CenturyLink (NYS: CTL) came out with its third-quarter results, posting a steep fall in net income, though the company's revenues were in line with analyst expectations. Let's take a closer look at what the communications services company is up to.
Into the numbers
The company saw its total revenue more than double to $4.6 billion due to the growing number of subscribers for its high-speed Internet service and new acquisitions that added more customers. Out of the total revenues, $2.7 billion came from its acquisition of Qwest, and $223 million was contributed by data-center operator Savvis, which the company bought for $2.5 billion in July of this year.
Net income saw a huge fall by nearly 40% to $140 million due to acquisition-related expenses. Excluding those effects, net income only fell 9% to $210 million. The company also maintained a strong free cash flow of $891 million for the quarter, ahead of expectations.
Spreading its wings into a cloud-driven future
CenturyLink has been very active lately in terms of acquisitions. The company spent around $38 billion in the past three years on purchasing companies, including Qwest Communications, a regional phone company; Embarq, a telecom service provider; and, most recently, Savvis, an application and data-hosting services provider.
The inclusion of Savvis should enhance CenturyLink's potential to attract business customers for its managed hosting and cloud-based services. Savvis owns 48 data centers located in North America, Europe, and Asia.
August also saw Verizon (NYS: VZ) acquire the cloud software maker CloudSwitch as part of its plans to accelerate its global cloud computing strategy.
Oracle (NAS: ORCL) is also getting in on the cloud craze. The software giant recently announced that it would be buying software services maker RightNow Technologies (NAS: RNOW) for $1.43 billion. With this acquisition, Oracle would directly compete with salesforce.com (NYS: CRM) , which is currently the largest player in the cloud-based customer relationship management business.
A bright cloudy future
In the face of ever-decreasing numbers of subscribers of landline services, companies like CenturyLink, Verizon, and even AT&T stand to benefit immensely from cloud computing, as this would increase network utilization and would also boost network revenues.
Today, many businesses are showing growing interest in cloud computing. According to IDC, a market intelligence firm, a majority of enterprises are expected to enter the cloud in the next few years, and by 2014 the sales of cloud computing services and products would generate an estimated $56 billion in annual revenue. And the telecom industry enjoys a great deal of advantage as network operators.
Many telecommunications service providers also depend upon large computing infrastructure to run a diverse set of applications. By transforming this infrastructure into clouds, companies could release the excess capacity for use by customers who would in turn pay for it. As a win-win situation, this effectively decreases internal costs and increases revenue for a telecom cloud service provider.
The Foolish bottom line
With the acquisition of Savvis, CenturyLink's strides into the cloud computing world can benefit the company in the long run as more and more businesses will require such services. It could very well be assumed that managed hosting and cloud services are vital for future growth of the telecom industry. To stay up to speed with CenturyLink's cloudy action, feel free to add it to your very own personalized watchlist. It's free, and helps you to stay up-to-date with the latest news and analysis for your favorite companies.
At the time thisarticle was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Oracle. Motley Fool newsletter services have recommended buying shares of salesforce.com. Separate Motley Fool newsletter services have recommended shorting salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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