Internet service provider PSINet Inc., suffering the effects of falling demand for Web hosting, Internet access and consulting services from cash-strapped dot-com companies, announced on Thursday a restructuring, including plans to get out of most of the e-business and IT service businesses it acquired in March when it bought Metamor Worldwide Inc.
The Ashburn, Virginia-based company, which paid US$1.9 billion for Metamor in an all-stock transaction, said portions of its consulting business acquired in the deal will be sold, resulting in a $504 million asset write-off. Company officials also said Thursday that PSINet’s 80-per cent ownership stake in Xpedior Inc., a subsidiary of Metamor that provides electronic-business services, would be discontinued. The company expects the disposal to result in a loss of $663 million.
The news came in a conference call to report third quarter financial results in which PSINet officials also said the company has reshuffled its management and will conduct a financial and operations review.
The charges had a significant impact on PSINet’s third quarter results. The company posted a loss of $1.4 billion or $7.34 per share. That compares with a loss of $82 million, or 68 cents per share in the third quarter last year. Analysts polled by First Call/Thomson Financial predicted the loss on average would be $1.28 a share in the third quarter.
PSINet, which provides Internet access and Web-hosting services to companies, reported revenue of $352 million, an increase of 151 per cent over the $140 million of revenue in the third quarter last year, but well below analysts predictions. The company’s stock dropped by more than 50 per cent on the news. It was trading around $3 in early afternoon trading on the Nasdaq.
William Schrader, chairman and CEO, blamed the company’s difficulties on external economic forces, and said revenue from enterprise and dot-com customers was lower than expected.
“What we are seeing is a general caution in the entire marketplace to buy services from suppliers in telecom and Internet sectors worldwide,” Schrader said during the conference call. “I believe it is tied to a recession which is just starting. It could be a mild recession. It might have been running now for six months.”
The management reshuffle saw the resignation of Harold S. “Pete” Wills as chief operating officer of PSINet and as a member of the PSINet board of directors. Other management changes include the appointment of James F. Cragg as president for North American operations and Harry G. Hobbs as president for international operations.
PSINet, in Ashburn, Va., can be reached at http://www.psinet.com.