Equinix Warning Triggers Sharp Sell Off In Data Center Sector

The entire data center sector is selling off hard this morning after yesterday’s Q3 financial warning from Equinix (EQIX). The issue isn’t simply the fact that the company slightly reduces its revenue forecast for the quarter; rather, the Street is fretting about the grim explanation the company provided, which suggests that price competition is intensifying news that has reverberations for the company’s rivals.

“This updated guidance is due to underestimated churn assumptions in Equinix�s forecast models in North America, greater than expected discounting to secure longer term contract renewals and lower than expected revenues attributable to the Switch and Data business acquired in April 2010,� the company said.

More churn, plus more discounting. Not a good combination.

Savvis (SVVS) this morning responded to the worries about the sector by narrowing its 2010 revenue guidance; the company now sees $917 million to $927 million, raising the low end of the range from $912 million. The company maintains its adjusted EBITDA guidance of $220 million to $240 million.

But the statement has done nothing to calm the waters.

• Rackspace (RAX) is down $2.21, or 8.4%, to $24.
• Savvis is down $1.76, or 8.1%, to $19.87.
• Terremark (TMRK) is down 52 cents, or 5.1%, to $9.60.
• Equinix is down $31.12, or 29.6%, to $73.96.
• Internap (INAP) is down 22 cents, or 4.5%, to $4.68.

As Marketwatch notes, the sell-off also is hitting shares of content delivery network provider Akamai (AKAM), and I would note that rival Limelight Networks (LLNW) likewise is getting his hard. But the Equinix warning may not be the only factor at play; Pacific Crest analyst Chad Bartley in a research note yesterday repeated his Sector Perform rating on AKAM, and advised investors to take profits heading into the company’s Q3 earnings report. “We expect to increase our below-consensus Q4 and 2011 estimates following Q3 results,” he writes. “However, investor expectations are high, and valuation is stretched even under this scenario. We believe AKAM is fully valued at $44 to $45, and would take profits.”

• Akamai is down $3.01, or 6.3%, to $44.90.
• Limelight is down 26 cents, or 4.3%, to $5.85.