Melbourne IT looks to sell business divisions amidst growing competition

Web hosting company Melbourne IT has found itself in financial difficulty and is looking to sell off parts of the organisation.

In an announcement to the ASX today, Melbourne IT said new opportunities which have been delayed have resulted in poor trading results in the second half of this year.

This includes delays in the ICANN’s new gTLD program and government budget cuts in Queensland impacting on its hosting business.

Financial results from these two business opportunities will mean revenue will not be generated until 2013.

A spokesperson from Melbourne IT told Computerworld Australia the company is looking to sell one or more of its business divisions, with the board considering “all options”.

Business divisions at Melbourne IT include:

• Digital Brand Services, which helps companies build and maintain their brands online • Enterprise Services, which provides IT services • SMB eBusiness Solutions, which helps SMBs build an online presence • Global Partner Solutions, which delivers technical and support solutions for domain names • ForTheRecord (FTR), a digital recording and content management solution

The spokesperson said the company does not have a target of how much it is looking to make from the sale/s.

While Melbourne IT has been in discussions with several parties – mainly large offshore companies – the spokesperson did not reveal how many companies or who it had spoken to.

Increased competition hampers revenue

Melbourne IT said declining results in its online SMB business has been a result of increased competition in the market, which has had a downward effect on prices and lower revenue gains.

“In the small business market, obviously, I think that’s where we’re seeing competition the fiercest. The small business of the hosting market and the domain market have been a very crowded market for a long time and obviously price in that area is very sensitive and prices are continuing to come down in those areas,” the spokesperson said.

“That means it has become extremely competitive, and adding to that crowded market we’ve seen some big global players [that] have taken a greater interest in Australia and moved to this market over the course of this year to add to that crowd.”

This competition is expected to continue, with Melbourne IT pinning hopes on a $28-30 million business systems transformation project, which will enable the company to sell a full suite of services across several business units and geographies.

However, the project has been delayed six months and is not expected to be completed until mid-next year, with some financial benefits expected in 2013, with the full benefits of the project not expected to hit until 2014.

Rodney Gedda, senior analyst at Telsyte, said the announcement by Melbourne IT is a reflection of the volatile market in the IT space in Melbourne.

“Other domain name registrars have entered the market and have competed aggressively on price with Melbourne IT, and as the company generates a lot of revenue from a small number of transactions with its FTR division, any slowdown there is likely to hit hard,” he said.

He said companies who might be interested in acquiring divisions from Melbourne IT could include those with expertise in particular products or services.

Gedda said further competition in the market will still pose a threat to Melbourne IT over the next 12 months.

“Increasing price pressure from pure-play online services companies based here are broad. Australians have increasing access to low-cost online services from multinational players. This is set to continue over the next 12 months,” he said.

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