In a sign the once hot data center market has cooled, Santa Clara-based Exodus Communications Inc. may pull out of a 15-year lease for space at Parker Hannifin Corp.’s former aerospace group campus in Irvine, sources familiar with the dealings say.
GlobalCenter Inc., a former Global Crossing Holdings Ltd. unit bought by Exodus last September, leased 232,000 square feet on the campus late last year. But GlobalCenter has yet to move forward with a planned data center at the site on the corner of Jamboree Road and Michelson Drive.
“There are some issues,” said one real estate source who asked not to be named. Exodus officials declined to comment on specifics.
“We don’t comment on facilities until they open,” a company spokesman said. “And we don’t comment on rumors and speculation.”
The company is the leading operator of data centers,masses of servers housed in one location that host Internet and other applications. Exodus has four Southern California data centers: two in Los Angeles, an existing one in Irvine and another in San Diego.
GlobalCenter leased space prior to the Parker Hannifin’s sale of the property to new owners KFPLB Michelson Jamboree LLC in September and its own acquisition by Exodus. Since then, the dot-com bust and tighter spending by big corporate customers has hit data centers.
Exodus has worked feverishly to slash costs lately, laying off workers and streamlining its business. The company cut nearly 15% of its workforce, which at the time totaled 4,500 employees. But Exodus says it still is going ahead with expansion in select markets.
“We have been analyzing all aspects of our operations,” said Dick Stoltz, chief financial officer at Exodus. “We opened Internet data centers in Dallas and Amsterdam last month. Next week we will open an Internet data center in Paris. Our goal with these efforts is to ensure we have the right people in the right places.”
Along with Exodus, several other companies leased or bought space for data centers in Orange County in the past year, including Greenwood Village, Colo.-based FirstWorld Communications, Costa Mesa-based Epoch Internet, San Antonio, Texas-based SBC Communications Inc. and Aliso Viejo-based enfrastructure Inc.
Just months ago, demand for data centers made prices for some industrial buildings skyrocket, with companies paying as much as $85 a square foot. Now brokers say privately that data center demand has waned.
“Some of these companies have spent a lot of money on these facilities, but when the sources dried up, they mothballed plans,” said one broker. “They just bit off more than they could chew.”
When companies get space for a data center, they need to upgrade the property, the broker said. This includes adding high-speed fiber lines, making sure cooling systems run properly and installing generators backup power.
“Right now there are a lot of growing pains,” the broker of the data center industry.
Despite any short-term spending slowdown, Cahners In-Stat Group predicts Internet-based investments by U.S. businesses will account for nearly 26% of their total technology spending in 2004, up from just 15% last year. n
