Qwest Communications has agreed to sell its ASP (application service provider) assets to Corio, Inc. for US$15 million in a deal that should be completed in late September. Under terms of the agreement with Qwest, Corio picks up the ASP operations of thetelecommunications company’s Qwest CyberSolutions subsidiary.
The acquisition is expected to boost Corio’s standing — market research firm IDC has named the company a top player among ASPs. Under its “Applications on Demand” program, Corio deploys and manages solutions from companies such as Oracle, PeopleSoft, Siebel and SAP.
IDC analyst Karen Moser said the move was a “good thing” for Corio, which has long been an active player in the ASP market.
Calling the deal a way to position the company for “long-term industry leadership,” Corio chairman, president and CEO George Kadifa said in a statement that Corio would gain “additional core capabilities and critical mass.”
In a conference call with analysts Friday morning, Kadifa said that the acquisition not only would expand the company’s position, but that Corio expected it to increase ASP revenues as well.
Qwest president and COO Afshin Mohebbi praised Qwest CyberSolutions for its efforts and successes in the ASP market over the last three years, but noted that Corio “will be able to grow” the company even more.
The deal will help Qwest “in de-leveraging its balance sheet and focusing more intently on [the company’s] core strengths.”
In a separate deal, Corio will take over QCS customers and provide them with enhanced applications management and advanced enterprise ASP services. They will remain at Qwest’s CyberCenters data centers. The enterprise ASP will also buy Qwest’s data center services, storage solutions and Internet access, as well as other network services.
Fighting For Black Ink
Qwest has struggled to keep its earnings up in the face of competition and sagging market conditions in the telecommunications industry.
The company may now feel it has to “circle the wagons” and focus on its core market thrust, said Moser.
Qwest has been affected by WorldCom’s woes. In June, after WorldCom announced that it had “misplaced” nearly $4 billion, Qwest Communications shares dropped more than 50 percent. At the time, Qwest termed the fraud allegations “unfortunate” and tried to distance itself from the fray.
However, the company has not entirely been able to avoid the harsh glare of the SEC’s spotlight, as its own accounting has been called into question.
Corio’s Red Ink
For its part, Corio has seen quite a bit of red ink on its ledger sheet — something it hopes the Qwest deal will help eliminate. “Corio is not profitable,” said chief financial officer Barbara Posh during the conference call. “We expect [the acquisition] will reduce our loss.”
The ASP market has not experienced the level of growth some had been hoping for, but growth has been “slow and steady,” according to Moser.
While she said she is “always sorry to see a vendor with success and great customers” like Qwest scale down or abandon its commitment to the ASP model, Moser noted that “with so many ASPs jumping into the market” there is simply not enough growth to sustain them all.