Nippon Telegraph & Telephone Corp. (NTT), the largest integrated telecom operator in Japan, has taken a major strategic move to boost its cloud computing and integrated communications services business. The company has decided to acquire South Africa-based leading global IT solutions firm, Dimension Data for a consideration of about $3.23 billion. The deal is expected to be completed by end-October 2010.

We believe Nippon Telegraph will try to integrate the Dimension Data business with its NTT Communications division, which offers IP VPN, data center, and network security services to several large and geographically diversified business enterprises. Dimension Data has over 6,000 customers in 49 countries whereas; NTT Communications has more than 3,000 global customers throughout the world.

We believe the merged entity will become an international giant offering virtually a complete suite of integrated communications and IT services to any enterprise in any part of the world. As of now, NTT Communications has a solid presence in South-East Asia, Central & Eastern Europe, and East Coast of the U.S. On the other hand, Dimension Data is concentrated mainly on the West Coast of the U.S., Latin America, Western Europe, Africa, the Middle East, Australia, and the Indian subcontinent.

In fiscal 2009, Dimension Data generated $4 billion of revenues and $135 million of net income, whereas NTT Communications generated $3 billion of revenues in 2009. Acquisition of Dimension Data will give the company the necessary scale and technology to formidably compete with other giant cloud computing firms. This includes AT&T (T), Verizon Communications Inc. (VZ), BT Group plc. (BT), Vodafone Group plc. (VOD), and Orange.

The company’s strategy is to maintain its leadership position in the domestic telecom market and siege selected international opportunities to drive long-term growth. In the second half of 2009, NTT Communications consolidated its existing Atlanta POP in the U.S. as the main hub for global IP-VPN network. This facility provides extensive international private networks to various enterprises using the company’s broadband backbone.

We maintain our Neutral recommendation for the company. Currently it is a Zacks #3 Rank (Hold) stock.

Zacks Investment Research

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4. (NTT) Nippon Telegraph & Telephone Telephone DowngradedWe downgrade our recommendation for Nippon Telegraph & Telephone Corp. (NTT) to Neutral, which means...
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