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Micron to shed dial-up Net business

Former PC maker Micron Electronics, continuing to shed operations, says it will eliminate its consumer dial-up Internet access business in a bid to improve overall margins.

Micron Electronics continues to shed operations, saying Thursday that it would eliminate its consumer dial-up Internet access business in a bid to improve overall margins.

The company, which just completed the sale of its PC business, reported a net loss of $40.6 million, or 42 cents per share, for the third quarter. That figure includes results from the PC business and the company's SpekTek memory business, both of which were sold during the quarter.

The company posted a loss of $9.1 million, or 9 cents per share, for continuing operations, which consists of its hosting business. Revenue from continuing operations was $15.4 million, compared with $10.2 million in the year-ago quarter.

"We believe the continued decline of the PC industry and the significant impact in the decline on our PC sales and margins validate our decision to exit that business as rapidly as possible," CEO Joel Kocher said in a release. "We believe it is clear that it was the best possible move for our shareholders."

Micron said in March that it was exiting those businesses, focusing instead on Web hosting. It announced a merger with Interland, which should be completed in August, at which time its operations will be with Micron's HostPro business.

Kocher said Thursday that the HostPro division is "steadily improving operating results," despite a tough economic climate that has hurt some of its competitors.

Micron Electronics
Stock price from June 2000 to present.  
Source: Prophet Finance
"It's important to note that HostPro's business model is markedly different from those of Exodus (Communications) and other enterprise-focused players, who overbuilt and are now staggering under their debt burdens," he said in the release.

The combined companies will have cash balances of roughly $200 million, which he said should be enough to fund operations until the company reaches profitability and acquire accounts from hosting companies that go under. And the new company should post a profit, before interest, taxes, depreciation and amortization, within 12 months of the closing date and be cash-flow positive three quarters later.

"We are pursuing this goal (profitability) in a jihad-like faction," Kocher said in a conference call.

Eliminating the consumer business will "moderately" reduce fourth-quarter revenue, Micron said, but should "significantly" improve margins. Hosting revenue is expected to grow sequentially for the fourth quarter. Micron expects to post a loss, before interest, taxes depreciation and amortization, of $7.5 million and $8 million during the quarter, compared with the $8.1 million loss it reported on that basis for the third quarter.

"We believe it is silly that Micron Electronics is trading significantly below cash value now that the PC business is gone," Kocher said. "But we do accept the challenge to execute our way to (achieve) cash profitability."