 631.3 440.0 62.4% 289.3 41.1% 73.4 10.4% 7.4 (55.0) 1.3 0.0 27.1 (104.5) -385.7% 131.5 36.8 43.7 $3.58 $3.31

71.9 10.6 25.3 11.5 42.0 (5.8) 155.5 127.3 63.9% 97.2 48.8% 43.7 21.9% 0.9 (13.5) (4.1) 0.0 27.1 11.6 42.9% 15.5 37.9 38.7 $0.41 $0.40

76.5 12.6 26.8 16.2 47.9 0.0 180.1 132.9 63.5% 93.4 44.6% 29.3 14.0% 0.9 (14.1) 0.8 0.0 16.9 7.3 43.0% 9.6 38.1 38.9 $0.25 $0.25

81.3 15.1 27.6 17.0 48.0 0.0 189.2 137.3 62.8% 94.6 43.3% 29.5 13.5% 1.1 (14.1) 0.8 0.0 17.3 7.4 43.0% 9.8 38.3 39.1 $0.26 $0.25

87.3 16.2 30.5 18.3 50.8 0.0 203.1 146.6 62.7% 99.9 42.7% 30.9 13.2% 1.2 (14.0) 0.8 0.0 18.9 8.1 43.0% 10.8 38.5 39.3 $0.28 $0.27

317.1 54.6 110.2 63.0 188.7 (5.8) 727.9 544.1 63.2% 385.2 44.7% 133.4 15.5% 4.1 (55.6) (1.9) 0.0 80.1 34.4 43.0% 45.7 38.2 39.0 $1.20 $1.17

355.9 73.0 127.4 74.7 218.3 0.0 849.3 645.7 64.5% 445.3 44.5% 152.2 15.2% 2.2 (54.1) 3.0 0.0 103.3 42.4 41.0% 61.0 39.3 40.3 $1.55 $1.51

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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 6: Equinix. Cash Flow Statement


$ in millions, except per share data
1Q08 Net income + Depreciation & amortization + Stock-based compensation + Amortization of debt issuance costs Accretion of asset retirement obligation and accrued + restructuring charges + Other items Cash from operations + Change in working capital/other Cash after working capital requirements Expansion capital Ongoing capital - Capital expenditures Free Cash Flow - Dividends Free Cash Flow After Dividends + Change in debt + Change in equity + Acquisitions/divestitures + Other investing + Other financing Net change in cash before foreign exchange Effect of exchange rate Net change in cash
Source: Company reports and J.P. Morgan estimates.

2Q08 2.2 38.3 17.0 1.2

3Q08 7.4 41.6 12.6 1.2

4Q08 116.5 44.1 13.1 1.1

2008 131.5 159.4 55.1 4.9

1Q09 15.5 42.0 11.5 2.4

2Q09E 9.6 48.3 16.2 1.4

3Q09E 9.8 48.4 17.0 1.4

4Q09E 10.8 51.2 18.3 1.5

2009E 45.7 189.9 63.0 6.8

2010E 61.0 219.8 74.7 6.5

5.4 35.5 12.3 1.4

0.4 0.5 55.5 7.5 63.0 115.6 10.0 125.6 (62.7) 0.0 (62.7) 37.8 0.0 (23.2) 12.7 6.8 (28.6) (1.2) (29.8)

0.4 (1.2) 58.0 7.0 65.0 72.6 11.9 84.5 (19.5) 0.0 (19.5) 30.4 0.0 0.0 (131.8) 11.6 (109.3) (0.4) (109.7)

0.4 1.8 65.0 (1.6) 63.3 81.9 13.5 95.4 (32.1) 0.0 (32.1) 19.6 0.0 0.0 13.0 6.8 7.3 2.2 9.6

2.3 1.6 178.8 (103.1) 75.7 98.1 67.5 165.6 (89.9) 0.0 (89.9) 30.1 0.0 0.0 32.1 0.7 (27.0) 4.7 (22.3)

3.6 2.7 357.2 (90.2) 267.0 368.2 102.9 471.1 (204.1) 0.0 (204.1) 117.8 0.0 (23.2) (73.9) 14.1 (169.4) 5.4 (164.0)

0.0 (3.1) 68.3 18.4 86.7 64.7 10.3 75.0 11.7 0.00 11.74 (7.4) 0.0 0.0 (2.9) 3.8 5.2 (3.4) 1.8

