One of the leading telecom and data solution providers in the U.S., CenturyLink, Inc. (CTL) has launched another cloud product -- Savvisdirect. The new cloud product is designed to cater to every business size and provide cost effective cloud computing solutions.
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 market of core local phone business.
Over the years, CenturyLink’s phone business has experienced consistent decline. This is evident from 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 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 has well marked CenturyLink’s entry 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 higher revenue growth in managed hosting and cloud services. These acquisitions bequeathed several additional benefits like greater scale of operations and increasing productivity, besides providing the company with a competitive edge over larger telecom carriers 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.
CenturyLink retains a Zacks #2 Rank, implying a short-term (1-3 months) Buy rating. For the long term, we have a Neutral recommendation on the stock.
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