One of the leading telecom service providers, CenturyLink, Inc. (CTL) introduced its new cloud computing product, Savvisdirect. The new launch is designed for the enterprise class and offers affordable and simplified cloud solutions. The product will be commercially available by the end of this year.
The key advantage of this product is that it can be used by any small medium or large enterprise. Users can quickly access the Savvisdirect services through paying via credit card. A host of cloud solutions are being offered through Savvisdirect, which the clients can choose as per their requirements. To compliment the product offer, CenturyLink is providing service-level agreements along with round- the clock support.
We believe that the CenturyLink is gaining significant momentum in the enterprise market with the introduction of Savvis’ product lines. The acquisition of Savvis has not only resulted in revenue accretion but also expanded CenturyLink’s reach beyond conventional market of core local phone business.
Over the past years, CenturyLink’s phone business has registered a constant decline. This is evident from the consistent 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 cascading effect.
Although the company is working on a number of initiatives to curtail the access line losses, it remains far from realizing much of the benefits that would support its business growth. Meanwhile, the company has gained from industry consolidation of profitable acquisitions — Qwest and Savvis.
Coming back to Savvis, the acquisition of this company is well marked in CenturyLink’s entry into the cloud computing business, which is growing by leaps and bounds. CenturyLink currently, 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 a view to generating higher revenue growth in managed hosting and cloud services. These acquisitions bequeathed several additional benefits like greater scale of operations and increasing productivity, and providing the company with a competitive edge over larger peers like AT&T, Inc. (T) and Verizon Communications Inc. (VZ).
However, stiff competition from other low cost telecom operators like LEAP Wireless International Inc. (LEAP) and increased operating expenses resulting from the acquisitions may impede the company’s growth trajectory.
We maintain our long-term Neutral recommendation on CenturyLink. The stock has a Zacks#2 Rank, implying a short-term (1-3 months) Buy rating.
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