AT&T Pushes to Grow Cloud Based Mobile and IT Services

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Most of the attention these days for AT&T ( T ), Verizon ( VZ ), and Sprint ( S ) focuses on the mobile phone business and smart phone segment in particular. For AT&T this attention is warranted as the mobile service segment accounts for nearly half of our $35.80 price estimate , which is around 25% ahead of the current market price. However, we highlight that the enterprise segment is another strong area for AT&T that is getting a boost as companies start to look increasingly at adding cloud-based services.

AT&T's Push for the Cloud

AT&T recently announced enhancements in its cloud services which it sees as a major area of growth in the future. As enterprises look to deploy more storage and services through cloud based platforms, such as virtual private clouds for AT&T and its customers, this segment will grow faster than other IT services.

Customers could move storage off site forgoing extensive software and hardware needs, firms can create mobile applications that its employees or customers use to enhance and improve services and these services can provide certain security services for the a company's network and information. One of the selling points to customers is that this gives greater flexibility over their IT budgets. The IDC estimates that cloud services market will grow from $16 billion in 2009 to $55.5 billion in 2014. This directly affects AT&T's enterprise revenues which have witnessed declines in the past.

So how much is this move worth to AT&T?

We estimate that enterprise segment constitutes around 8% of AT&T's price estimate and is thus not a great value contributor. However its lower contribution is partially a result from the declining trend that we have observed for quite sometime. Below you can modify our forecast to see how improvement in enterprise revenue trends can increase the segment's value contribution and affect AT&T's price estimate.

For example, rather than decline gradually as we currently expect, if enterprise revenues stay flat at around $18 billion per year, this chips in an additional 2% on the price estimate.

AT&T's Strong Ties in the Enterprise Segment are an Advantage

AT&T began its major push into cloud computing back in 2008 when it offered its 'AT&T Synaptic Hosting.' One of its first customers was the U.S. Olympic committee. Before that, this field was dominated by other big names like IBM, Google and Amazon.

The fact that AT&T already has experience in managing networks and infrastructure allows it to offer these services to existing enterprise customers.  For instance, AT&T could promote its cloud-based services along with other business services products that its customers use. The relationships and sales channels are in place already, and this would give AT&T another source of revenue from existing clients. With these clients in place, AT&T can use them as an example to promote its services and attract new clients.

We believe AT&T is in a prime position to make further inroads with cloud based services, which could provide additional upside to our already rosy outlook for the company.

See the complete $35.80 Trefis price estimate for AT&T's stock.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: S , T , VZ

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