Savvis Stock Soars on Strong Earnings

Shares of Savvis Inc. (SVVS) soared today on signs that the financial sector will continue to invest in data center services. The managed hosting company, which relies on the financial sector for 27 percent of its revenue, said it doesn't expect the recent turmoil to impact its revenue, and may even benefit as newly-merged banking firms look to data center outsourcing as a way to reduce costs. "The potential exists for Savvis to expand these relationships as merged companies seek out savings," said CEO Phil Koen.

Shares of Savvis are up $2.58 to $8.48 in trading on the NASDAQ stock exchange, a gain of 41 percent on the session.

Savvis also said it has completed its data center expansion, and has no immediate plans for any new facility spending, signaling lower capital expenditures in future quarters. Koen said the company's completion of its expansion prior to the credit crunch will bear fruit. "Our strategy of building smaller footprints and using a rapid design and build strategy to respond to changes in demand was the right one," said Koen.

Savvis' core of financial clients has made the company a bellwether for Wall Street IT spending. Koen said the company's sales funnel was briefly affected by the turmoil in recent weeks. "In the last two weeks of September we saw a pause in decision making," he said. "The (sales) closing rate during the first three weeks of this quarter was acceptable."

Savvis revenue from the financial vertical for the quarter was $58.6 million, up 22 percent from the year-earlier period and a 6 percent gain from the second quarter of 2008. Driving those results was Proximity Hosting, Savvis’ ultra-low latency offering in which customer equipment is located adjacent to the exchanges’ servers, enabling faster trade execution.

The company posted a third-quarter net loss of $562,000, compared with a profit of $5.3 million in the year-ago period. Revenue increased 15 percent to $218 million, up from $190 million a year earlier.

Koen says that customer checks indicate that the current cost-conscious environment is likely to increase interest in managed hosting and IT outsourcing.

"When I talk to CIOs, it is absolutely clear that they are being challenged right now to deliver results through a superior business processes within a constrained IT budget," said Koen. "No one I talked to said they would increase their IT spend, and most said they had a bias towards reduction. There's no question that capex will be restrained.

"You're seeing a shift in where dollars are being spent," he continued. "They're now realizing that turning to an outsourcing model provides superior benefits to owning and operating their own IT infrastructure."