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Intel Corp. announced Tuesday that it plans to shut down its Web hosting business over the next 12 months, reflecting the companys continued efforts to cut its operating expenses as it tries to ride out an ongoing slump in its overall sales.
The decision will have an immediate impact on the companys bottom line, with the chip maker saying its expects to take about $100 million charge against earnings to cover the cost of shutting down its Intel Online Services unit.
That charge was not included during Intels midquarter update earlier this month, at which time the company lowered its sales projections, spurring a selloff in stock that sent the companys shares down 20 percent.
Although Intel never revealed specific revenue figures for its Web hosting business, which it launched in 1999, the company has confirmed that sales and profits had repeatedly fallen short of goals.
Rumors speculating that Intel would shut down the business unit first arose early last year when the chip maker replaced the executive in charge of the unit, Gerry Parker, who subsequently left the company in March 2001. Intel also reduced the number of workers assigned to its Web hosting business last year, but figures on how many workers were let go were never formally released.
While Intel will no longer accept new customers for its Web hosting services, it noted that its committed to supporting existing customers over the next 12 months. Over the next year, Intel said itll work with customers to assure a smooth transition to alternative vendors.
“While IOS has been successful in attracting new customers, market trends and financial projections for the hosting services industry lead us to todays decision,” said Dalibor Vrsalovic, president of the business unit. “Our focus now will be to fully support customers and ensure a continued high level of service while we assist them in their transition plans.”
Demand for Web hosting services surged in the late 90s, mirroring the explosive growth of Internet-based companies. But Web hosting companies saw sales evaporate following the dot-com crash of 2000 that witnessed the collapse of thousands of Internet startups.
Since then the industry has been mired in a slump that has felled some of its biggest players, including Exodus Communications Inc., which filed for bankruptcy protection in September.
Going forward, Intel said it will refocus its efforts on to its core chip maker business, which accounts for well over 90 percent of the companys profits. Since late 2000, Intel has been hard hit by a downturn in demand for PCs and servers featuring its processors.
While Intel has expressed confidence that sales will finally rebound later this year, the company this month was forced to lower its revenue projections for the current quarter, forcing executives to admit that it has yet to see any signs of long hoped-for recovery.
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