Savvis Inc., subsidiary of one of the leading telecom and data solution providers in the U.S., CenturyLink, Inc. (CTL) has launched subscription-based hosting services for SAP AG’s (SAP) HANA platform, which is a enterprise data product
SAP HANA is a real-time database platform that streamlines analytics and planning for smoother business operations at the enterprise group.The product when accessed through Savvis’ hosting services will reduce costs through the use of lesser expensive server hardware while operating systems and application layers.
We believe that CenturyLink is gaining significant momentum in the enterprise market with the introduction of Savvis’ product lines. The acquisition of Savvis in 2011 has not only resulted in revenue accretion but has also expanded CenturyLink’s reach beyond the conventional core local phone business.
Over the years, CenturyLink’s phone business has experienced persistent declines. This is evident from the continued decline in its access lines on an organic basis. The reason behind this is the displacement of traditional wireline telephone services by wireless and other competitive offerings. Further, soft economic conditions in the company’s service territory also continue to contribute to the weakness.
Although the company is working on a number of initiatives to curtail access line losses, it remains far from realizing much of the benefits that would support business growth. Meanwhile, the company has gained from industry consolidation through profitable acquisitions like Savvis.
With Savvis, CenturyLink entered into the cloud computing business, which is growing by leaps and bounds. CenturyLink has expanded its footprint in the hosting managed cloud services business to 50 data centers in North America, Europe and Asia.
The company continues to expand data centers this year with an aim to generate revenue growth in managed hosting and cloud services. These acquisitions bequeathed several benefits like greater scale of operations and increased productivity, apart from providing the company with a competitive edge over larger telecom carriers like AT&T, Inc. (T) and Verizon Communications Inc. (VZ).
However, stiff competition and increased operating expenses due to the acquisitions may impede the company’s growth trajectory.
CenturyLink retains a Zacks Rank #3, implying a short-term (1-3 months) Hold rating.
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