Verizon's Strategic Service Revenues Climb in Q1

Here's another indication of the strength of value-added services in an era when IT hardware is a commodity. Verizon Communications (NYSE:VZ)'s global enterprise revenue which includes the company's managed services business reported solid growth for the the company's Q1 2013, with services sales in the portfolio outpacing hardware sales.  Here's a quick overview of the details.

Breaking down the numbers, Verizon CFO and EVP Fran Shammo told analysts during a conference call that global enterprise revenue declined by $99 million or 2.6 percent with hardware sales (or "customer premise equipment" CPE as Verizon calls it), which declined 22 percent, representing all of the decrease. That's because Verizon has ben deemphasizing this business since 2012 to focus on strategic services. Strategic services sales made up 56 percent of global enterprise revenue and totaled $2.1 billion, up 6 percent.

By way of background, Verizon in its 10K defines its managed services business in this way:  "offers wholesale customers the opportunity to outsource the management of their networks, security, remote access, and web applications to Verizon"

Verizon's Strategic Services Business

Shammo provided analysts with more perspective on the specific businesses during the conference call.

"Our investments in global IP, managed services, cloud computing, security, and machine-to-machine enable our ability to serve the complex needs of large enterprise customers around the globe," Shammo told analysts, as reported in the full transcript of the earnings conference call posted at SeekingAlpha.

Shammo further noted that "In the enterprise market, we continue to work through economic challenges. We still see cautious behavior on the part of many enterprise customers in terms of new contracts and investment decisions. As we move through the year, we are hopeful that companies will be able to be more definitive about capital commitments and will renew their investing activities."

Answering an analyst question about whether sequestration has affected the enterprise business, Shammo pointed specifically to strong growth in cloud and network strategies and said that security is also still growing at a good pace.

"I believe that most companies are still in this cost cutting mode, really not investing but trying to get their P&L squared away. So until the overall macroeconomics change, I think we’re going to be in this situation at least for the near term here," Shammo said.

Overall the company, which runs a huge global communications business that includes wireless phone services, internet access services, cable television services and more reported total operating revenues for its first quarter of $29.4 billion, a 4.2 percent increase compared with the same period a year ago. Net income grew to $4.9 billion from $3.9 billion in the same period last year.