0.4 0.0 75.9 10.0 85.9 93.0 20.0 113.0 (27.1) 0.0 (27.1) (32.3) 0.0 0.0 0.0 8.0 (51.4) (0.0) (51.4)

0.4 0.0 77.1 10.0 87.1 68.0 13.0 81.0 6.1 0.0 6.1 0.0 0.0 0.0 0.0 8.0 14.1 (0.0) 14.1

0.4 0.0 82.1 (15.0) 67.1 70.0 14.0 84.0 (16.9) 0.0 (16.9) (18.7) 0.0 0.0 0.0 8.0 (27.6) (0.0) (27.6)

1.1 (3.1) 303.4 23.4 326.8 295.7 57.3 353.0 (26.2) 0.0 (26.2) (58.4) 0.0 0.0 (2.9) 27.8 (59.7) (3.4) (63.1)

1.0 0.0 363.0 (30.0) 333.0 262.5 60.2 322.7 10.4 0.0 10.4 (50.0) 0.0 0.0 0.0 30.0 (9.6) (2.0) (11.6)

15

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 7: Equinix Balance Sheet


$ in millions

3/31/08 Assets Current assets Cash and cash equivalents Short-term Investments Accounts receivable - net Prepaid expenses & other current assets Total current assets Long-term investments Property and equipment, net Goodwill Debt issuance costs, net Other assets Total assets

12/31/07

12/31/06

$222 30 60 45 357

$291 93 60 0 444

$83 49 27 8 166

0 180 2,417

21 44 2,145

3 14 772

Liabilities and shareholders' equity Current liabilities Accounts payable and accrued expenses Accrued PP&E Current portion of accrued restructuring charges Current portion of debt, credit facilities and CLO Current portion of mortgage payable Other current liabilities Total current liabilities

79 53 0 0 52 72 256

65 77 12 1 11 36 202

27 23 13 2 2 10 78

Accrued restructuring charges, less current portion Debt facilities and CLO, less current portion Mortgage payable Convertible subordinated debt and secured notes Deferred rent and other Total liabilities Shareholders' equity Preferred stock Common stock Additional paid-in capital Deferred stock-based compensation Accumulated other comprehensive income Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity
Source: Company reports and J.P. Morgan estimates.

0 132 371 611 113 1,484

20 96 319 678 56 1,371

28 93 97 86 35 417

0 0 1,541 0 (167) (440) 933 2,417

0 0 1,377 0 (4) (600) 773 2,145

0 0 905 0 4 (553) 355 772

16

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 4: Equinix Operating Forecast


$ in millions, except per share data
1Q08 Customers gross adds disconnects ending customers average customer churn Customer Growth y/y growth q/q growth Per average customer Cross connects Cabinet billed (wgt average) U.S. Europe Asia Pacific Cross connects adds average cross connects Cross Connect Growth y/y growth q/q growth Cabinets (ex-Europe) Cabinet capacity adds average sellable cabinets Cabinet billing adds average cabinets billing Billing Growth y/y growth q/q growth weighted average billed cabinets Churn cabinet churn MRR churn Exchange ports U.S. Europe Asia Pacific Total exchange ports 10GE ports 1,881 160 47 1,994 1,938 0.8% 2Q08 1,994 144 48 2,090 2,042 0.8% 3Q08 2,090 178 40 2,228 2,159 0.6% 4Q08 2,228 110 66 2,272 2,250 1.0% 2008 2,228 592 201 2,272 2,077 0.8% 1Q09 2,272 161 49 2,384 2,328 0.7% 2Q09E 2,384 149 73 2,460 2,422 1.0% 3Q09E 2,460 171 60 2,571 2,516 0.8% 4Q09E 2,571 135 70 2,635 2,603 0.9% 2009E 2,571 616 252 2,635 2,454 0.9% 2010E 2635 687 305 3,017 2,826 0.9%

