Verizon's Terremark purchase puts Rackspace, Savvis on shopping list

Summary:Verizon's $1.4 billion acquisition of cloud and hosting company Terremark has some analysts putting a bevy of Internet infrastructure companies on the "to be acquired list."

Verizon's $1.4 billion acquisition of cloud and hosting company Terremark has some analysts putting a bevy of Internet infrastructure companies on the "to be acquired list."

And increasing focus on cloud services led Verizon to Terremark and the bet seems to be that large incumbents like AT&T may have to go shopping to beef up their enterprise units.

In a research note, Oppenheimer analyst Tim Horan laid out the picture:

The transaction highlights the attractive fundamentals of the Internet infrastructure space driven by the ongoing migration to cloud computing. Other providers in this space that represent potential targets include Savvis, Rackspace, Cogent Communications Group, Level 3 and Limelight Networks. Potential suitors include the incumbents AT&T, Verizon, CenturyLink, Windstream and foreign carriers.

Piper Jaffray analyst Christopher Larsen said that the Terremark deal won't move the revenue needle for Verizon initially. In the long run, however, it's clear incumbents are going to be buying their way into the cloud business. "We believe this is a positive development for the datacenter/hosting industry. In our opinion, Equinix has the greatest upside in our datacenter universe," said Larsen.

Related: Verizon steps up its cloud game, buys Terremark for $1.4 billion

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On a conference call with analysts Friday, Lowell McAdam, president and chief operating officer of Verizon, said the company was upbeat about its prospects in cloud computing. The argument is that Verizon can take Terremark and create an "everything as a service" juggernaut. "We view Terremark as one of the premier assets in cloud computing and hosting," said McAdam. "This transaction will accelerate Verizon's everything as a service strategy. There are other players in this space, but none were as good of a fit."

These two slides highlight the master plan:

McAdam said the acquisition of MCI has given Verizon a big network footprint to "address the enterprise opportunity." Verizon hasn't said much about the enterprise space, but now sees corporations' move to the cloud as a growth opportunity. According to McAdam, it made more sense to buy Terremark than try and build its own hosting business. "This was a classic buy vs. build decision," said McAdam, who said he will move some of his data center assets to Terremark.

Now what? Verizon's focus on the cloud and enterprise is likely to prod other telecom carriers to go shopping. Investors are already focusing on the next managed hosting buyout. Rackspace, Savvis and others in managed hosting are all up nicely on Friday. Savvis is up 15 percent.

Topics: Mobility, Cloud, Data Centers, Enterprise Software, Hardware, Servers, Virtualization


Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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