Micron Electronics to exit PC business
The all-stock deal will combine Micron’s HostPro Web hosting subsidiary with Interland (ilnd), creating a new firm that will use the Interland name. Interland stockholders will own 30 percent of the new company. Interland went public in July.
Micron (muei) had been scheduled to release its second-quarter earnings today. Wall Street analysts were expecting the company to report net income of 2 cents per share.
The company said today that it plans to sell its Micronpc.com business, which makes PCs, to a private technology-equity investment firm. Financial terms of that deal were not released. The company will also sell its SpekTek division, which sells refurbished random access memory, to parent company Micron Technology (mu). Earlier this week, Micron Technology delayed its earnings release because of the changes at Micron Electronics, which is majority owned by Micron Technology.
The new combined firm is expected to post pro forma revenues for fiscal 2002 of $160 million to $180 million, and save $20 million to $30 million in the first year through synergies. The company also predicted reaching a break-even earnings before interest, taxes, depreciation and amortization (EBITDA) by the second quarter of 2002, with positive cash flow three quarters later.
Micron CEO Joel Kocher will become chairman and CEO of the new firm, while Interland CEO Ken Gavranovic will be vice chairman.
"Hosting will serve as the foundation for many opportunities as SMEs (small and medium enterprises) increasingly outsource IT. This merger strategically positions us to take advantage of all the aspects of the Third Wave of computing, as the real power of computing moves from the desktop to the network,” Kocher said.
The new company will have headquarters in Atlanta, with six data centers, 112,000 customers, and more than 227,000 hosted Web sites.
The HostPro division was Micron’s smallest, but it has delivered strong growth. In the first quarter, that division posted revenues of $14 million, up 19 percent compared to the fourth quarter of 2000. In recent interviews, Kocher said he had high hopes for HostPro, which was funded largely by profits from SpecTek.
Despite the growth at HostPro, Micron's MicronPC.com business and SpekTek business still accounted for 97 percent of revenues during the first quarter.
Third-largest direct PC vendor
It's not hard to understand why Micron would want to exit the PC business. The company was the third-largest direct PC vendor behind Dell Computer and Gateway, but has had trouble turning a profit. Recently, Compaq, Dell and Hewlett-Packard issued warnings for their upcoming quarters.
Analysts had expected Micron to exit the PC business at some point. Merrill Lynch recently lowered its prediction for PC unit growth to 12.5 percent from 15.4 percent. Research firm IDC put U.S. PC growth in the fourth quarter at 0.3 percent year over year, down 3.6 percent from a quarter earlier.
The SpekTek sale will also include certain real estate assets and intellectual property. After paying off existing SpekTek profit-sharing obligations, the deal will give Micron Electronics $42 million. The assets will be transferred April 6.