49.4% 6.0%

52.2% 4.8%

23.0% 6.6%

20.8% 2.0%

20.8%

19.6% 4.9%

17.7% 3.2%

17.7% 4.5%

15.4% 2.5%

15.4%

14.5%

17.1 12.1 19,511 5,050 8,475 33,036 1,800 25,618

14.6 12.0 20,570 NA 9,184 29,754 (3,282) 31,395

14.5 12.1 21,522 NA 9,765 31,287 1,533 30,521

14.5 12.1 22,193 NA 10,352 32,545 1,258 31,916

15.7 13.3 22,193 NA 10,352 32,545 1,309 25,372

17.5 18.9 23,150 6,868 10,769 40,787 8,242 36,666

17.5 18.6

17.5 18.2

17.5 17.8

17.7 15.2

17.7 16.8

42,436 1,649 41,611

44,074 1,638 43,255

45,607 1,533 44,841

45,607 13,062 39,076

46,747 1,140 46,177

112.4% 81.5%

80.2% -9.9%

80.9% 5.2%

78.8% 4.0%

78.8%

2.7% 4.2%

42.6% 4.0%

40.9% 3.9%

40.1% 3.5%

40.1%

14.6% 2.5%

30,100 0 30,100 23,500 1,500 22,750

33,300 3,200 31,700 25,100 1,600 24,300

33,800 500 33,550 26,400 1,300 25,750

34,200 400 34,000 27,650 1,250 27,025

34,200 4,100 32,150 27,650 5,650 24,825

55,300 700 44,750 44,500 650 36,075

56,550 1,250

57,950 1,400

58,750 800

58,750 4,150

62,250 3,500

45,540 1,040 45,020

46,081 541 45,810

46,713 632 46,397

46,713 2,863 37,181

48,233 1,520 47,473

27.7% 6.8% 23,480

30.7% 6.8% 24,600

28.8% 5.2% 26,100

25.7% 4.7% 27,320

25.7%

20.4% 2.4% 44,050

81.4% 2.3% 45,240

74.5% 1.2% 45,781

68.9% 1.4% 46,413

68.9%

8.4% 3.3% 47,933

27,320

45,371

1.6% 2.1%

2.0% 2.0%

2.0% 2.0%

1.3% 2.4%

1.7% 2.1%

1.5%

489 69 117 675 102

514 69 120 703 114

534 70 136 740 114

485 71 146 702 183

485 71 146 702 183

505 75 161 741 224

Revenue (U.S. and Asia Pacific) Colocation Interconnection Managed Service Rental Recurring Revenue Non-Recurring Total Revenue Revenue Breakdown Colocoation Interconnection Managed Service Rental Recurring Revenue Non-recurring revenue Total Revenue Reported revenue/wgt avg cabinet billing y/y growth Recurring revenue/wgt avg cabinet billing y/y growth q/q growth

87.1 20.6 4.2 0.2 112.1 5.2 117.4

96.5 21.8 4.0 0.1 122.4 5.4 127.9

102.6 22.7 4.0 0.1 129.3 7.1 136.4

112.3 23.9 3.9 0.1 140.3 5.3 145.5

398.5 88.9 16.2 0.6 504.2 23.0 527.2

118.2 23.8 4.1 0.2 146.3 5.1 151.4

154.0 5.3 159.2

158.2 7.3 165.5

168.8 8.5 177.3

627.3 26.2 653.4

724.2 34.1 758.4

74.2% 17.5% 3.6% 0.2% 95.5% 4.5% 100.0% $1,603 7.0% $1,592 -7.7% 0.7%

75.5% 17.0% 3.2% 0.1% 95.8% 4.2% 100.0% $1,650 7.7% $1,659 7.0% 4.2%

75.2% 16.6% 2.9% 0.1% 94.8% 5.2% 100.0% $1,654 5.8% $1,652 5.6% -0.4%

77.2% 16.4% 2.7% 0.1% 96.4% 3.6% 100.0% $1,689 6.8% $1,711 8.2% 3.6%

75.6% 16.9% 3.1% 0.1% 95.6% 4.4% 100.0% $1,649 6.8% $1,538 -4.0%

78.1% 15.7% 2.7% 0.1% 96.6% 3.4% 100.0% $1,740 8.5% $1,739 9.2% 1.6%

96.7% 3.3% 100.0%

95.6% 4.4% 100.0%

95.2% 4.8% 100.0%

96.0% 4.0% 100.0%

95.5% 4.5% 100.0%

$1,755 5.8% 1.0%

$1,771 7.2% 0.9%

$1,850 8.1% 4.5%

$1,780 15.7%

$1,890 6.2% 2.2%

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

17

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Appendix
Equinix at a Glance Figure 8:Recurring Revenue & Growth
$225M $200M $175M $150M $125M $100M $75M $50M $25M $0M Rec. Rev Grow th 2Q07 87.9 35.1% 3Q07 99.3 42.0% 4Q07 131.6 72.2% 1Q08 150.4 85.9% 2Q08 163.4 85.9% 3Q08 173.5 74.8% 4Q08 182.8 38.9% 1Q09 191.3 27.2% 35.0% 25.0% 75.0% 65.0% 55.0% 95.0% 85.0%

