Reuters Renewal Looms Large for Savvis

In last night's conference call with analysts, executives of Savvis (SVVS) said that a number of potentially large customers were taking longer to make decisions about lucrative managed hosting deals. One key deal that's going down to the wire is a hosting and network services contract with Reuters, which expires next month. Reuters was recently purchased by Thomson, which has created some suspense about the service renewal. Here are comments from Savvis Chief Financial Officer Jeffrey Von Deylen:

There was also discussion of power density in older data centers and its impact on demand for space.

Last year two "below-market" colocation contracts totaling 56,000 square feet of space were not renewed. Savvis has never identified the customer, but there have been reports that it was Google (GOOG). The deals were signed during a period of financial distress for Savvis' predecessors (Exodus and then Cable & Wireless USA), and Savvis' goal is to now fill that space with higher-value customers. The company has sold enough managed hosting services to replace the revenue, but has lagged its stated timetables in filling the space. In his comments yesterday, Savvis CEO Philip Koen suggested that the age and power density of the facilities were an issue.

"We do see the market for first generation data centers, the ones built around 2000, coming closer to a supply/demand equilibrium," Koen said. "These are still great centers we're happy to offer to customers. But they're not getting as rapid a take-up as we saw a year or so ago. For 2008, we've taken our projection down slightly to reflect that trend, and we continue to look for customers who want managed, as well as colo." He added:

A full transcript of the Savvis conference call is available at Seeking Alpha.