May 3, 2002 : The webhost industry: week review

📅 May 3, 2002 - The downbeat news seemed almost nonstop sometimes this week, as several companies announced management changes, job cuts and big quarterly losses as Web hosts and telcos continued to struggle with a reduction in IT spending.
Probably the biggest news of the week in that sense was the resignation of Bernard Ebbers, the 60-year-old CEO who built WorldCom into one of the world's top telecommunications companies. On Monday, WorldCom announced that Ebbers had resigned his position as President, CEO and Director of the company.
Analysts and industry insiders say the resignation was an unexpected but necessary shake-up for a company who's shares have fallen from heights of $64 dollars in 1999 to just over two dollars as of Thursday's close. WorldCom Vice Chairman John Sidgmore will replace Ebbers.
On Tuesday, global communications firm Qwest posted a wider than expected loss for this first quarter of 2002. The company said revenue dropped 13.5 per cent to $4.37 billion.
Qwest attributed the lost to its investment in KPNQwest, a European telecommunications subsidiary, which included both a write down of the company's equity investment of $462 million and the company's share of restructuring charges recorded in the quarter by KPNQwest of $74 million.
On the Web hosting front, Denver-based Web hosting firm Inflow said Wednesday it would reduce its workforce and either close or sell a number of its data centers in order to become EBITDA (Earnings Before Interest and Taxes Depreciation Adjusted) positive by the second quarter of 2002.
The company said it plans to "phase out" its operations in Irvine and Sacramento, California, and said it would reduce its corporate and non-essential field support staff. The company also said it is negotiating terms to sell its Dublin, Ireland, and Dallas, Texas, data centers to local companies.
Meanwhile, managed Internet infrastructure and Web hosting firm Genuity (said today it would Thursday it would cut approximately 1,100 jobs as part of a new company-wide restructuring program. The company also said it would evaluate the possibility of further consolidating a number of data centers and administrative offices in an effort to "improve its overall asset utilization and eliminate business offerings not core to its strategic goals."
It was also a busy week on the mergers and acquisitions front, with no less than three companies changing ownership this week. On Monday, Chicago-based Web hosting firm Hostway officially announced it had acquired Iarna.com, a UK-based provider of Web hosting services. Hostway said it plans to eventually brand the company "Hostway UK", and plans to use its new UK presence as a base for future European expansion.
On Monday, application outsourcing service provider ManagedOps Inc. said it had acquired the customer contacts of Vobix Corporation, a Kentucky-based managed technology corporation. ManagedOps said it would provide hosting services for the Vobix customers, who will be migrated to its Managed Operations platform by mid-May. Terms of the transaction were not released.
And Level 3 Communications, a global provider of Internet network services, made a big announcement Thursday when it said it had signed a definitive agreement to acquire Software Spectrum, Inc., a provider and reseller of business software, in an effort to penetrate the software distribution business.
Investors reacted extremely well to the news, sending shares in Software Spectrum up more than 100 per cent in trading Thursday. Software spectrum provides a suite of IT-based enterprise software management and contact center solutions. The company, which has offices worldwide, generated revenues of approximately $1.3 billion last year.
There were a couple of bright spots that helped to compensate for the bad news flying around this week, mostly in the form of reports. A study released Wednesday by the Yankee Group, for example, said that European Small to Medium-Sized Enterprises (SMEs) have made significant progress in adopting Internet technology. The research firm said the growth represents a substantial boost for European vendors and service providers that view the market as a potentially hot area for Internet services.
And finally, consulting and training firm Frost & Sullivan said in a report released Monday that many Web hosting companies looking to reposition themselves in the wake of the dot-com downturn will find new opportunities in traditional brick and mortar companies. The firm also said that refocusing on a more stable client base and making revenues a top priority would prepare both Web hosting firms and the industry itself for long-term growth. According to Frost & Sullivan, the hosting industry generated revenues of $4.6 billion in 2001 and is projected to reach over $20 billion in 2008.
It wasn't a particularly upbeat week for the Web hosting and telecommunications industries, as it is clearly evident many companies are still reeling from what seems to be a global reduction in tech spending. But if there's any consolation in the downturn, it's that the companies that survive will likely be the ones best positioned to succeed when the tech sector recovers.