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Comdisco dances away from managed network services

Frustrated by a tough market, the company says it's exiting that line of business, intending to focus on high-growth areas such as Web hosting and data-storage services.

    Frustrated by the tough market for managed network services, Comdisco on Tuesday said it is exiting that line of business and intends to focus on high-growth areas such as Web hosting and data-storage services.

    As a result of its decision to cancel managed network services, Comdisco said it had to eliminate 96 jobs from a total work force of about 3,200 employees worldwide. Companies sign up for such services when they want to offload the management of computer equipment such as servers and network bandwidth to a service provider.

    Comdisco said its managed network services business had not been growing as projected and no longer fit its strategy.

    The comapany, which entered the business in 1995, said that over the last few years it faced tough competition from other larger providers that had the advantage in size and capabilities of offering the same services at lower prices.

    International carrier Global Crossing, Web-hosting giant Exodus Communications and a slew of upstarts including Loudcloud and Silverback Technologies all compete in the managed services market. Comdisco, based in Rosemont, Ill., also said that the rapid change in networking technology would have required the company to make ongoing investments in its operations to keep up with competitors.

    Mark Jordan, an analyst with A.G. Edwards & Sons, said Comdisco's decision to nix the service line makes smart business sense, especially since the unit was not returning profits.

    "It is a known fact that they were not making money in that business," he said. "Management is taking a serious look at some of the newer business initiatives and this is the one area that had been definitely underperforming."

    Jordan, who rates Comdisco's stock as a "buy," said that over the past few months, the company has been recovering from a series of setbacks including the write-off last October of its telecommunications subsidiary, Prism Communication Services, as well as a recent executive management shuffle.

    "What they're doing now is a broad-based soul searching and review of the business," Jordan added. "It's time to get the business running properly again" and focus on other areas where Comdisco is clearly performing better, he said.

    The company said it has informed customers of its decision and is working with them to transition to another service provider. Comdisco said only about 37 customers out of a total of 5,300 will be affected by the change.

    The move follows the recent resignation of Comdisco's chief executive officer, Nicholas Pontikes, who stepped down from his post last month after proposing that the board recruit a seasoned leader with more experience to head the company. Senior vice president Philip Hewes is leading the company in the interim while it conducts a search for a permanent chairman and CEO.