Micron Posts Loss, Exits Internet-Access BusinessMicron Posts Loss, Exits Internet-Access Business

When Micron Electronics Inc. execs earlier this year said the company would concentrate on its Web-hosting unit, HostPro, they weren't playing around. First, Micron sold its PC and memory businesses. Now, it's exiting the consumer dial-up Internet-access arena--a move designed to boost the company's margins and bring it closer to reaching profitability within a year.

It won't be an easy fight. The company posted a net loss of $40.6 million for the third quarter ending May 31, including results for the PC and memory businesses. Without those operations, Micron says it would have posted a loss of $9.1 million. And while sales grew 52% over last year, Micron lags behind the industry average of 87%, says Chris Foster, a Technology Business Research analyst. Micron surpasses most of its competitors, however, with its 37% gross margin for the third quarter, well above the industry average of 24%, Foster says.

In its pursuit of healthy margins, it makes sense for Micron to jettison its Internet-access business. "Companies want margins of 40% or 50% in managed services, and they're not going to get that in the connectivity business," Foster says. "That's why other companies like Genuity are pushing more into enterprise managed services."

Micron's hosting business is unique because it targets the small and medium-sized enterprise market. The company has a better chance of establishing a foothold now, because it won't have to go head-on with many of the large service providers such as IBM. At least, not yet. "Many of the large companies went from focusing on dot-coms to focusing on the enterprise market, and eventually they'll get to the SME market," Foster says. Another benefit of the small and medium-sized enterprise market: Pricing is less cutthroat than in the enterprise market. Says Foster, "Price pressure for the enterprise market over the last year and a half hasn't been anywhere near as competitive as it is right now."