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Tuesday, December 26, 2006

Through The Fly's Eyes: Savvis Communications


Building Serious Growth Path

Savvis Corp (SVVS), a left-for-dead tech-telecom bubble stock, continues to come back to life. While most investors are on vacation, Savvis, a large independent data center company, released some interesting news this morning.

  • Savvis will add 180,000 square feet of raised floor space through new construction. This will increase its total data center footprint more than 10 percent to over 1.5 million square feet.
  • Savvis will also sell its content delivery network services business to Level 3 Communications (LVLT) for $135 million in cash. Management said it will focus on its core hosting and managed network services businesses.
Savvis and Equinix (EQIX), another independent publicly traded data center company, continue to benefit from the strong demand for data center space. Customers require high standards for security and reliability, power availability, cooling, network connectivity, and environmental controls. Savvis has pre-booked most of the new space.

The expansion is expected to cost $200 million. With $135 million coming from the asset sale to Level 3 and 2007 EBITDA expected to come at $150 million, Savvis can fund this expansion without using outside financing--a very good sign for the financial health of the company and for increasing shareholder value.

Since TheFly blogged in April to begin looking at this sector again, Savvis and Equinix are up 38% and 31%, respectively.


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