Loudcloud Soars on Qwest Deal

Broadband provider Qwest Communications International Inc. and Loudcloud are
teaming up to market an end-to-end, scaleable managed services solution, from
the network through to the hosted Web application.

Denver-based Quest said the five-year agreement is expected to
produce about $260 million of incremental service sales over the next five
years. Loudcloud and Qwest will co-market and sell each
other’s services.

The announcement sent Loudcloud stock soaring 35 percent in early trading Tuesday,
adding 49 cents a share to hit $1.88 by mid-morning. At one point Loudcloud,
which has never had a profitable quarter, was at $1.95. Its 52-week low is
$1.16. Qwest was down 55 cents, to $21.15 as the market trended downward in
the early going.

The companies said they will jointly deliver an end-to-end managed
application hosting solution by leveraging Qwest’s North American and
European CyberCenters and Loudcloud’s managed services offering. The
companies will offer the solution to both existing and new customers that
want to outsource the operational and technical tasks associated with complex
Internet and Web-based application management.

As part of the agreement, Sunnyvale, Calif.-based Loudcloud will host the
majority of its new clients in select Qwest CyberCenters on a “just in time”
basis. The companies will deploy Loudcloud’s Opsware automation technology in
the data centers to provide managed services. Financial specifics of the deal
were not disclosed, but the companies said the deal includes “revenue and
volume commitments.”

“The ability to take advantage of both Qwest’s leading data center and
network capabilities on an as-needed basis and its sales and marketing force
will allow Loudcloud to better service customers, expand our reach to new
customers and reduce the company’s cost base,” said Ben Horowitz, chief
executive officer and co-founder of Loudcloud.

The deal would seem to be a good fit with Loudcloud’s
recently announced approach
to the next generation of managed services
foregoing the bundled approach to offer a mix-and-match option for
outsourcing day-to-day Web site management.

Goldman Sachs liked it, too, and had this to say in an advisory to clients:
“We believe that Qwest has agreed to certain revenue commitments over the
life of the alliance, which is a positive for Loudcloud’s top line growth in
a challenging market. … Qwest has agreed to provide just-in-time data center
space for Loudcloud, and we suspect at fairly attractive prices. This should
help Loudcloud manage its cash flow better.”

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