Internap 2Q 2008 results

There is very little to add that hasn't already been said.

Lack of execution, as usual (blaming the economic climate: couldn't you see it coming?)

>>George E. Kilguss, III

The other challenge is the economy. We are seeing sales cycles elongate. We are seeing customers taking longer decision timelines to close these transactions and those are also giving us some pause in putting our forecast together. <<

(transcripts from Seeking Alpha, as usual)

One small and stupid question: why isn't colo effacted from this slow down? Do people still buy new colo space for their servers while they stop using bandwidth and CDN? Isn't leadership about recognizing where you have a better opportuny?

Lack of strategic vision. The missed completely the priorities. While other competitors were doing the right moves (SVVS, NAVI. Selling or de-enphasizing CDN. Building or adding colo).

I'll just quote a few things, for fun:

>>Thomas Watts – Cowen and Company

So the additional operating costs, pre-opening that you talked about, what are those primarily and what sort of fill do you need to offset those?

George E. Kilguss, III

As we take possession of the facility, as we’re building it out, we have to incur and record the rent costs. <<

From the Equinix 10Q:

>>In addition, the Company has negotiated rent expense abatement periods for certain properties to better match the phased build-out of its centers.

By the way:

>>George E. Kilguss, III

With regard to your question on margins data center really has two components to the margin. One is the new facilities coming on line. For example Boston, our expansion in New York, those facilities while we’re building them out we’ve taken possession of those and we have to include that rental expense in our cost of goods sold line.<<

I don't believe that's true for New York, you are already in that facility, and paying the rent. I can accept Boston... that's a brand new center, although something could have been done to mitigate the effect (like paying next to nothing now and more after the opening. we're talking very long term contracts... there's room for some negotiation).

>>James P. DeBlasio

In the area of CDN it’s a much easier sale to leave the way the CDN is more discretionary and someone can have CDN service with us for several months, a month or two and then decide to leave and switch off to someone else.

Wow, what a surprise... you've decided to invest in a very sticky business... ;-)

>>James P. DeBlasio

The strength of the market in the data center business is very strong, it’s very strong, very robust. We’re seeing some real good growth, no delay in the sales cycles there. The sales are difficult sales because they’re very complex with the attach that we have for IP and CDN but nothing out of the ordinary.<<

Let me get it: the bundle is making the sale more difficult? ;-)

I will just end with a note on colo margins:

>>George E. Kilguss, III

At the present time while we’re waiting for some of those factories to come on line we have continued to expand in our partner sites. As I think you know our partner sites’ gross margin is less than our company controlled sites so as we are continuing to sell under the partner sites that also has a natural downward pressure on our gross margins.<<

Take it easy, don't rush up investing in colo... it's not about right timing...

Internap to Invest in Expanded Colocation Facilities

Business Wire, June 12, 2007

Internap Meets Increasing Customer Demand for Premier Data Center Services

ATLANTA -- Internap Network Services Corporation (NASDAQ: INAP), a global provider of optimized, reliable end-to-end Internet business solutions, today announced that it has approved an investment of up to 40 million dollars to fund the expansion of its colocation facilities in several key markets. The company anticipates implementing the expansion over the next three to four calendar quarters, with any potential funding to be provided under standard commercial financing arrangements.

Six quarters later...

>>James P. DeBlasio

In Boston we’re planning on a fourth quarter 08 build and opening and in New York mid-fourth quarter 08. 8,000 square feet in New York, 15,000 square feet in Boston. As you know our plans are that as we are building out the facilities we are pre-selling into those facilities along the way and the demand has been strong, Tom. It’s too early to say at this point how much of it gets filled up and when but we’re seeing some very positive signs in our data center business driven by the market.

Even Terremark gave a number (20% filled) for their new Virginia facility...

The more Reliance waits, the cheaper a potential acquisition might be. If there's any value left, I'm just afraid to think what they can do with their strategy of opening new pnaps. Watch for Flag getting in the bandwidth mix?