Figure 2: EBITDA and Margin


$100M $80M $60M $40M
45.0%

50.0% 47.5% 45.0% 42.5% 40.0% 37.5% 35.0% 32.5%

$20M $0M EBITDA Margin

2Q07 35.3 38.4%

3Q07 40.6 39.2%

4Q07 47.1 33.9%

1Q08 62.3 39.4%

2Q08 69.1 40.2%

3Q08 77.0 41.9%

4Q08 84.1 44.1%

1Q09 91.4 45.9%

30.0%

Customers & Growth


3,000 2,500 2,000 1,500 1,000 500 0 Cust Growth 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

Billable Cabinets and Utilization Rate


50K 45K 40K 35K 30K 25K 20K 15K 10K 5K K 2Q07 19,200 77.0% 3Q07 20,500 79.0% 4Q07 22,000 73.0% 1Q08 23,500 78.0% 2Q08 25,100 76.0% 3Q08 26,400 78.0% 4Q08 27,650 81.0% 1Q09 44,500 80.0% 70.0% 68.0% 74.0% 72.0% 78.0% 76.0% 82.0% 80.0%

2Q07 1,373 15.5%

3Q07 1,811 44.0%

4Q07 1,881 45.8%

1Q08 1,994 49.4%

2Q08 2,090 52.2%

3Q08 2,228 23.0%

4Q08 2,272 20.8%

1Q09 2,384 19.6%

Blb Cab Ut Rt

Cross Connects and Growth


45K 40K 35K 30K 25K 20K 15K 10K 5K K Cr Con Grow th 2Q07 16,514 20.1% 3Q07 17,295 19.3% 4Q07 18,199 22.5% 1Q08 27,986 80.0% 2Q08 29,754 80.2% 3Q08 31,287 80.9% 4Q08 32,545 78.8% 1Q09 40,787 45.7% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

ARPU and Growth


$1,800 $1,750 $1,700 $1,650 $1,600 $1,550 $1,500 $1,450 $1,400 ARPU Growth 2Q07 1,532 6.2% 3Q07 1,564 6.0% 4Q07 1,581 6.0% 1Q08 1,603 7.0% 2Q08 1,650 7.7% 3Q08 1,654 5.8% 4Q08 1,689 6.8% 1Q09 1,740 8.5% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

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

18

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 9: Revenue Contribution by Region


1Q 0 8
1Q 0 9

26%

24%

13%

11%

63%

63%

U.S.

A sia-P acific

Euro pe

U.S.

A sia-P acific

Euro pe

Source: Company reports.

Figure 10: EBITDA Contribution by Region


1Q 0 8
17%

1Q 0 9
18%

9%

13%

69%
74%

US

A sia-P acific

Euro pe

US

A sia-P acific

Euro pe

Source: Company reports.

19

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 11: Revenue Breakdown by Service


U.S.

Asia-Pacific

Interco nnectio n 9%
Co lo catio n 82% Interco nnectio n 1 8% M anaged infrastructure 0% Rental 0%

Co lo catio n 77%

M anaged infrastructure 1 4% Rental 0%

Europe

Interco nnectio n 3% Co lo catio n 90% M anaged infrastructure 7% Rental 0%

Source: Company reports.

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

100% 80% 60% 40% 20% 0% -20% -3% S&P


Source: FactSet.

