Savvis Expands, Adds New Services

Savvis Inc., a subsidiary of CenturyLink Inc. (CTL - Analyst Report), is opening new data centers in Singapore and London, apart from expanding its existing data centers in the U.S. The expansion process in ongoing in regions like Santa Clara, CA, Washington, D.C., Dallas and Weehawken, NJ.

Savvis has also recently launched Savvis Symphony Virtual Private Data Center (VPDC) cloud services in select regions like Canada. Symphony VPDC is a type of cloud solution that allows users to create customized data centers with predefined service levels for multiple customers under the same public cloud.

As a result, VPDC not only increases data security level but also provides control over usage levels with no long-term commitments, thereby leading to cost reduction. Savvis operates through more than 50 data centers worldwide with a Tier 1 application transport network. This enables the worldwide availability of Savvis cloud solutions that can connect with other public or private data-centers and networks options.

With the acquisition of Savvis last year, CenturyLink remains well positioned to gain from the cloud computing business, which is growing by leaps and bounds. The acquisition strengthens CenturyLink’s footprint in the hosting managed cloud services business in North America, Europe and Asia.

Apart from expanding its cloud computing business, CenturyLink is also working on a number of initiatives to increase profitability. The company is bundling integrated services, promoting new services such as video, gaining new wireless spectrum from the Federal Communications Commission (FCC) and improving its infrastructure. This should work in favor of CenturyLink’s future revenue and earnings.

However, we believe that the company’s acquisition strategy to expand in new markets has weighed on its operating cost and debt position, restricting earnings growth. Further, CenturyLink faces intense competition from two major rivals, AT&T Inc. (T - Analyst Report) and Verizon Communications Inc. (VZ - Analyst Report).

We have a long-term Neutral recommendation on CenturyLink. For the short term (1–3 months), CenturyLink retains a Zacks #3 Rank (Hold).