Intel to Exit Web-Hosting Business; Take Charge

Tue Jun 18, 7:00 PM ET

By Duncan Martell

SAN FRANCISCO (Reuters) - Intel Corp.'s own little piece of the dot-com boom went bust on Tuesday.

Intel, the world's largest chipmaker, said on Tuesday it is closing the Web hosting business it launched in 1999 and will take a second-quarter charge of $100 million.

Santa Clara, California-based Intel said it will continue to provide managed Web-hosting services, called Intel Online Services, to existing customers during the next 12 months as those customers move to other Web-hosting firms. Intel said it does not plan to pursue new customers, and will shut the business entirely in a year.

The move by Intel, which gets about 80 percent of its revenue from selling microprocessors and related components that go into personal computers and servers, was expected. Other Web hosting companies have fallen on hard times or filed for bankruptcy, such as one-time high flier Exodus Communications.

In April 1999, when Intel first disclosed plans to launch a Web-hosting business, the dot-com boom was in full force, with venture capitalists doling out billions in funding, with lavish company launch parties every week.

BEST TO 'STICK TO THEIR KNITTING'

Intel, with its managed hosting business, said it wanted to broaden its revenue base beyond just microprocessors. However, since the dot-com bubble burst, analysts and investors had been openly speculating how long it would be before Intel pulled the plug on the hosting business.

"This is a ways away from their core business and I'd argue that it's best for them to stick to their knitting in the semiconductor business," said Dan Scovel, semiconductor analyst at Needham & Co in New York.

As a result of the closure, Intel said it expects to take a pretax charge of about $100 million, which was not reflected in its mid-quarter update given on June 6.

An Intel spokesman said "several hundred" people work in Intel Online Services and that the majority of them would be moved into Intel's internal information technology support group. He added that "specific details haven't been worked out" on whether Intel would lay off workers.

Intel's decision to shutter the Web-hosting business comes a day after computer-services giant Electronic Data Systems Corp. said it had purchased Loudcloud Inc.'s Web site management business for $63.5 million.

Loudcloud said it will cut about 140 jobs, or about 36 percent of its staff, as part of the sale of its main business line to EDS, and will change its name to Opsware as it focuses on information technology management software.

Intel shares fell 54 cents, or 2.4 percent, to $22.02 on Tuesday. The stock has declined 28 percent this year.