319% 68% 75%

58% 32% 9% 14%

TMRK

DLR

EQIX

SDXC

SVVS

RAX

DFT

20

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 13: U.S. Telecom Services Valuation Comparisons


$ in millions, except where otherwise stated
Fundamentals Company Diversified Global Carriers AT&T Verizon Communications ILECs Qwest Communications Int'l Rural Carriers Frontier Communications Co. Windstream Corp. Competitive Carriers Cogent Communications Level 3 Communications, Inc. tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC) S&P 500 Rating/PT
OW - $28.00 OW - $36.00

Dividend YTD Return


-10.5% -10.3%

Valuation and Leverage

Price 4/29/09
25.52 30.41

52-Week Range
41-21 40-23

2008 Return
-31.4% -22.4%

Shares Out
5,920 2,841

Dividend
1.64 1.72

Yield
6.4% 5.7%

Payout Ratio 2009E 2010E


60% 68%

Market Cap
151,078 86,395

Net Debt
70,538 64,782

Adj. Ent. Value (1)


218,101 141,106

Net Debt/ Capital


32% 46%

62% 80% 40% 93% 66% 43% -

N - NA

3.68

6-2

-48.1%

1.1%

1,705

0.32

8.7%

34%

6,273

12,801

17,802

72%

N - $9.00 OW - $11.00

7.14 8.33

13-5 15-6

-31.3% -29.3%

-18.3% -9.5%

310 437

1.00 1.00

14.0% 12.0%

78% 61%

2,213 3,641

4,562 5,086

6,775 8,635

67% 59%

OW - $11.00 UW - NA N - $8.00

8.95 1.07 9.05

23-3 4-1 20-4

-72.5% -77.0% -58.3%

37.1% 52.9% 6.8%

46 1,606 148

410 1,719 1,341

123 5,884 1,021

488 7,496 2,183

25% 78% 47%

N - NA OW - $38.00 OW - $22.00 N - $16.00 N - NA

5.44 35.16 16.54 17.01 4.24

18-3 62-14 22-10 32-14 10-1

-64.0% -42.3% -23.7% -16.9% -86.1%

10.3% 30.8% 11.4% -31.0% 131.7%

695 68 355 42 2,859

0.84 -

4.9% -

44% -

3,780 2,394 5,876 719 12,122

144 2,221 2,377 542 17,891

3,925 4,615 8,253 1,262 30,013

4% 48% 29% 43% 60%

N - $30.00 N - $23.00 OW - $24.00

33.29 23.61 24.78

47-32 43-30 39-24

-31.2% -57.7% -51.8%

13.5% 34.3% 51.8%

409 286 117

13,614 6,745 2,894

4,029 5,893 2,476

17,643 12,638 5,370

23% 47% 46%

OW - $72.00 N - $7.00

70.39 11.64 875.68

101-33 19-4 1,440-667

-47.4% -53.9% -38.5%

32.3% 57.5% -3.1%

44 35

3.1%

3,076 406

914 171

3,990 577

23% 30%

Company

EPS From Continuing Operations 2008 2009E 2010E


$2.16 $2.54 $2.19 $2.61 $2.34 $2.81

Earnings Multiples P/E Ratio 2008 2009E


11.8x 12.0x 11.7x 11.7x

2010E
10.9x 10.8x

Relative P/E Multiple 2008 2009E


1.0x 1.0x 0.8x 0.8x

2010E
0.9x 0.9x

2008
124,027 97,096

Financial Highlights and Profitability Revenue Revenue Growth 2009E 2010E 09E/08 10E/09E
122,488 108,630 120,507 110,192 -1.2% 11.9% -1.6% 1.4%

Diversified Global Carriers AT&T Verizon Communications ILECs Qwest Communications Int'l Rural Carriers Frontier Communications Co. Windstream Corp. Competitive Carriers Cogent Communications Level 3 Communications, Inc. tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC) S&P 500

$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%

$0.58 $1.04

$0.59 $0.88

$0.62 $0.83

12.3x 8.0x

12.2x 9.4x

11.5x 10.0x

1.0x 0.7x

0.8x 0.6x

1.0x 0.9x

2,237 3,172

2,115 3,067

2,006 2,982

-5.4% -3.3%

-5.2% -2.8%

($0.62) ($0.20) $0.06

($0.20) ($0.31) $0.09

$0.26 ($0.26) $0.16

NM NM NM

NM NM NM

34.9x NM NM

NM NM NM

NM NM NM

3.0x NM NM

215 4,274 1,159

248 3,879 1,190

281 3,641 1,246

15.2% -9.2% 2.6%

13.2% -6.1% 4.8%

($3.43) ($2.17) $0.45 $1.14 $0.09

($2.25) $0.51 $0.71 $1.42 ($0.29)

