Savvis Cuts Guidance, Citing Slower Sales
Savvis Inc. (SVVS) lowered its revenue guidance for the year, saying it was taking longer to close sales of managed hosting services. The company reduced its 2008 revenue projection to a range of $840 million to $870 million, down from earlier projections of $910 million to $925 million. After closing today’s session down 6 percent at $18.68, Savvis shares fell sharply in after-hours action, trading down $2.73 at $15.95, a decline of 14.6 percent.
“We have begun to see a lengthening pipeline,” said Savvis Chief Executive Officer Phil Koen. “The deals we want are taking longer to close. We also were overambitious with our sales projections for the second half of 2007.” Koen said CEOs and CIOs “are being more cautious with spending in the second half of the year, particularly with the more complex commitment of a buy decision for managed hosting.”
The Savvis results will prompt close scrutiny of earnings reports for other managed hosting providers, as analysts assess whether the slowing sales cycle is specific to Savvis or reflects a broader trend in the uptake of managed hosting services. A key question is whether carrier-neutral providers will fare any better than Savvis, which operates its own backbone and bundles network services and managed hosting.
Savvis executives said colocation sales remain strong, echoing the earnings results and demand projections from colo specialists Equinix (EQIX) and Switch and Data (SDXC). Savvis expects its colo business to experience sequential quarterly growth of 5 to 9 percent, compared to 2 to 6 percent for managed hosting.
Despite that slower growth, Savvis said higher margins and revenue per square foot justify the company’s continued focus on the managed hosting sector, rather than colocation. “Managed hosting holds a lot of promise over the long-term,” said Koen. “Although customers are taking longer to make decisions, their interest in our services remains undiminished.”
Savvis reported revenue for the first quarter of $203.3 million, a loss from operations of $0.4 million. The net loss of $4.2 million (8 cents per share) compared with net income of $114.5 million in the same period last year. the year-earlier period included a gain of $125.2 million on the sale of CDN assets.