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Apple May Push Into Corporate Cloud Computing Vs. Amazon, Microsoft

Will Apple ( AAPL ) muscle in on Amazon Web Services? Apple’s huge data center build-out might be setting the stage for a jump into cloud computing services for enterprise customers, speculates Oppenheimer. Apple’s capital spending is expected to jump some 34% in 2016 to $15 billion, with about $4 billion going to warehouse-sized data centers packed with computer servers. Morgan Stanley this week said Apple might shift some cloud business away from AWS as competition in consumer products  intensifies with parent Amazon.com ( AMZN ). Oppenheimer analyst Tim Horan, in a research report, goes a step further, saying Apple might start its own infrastructure as a service (IaaS) business as it targets the corporate market. IBM ( IBM ) and Apple have partnered for enterprise marketing. “Looking at Apple’s capex trajectory and recent continued data center builds, we believe there is a possibility the company is setting up an infrastructure as a service offering,” wrote Horan.  “While we realize this is not Apple’s core competency, it is obvious it has built out its own CDN network and will continue to expand it. “It is also apparent to us that by building out an IaaS offering to businesses, Apple may be able to drive its hardware business into the enterprise. This would be an interesting development and is certainly a wild card.” Apple plans to open a massive data center in Mesa, Ariz. It also wants to expand a large data center in Reno, Nev. Amazon expanded into cloud computing by leveraging the massive Internet infrastructure that it had built to support its e-commerce business. Apple launched iCloud for consumers, but additional server capacity could be used for corporate cloud services. Aside from Amazon’s AWS, Microsoft ( MSFT ) and  Alphabet ‘s ( GOOGL ) Google are the biggest providers of IaaS services. The other big investor in data centers is Facebook ( FB ), as it whisks more video to mobile devices. “From (Facebook-owned) Instagram/WhatsApp to Google Hangouts, Web-scale consumer-facing companies are leveraging cloud computing and superior network architectures to become de facto communications companies, and they are spending the capital to do so,” Horan said. Apple has also built its own content delivery network, making it less dependent on  Akamai Technologies ( AKAM ), the leading provider of CDN services. Horan sees upside in data center expansion for companies such as Level 3 Communications ( LVLT ) and Zayo Group ( ZAYO ).

Level 3 Free Cash Growth: Fodder For Buybacks Or Acquisitions?

Level 3 Communications ’ ( LVLT ) stock jumped on stronger-than-expected free-cash-flow guidance after the telecom service provider early Thursday reported Q4 EPS that was a penny above Wall Street views, excluding a tax benefit. Revenue, though, just missed expectations. Some observers have speculated that Level 3 could announce a share repurchase program in 2016. Level 3’s guidance “suggests LVLT will be in a strong position to pursue strategic opportunities or buybacks,” said UBS analyst John Hodulik in a research report. Level 3 stock was up 6.5% in afternoon trading in the stock market today , near 50, but shares of the business service provider are still down 7% in 2016. Broomfield, Colo.-based Level 3 closed its $5.3 billion acquisition of TW Telecom in late October 2014. Thursday, Level 3 said it earned 53 cents in the December quarter, swinging from a 24-cent loss in the year-earlier period. Revenue rose 7% to $2.053 billion. Analysts polled by Thomson Reuters expected per-share profit of 52 cents and revenue of $2.06 billion. Level 3 said it expects 2016 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to rise 9% to 12%. It forecast 2016 free cash flow — net cash from operating activities minus capital expenditures — of $1 billion to  $1.1 billion. “EBITDA and FCF guidance easily outpaced expectations, and likely reflects the accelerated pace of (merger) synergy realization,” said Jefferies analyst Scott Goldman in a research report. Prior to TW Telecom, Level 3 bought Global Crossing for $1.9 billion in late 2011. At a UBS conference in January, Level 3 executives said they were studying  possible shareholder returns as well as possible acquisitions. Level 3 might pursue privately held XO Communications, Cowen & Co. analyst Colby Synesael said in a research note. Synesael says Level 3 could be a takeover candidate itself, with cable TV firm Comcast ( CMCSA ) the buyer. “2016 guidance including color around expected revenue growth acceleration and better than expected FCF are a positive,” Synesael wrote. In the content delivery network market, Level 3 competes with Akamai Technologies ( AKAM ). Image provided by Shutterstock .

Add Comcast To Akamai’s Growing Roster Of CDN Rivals

Add Comcast (CMCSA) to the growing number of companies that pose a worry for Akamai Technologies (AKAM), the biggest provider of content delivery network services. Akamai’s global CDN speeds up video streaming, e-commerce transactions and business software downloads over the Internet. Cambridge, Mass.-based Akamai already competes with Level 3 Communications (LVLT), Limelight Networks (LLNW) and Verizon Communications (VZ), which acquired