($3.37) $3.08 $1.27 $1.53 ($0.31)

NM NM 36.6x 14.9x 47.0x

NM NM 23.2x 12.0x NM

NM 11.4x 13.0x 11.1x NM

NM NM 3.0x 1.2x 3.8x

NM NM 1.5x 0.8x NM

NM 1.0x 1.1x 1.0x NM

231 1,959 2,752 540 35,635

270 2,709 3,540 565 32,564

832 3,955 4,466 588 31,345

17.1% 38.3% 28.7% 4.7% -8.6%

208.1% 46.0% 26.2% 4.1% -3.7%

$0.60 $0.16 ($0.80)

$0.60 $0.12 ($0.42)

$0.78 $0.81 ($0.25)

NM NM NM

NM NM NM

42.8x 29.1x NM

NM NM NM

NM NM NM

3.7x 2.5x NM

1,594 1,527 475

1,684 1,647 555

1,812 1,775 610

5.7% 7.9% 16.9%

7.6% 7.7% 9.8%

$3.31 $0.04 71.50E

$1.17 $0.08 57.00E

$1.51 $0.27 76.00E

21.2x NM 12.2x

NM NM 15.4x

46.5x 43.0x 11.5x

1.7x NM 1.0x

NM NM 1.0x

4.0x 3.7x 1.0x

705 172

861 207

1,002 246

22.2% 20.8%

16.3% 18.9%

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.

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

21

Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Figure 14: U.S. Telecom Services Valuation Comparisons (cont.)


$ in millions, except where otherwise stated
EBITDA 2009E
42,880 25,678

Company

2008
42,945 23,842

2010E
43,412 26,521

EBITDA Growth 09E/08 10E/09E


-0.2% 7.7% 1.2% 3.3%

Financial Highlights and Profitability Free Cash Flow (3) 2008


13,979 7,377

2009E
16,133 7,222

2010E
15,785 6,084

FCF Growth 09E/08 10E/09E


15.4% -2.1% -2.2% -15.8%

Free Cash Flow Yield 2009E 2010E


10.7% 8.4% 10.4% 7.0%

Diversified Global Carriers AT&T (T) Verizon Communications (VZ) ILECs Qwest Communications Int'l (Q) Rural Carriers Frontier Communications Corp. (FTR) Windstream Corp. (WIN) Competitive Carriers Cogent Communications (CCOI) Level 3 Communications, Inc. (LVLT) tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC)

4,545

4,322

4,042

-4.9%

-6.5%

1,439

1,616

1,360

12.3%

-15.8%

25.8%

21.7%

1,213 1,646

1,134 1,521

1,069 1,472

-6.5% -7.6%

-5.8% -3.3%

451 764

399 713

334 666

-11.5% -6.6%

-16.2% -6.6%

18.0% 19.6%

15.1% 18.3%

60 1,022 399

77 1,023 416

94 994 440

28.2% 0.1% 4.3%

22.5% -2.8% 5.7%

18 (55) 31

37 112 61

62 108 77

106.0% NM 96.8%

66.1% -3.8% 26.7%

9.1% NM 4.5%

15.1% 6.3% 5.8%

(387) 414 783 227 7,664

(852) 606 1,037 231 6,105

(1,018) 920 1,434 242 5,697

NM 46.5% 32.4% 1.8% -20.3%

NM 51.8% 38.3% 4.9% -6.7%

(674) (445) (507) 53 2,297

(2,302) (187) (9) 81 2,825

(3,343) (1) 337 83 4,368

NM NM NM 54.1% 23.0%

NM NM NM 2.2% 54.6%

NM NM NM 11.3% 23.3%

NM NM NM 11.6% 36.0%

1,092 867 269

1,166 980 331

1,276 1,066 372

6.7% 13.0% 22.8%

9.5% 8.8% 12.4%

804 470 165

887 661 214

999 737 259

10.3% 40.7% 29.5%

12.7% 11.5% 20.7%

6.5% 9.8% 7.4%

7.3% 10.9% 8.9%

292 57

379 72

445 88

29.7% 28.2%

17.4% 21.9%

(204) (109)

(26) (19)

