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Savvis Inc. (SVVS)’s $315 Million Global Data Center Expansion

Flush with cash from the sale of two data facilities and its content delivery network assets, Savvis Inc. (SVVS) is on track to complete a $315 million data center expansion. Philip Koen, chief executive at Savvis, said the company plans to complete construction of a new data center in London and expand similar existing facilities in New Jersey and Singapore by the end of the year.

Koen, speaking at an investor’s conference organized by investment bank Lehman Bros., said the new data centers coming online later this year are part of the expansion program Savvis began last year in efforts to grow its business. The company, which is based in Town & Country, MO, provides information technology infrastructure services — including data storage, Internet hosting and network services — to a wide array of clients, including financial institutions.

The addition of data centers is part of a reorganization that Koen has undertaken since he took the helm at Savvis in 2006. “For the last one and a half years, what we have done is continue to reshape our business,” Koen said. “We did a number of things to refocus our business in 2007.”

That effort includes strengthening the company’s technology by spending about $40 million to upgrade its communication network last year and focusing on fast-growing markets in Europe and Asia. Last year, Savvis posted a profit of $250.6 million on revenue of $793.8 million, the first time it made money after suffering years of losses.

Koen said the money Savvis is using to build new data centers comes from the sale of some assets last year, which accounted for a significant portion of 2007 profit and fetched the company more than $300 million. In January 2007, the company sold its content delivery network (CDN) assets to New York-based L3 Communication Inc. for $132.5 million. Last June, Savvis sold two data centers located in Santa Clara, Calif., to Seattle-based Microsoft Corp. in a deal worth about $200 million.

So far under its expansion plans, Savvis has completed construction of seven new data centers, including a 46,800-square-foot facility in Dallas and a 20,000-square-foot center in Chicago, which both opened in April. Last year, the company opened five new data centers, in Atlanta; Boston; Piscataway, N.J.; Santa Clara, Calif.; and Sterling, Va.

According to Donna Jaegers, an analyst at Janco Partners Inc. – a Denver-based equities research firm that mainly serves institutional investors – Savvis’ strategy of building new data centers around the world is a good move.

Jaegers said Savvis — which in 2006 had 24 data centers located in the United States, Europe and Asia — needs to add space to attract more customers. The nation’s IT infrastructure services sector in general is beginning to build more data centers, she said, something not seen since the technology boom of the 1990s.

Jaegers said the new data centers should help boost Savvis’ outlook on Wall Street, which was dampened after the company lowered its earnings guidance for 2008 while reporting its first-quarter results April 29. Savvis posted a loss of $4.2 million on revenue of $203.3 million in the first quarter. The company stated it expects 2008 revenue to be in the range of $840 million to $870 million, down from its previously issued guidance of $910 million to $925 million.

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