Apr 26, 2002 : The webhost industry: week review

📅 April 26, 2002 - It was a fairly positive week for the Web hosting industry, with numerous companies reporting new alliances, products and strong quarterly reports.
Affinity Internet, which recently merged with Cybergate/ValueWeb, said Tuesday it showed a positive cash flow for the quarter ending March 31, 2002. The company reported revenues of $7.3 million for the quarter, an increase of 280.8 per cent over the same period in the previous year. According to Affinity, the company is adding close to 8,000 customers every month.
Managed hosting firm Digex also reported its quarterly results this week, and said it had a "solid quarter" for customer acquisitions, picking up 56 new clients between itself and parent firm WorldCom. Digex announced revenue of $51.8 million for the quarter ended March 31, 2002, compared with $53.1 million a year ago. The company said the number of managed servers it maintained totaled 3,420, with each server generating average monthly revenues of $4,638.
Digex also unveiled a managed Linux solution this week using Red Hat Linux 7.2. The new offering is available both to enterprises and entry-level managed hosting accounts.
While some companies were reporting their financial results this week, others were taking a good look at their own. European communications firm KPNQwest, for example, said it believes that revenue for 2002 is likely to be between 1,000 and 1,050 million Euros. This is lower than previous guidance of 1.3 billion Euros. The company also said EBITDA is expected to be in the region of 140 million Euros, compared to previous guidance of 175 million Euros for 2002. The company said that its revision was due to a number of factors, including a recent deterioration in the optical capacity and wholesale markets and a softening of demand in the enterprise market.
Deteriorating market conditions were likely a big factor in the bankruptcy of Williams Communications Group, which filed for Chapter 11 bankruptcy protection Monday in a bid to restructure its debt. Like many of its bankrupt competitors, the company amassed a large debt constructing a 33,000-mile fiber-optic network that transmits video, voice and data signals throughout the continental United States.
Keeping with capacity news for a moment, a study was released this week by research firm TeleGeography that suggests the collapse of bandwidth prices may be nearing an end. The new report, titled "Terrestrial Bandwidth 2002," confirms that the supply of city-to-city bandwidth still exceeds actual needs. However, with prices already at or even below costs, TeleGeography said it seems unlikely that the capacity oversupply will depress prices any further.
"Bandwidth prices are no longer driven by supply and demand," said TeleGeography analyst Stephan Beckert. "They're driven by short-term costs, and by the fear of bankruptcy court. But as prices fall below costs, carriers will not be able to remain solvent."
There were also a couple of mergers and acquisitions to report this week. On Tuesday, investment firm Sensar Corporation said it had completed its merger with VitalStream, a digital broadcasting solutions firm. Sensar said more information about the merger would be made available within approximately two weeks. A merger agreement was signed by the two firms in February.
And Friday, bankrupt ISP PSINet said today it had entered in to agreement to sell PSINet Europe to a group of investors for $9.5 million US. The group is led by led by Israel Corporation, a publicly held company, and ClearBlue Technologies Holdings. Because the transaction was structured as a stock purchase, the investors agreed to assume all liabilities and obligations of PSINet Europe.
Two major players in the hosting industry said this week they would get together to form a strategic alliance: Hosting firm Dialtone Internet and Plesk, a provider of automated Web hosting software. Under the agreement, Dialtone will implement the latest edition of Plesk Server Administrator (PSA), version 2.5.
And on the hardware side, tech giant IBM made a major announcement Thursday when the company said it would introduce a blade system aimed both at service providers and enterprise systems by the third quarter of 2002. The new system, titled eServer BladeCenter, will feature the Intel Xeon DP processor. Intel's Itanium and IBM's POWER processors will eventually be added as well. BladeCenter will support both the Linux and Windows Operating Systems.
Although it was a fairly dismal week for tech stocks, things were fairly quiet in the hosting industry. While this isn't necessarily a sign of economic recovery, no news is usually good news.