10 21

-87.2% -82.9%

-139.6% NM

-0.9% -4.6%

0.3% 5.1%

Company

EV/Revenue 2008 2009E

2010E

Valuation Ratios EV/EBITDA 2008 2009E

2010E

Price/FCF 2009E 2010E

Access Line Metrics EV/Line or EV/Sub Access Lines (MM) 2009E 2010E 2009E 2010E

Diversified Global Carriers AT&T Verizon Communications Diversified Global Carriers Qwest Communications Int'l Rural Carriers Frontier Communications Co. Windstream Corp. (WIN) Competitive Carriers Cogent Communications (CCOI) Level 3 Communications, Inc. (LVLT) tw telecom Wireless Carriers Clearwire (CLWR) Leap Wireless (LEAP) MetroPCS (PCS) Ntelos (NTLS) Sprint Nextel (S) Wireless Towers American Tower (AMT) Crown Castle (CCI) SBA Communications (SBAC) Data Centers Equinix (EQIX) Switch & Data (SDXC)

1.8x 1.5x

1.8x 1.3x

1.8x 1.3x

5.1x 5.9x

5.1x 5.5x

5.0x 5.3x

9.4x 12.0x

9.6x 14.2x

49.0 32.3

42.8 28.9

4,448 4,371

5,091 4,890

1.3x

1.4x

1.5x

3.9x

4.1x

4.4x

3.9x

4.6x

10.2

8.9

1,742

2,002

3.0x 2.7x

3.2x 2.8x

3.4x 2.9x

5.6x 5.2x

6.0x 5.7x

6.3x 5.9x

5.5x 5.1x

6.6x 5.5x

2.1 2.9

1.9 2.7

3,267 3,011

3,566 3,197

2.3x 1.8x 1.9x

2.0x 1.9x 1.8x

1.7x 2.1x 1.8x

8.2x 7.3x 5.5x

6.4x 7.3x 5.2x

5.2x 7.5x 5.0x

11.0x 15.3x 22.0x

6.6x 15.9x 17.3x

NA NA NA

NA NA NA

NA NA NA

NA NA NA

17.0x 2.4x 3.0x 2.3x 0.8x

14.5x 1.7x 2.3x 2.2x 0.9x

4.7x 1.2x 1.8x 2.1x 1.0x

NM 11.2x 10.5x 5.6x 3.9x

NM 7.6x 8.0x 5.5x 4.9x

NM 5.0x 5.8x 5.2x 5.3x

NM NM NM 8.8x 4.3x

NM NM 17.5x 8.6x 2.8x

0.8 5.7 7.4 0.4 47.1

1.7 8.3 9.3 0.5 46.6

4,869 810 1,116 2,818 638

2,370 554 890 2,662 644

11.1x 8.3x 11.3x

10.5x 7.7x 9.7x

9.7x 7.1x 8.8x

16.2x 14.6x 19.9x

15.1x 12.9x 16.2x

13.8x 11.9x 14.4x

15.3x 10.2x 13.5x

13.6x 9.2x 11.2x

24.6 24.1 7.9

25.4 24.1 8.1

717,727 524,571 676,141

693,957 523,962 660,343

5.7x 3.4x

4.6x 2.8x

4.0x 2.3x

13.6x 10.2x

10.5x 8.0x

9.0x 6.5x

NM NM

296.5x 19.7x

58.8 14.0

62.3 14.8

67,917 41,194

64,099 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.

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

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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Notes:

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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

Notes:

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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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 analysts 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.

Equinix (EQIX) Price Chart Date


186 155 124 Price($) 93 62 31 0 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 OW $72 OW $65 OW $54

Rating Share Price ($)


40.93 58.10 62.26

Price Target ($)


54.00 65.00 72.00

26-Nov-08 OW 12-Feb-09 OW 23-Apr-09 OW

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 analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

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 analysts (or the analysts teams) 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 analysts (or the analysts teams) 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 analysts (or the analysts teams) coverage universe.] The analyst or analysts teams 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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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2009 Overweight (buy) 35% 54% 35% 75% Neutral (hold) 46% 54% 51% 73% Underweight (sell) 19% 42% 14% 57%

JPM Global Equity Research Coverage IB clients* JPMSI Equity Research Coverage IB clients*

*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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Mike McCormack, CFA (1-212) 622-1442 michael.mccormack@jpmorgan.com

North America Equity Research 01 May 2009

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