NEW YORK (Reuters) - VeriSign Inc (VRSN.O), which makes switchboards that direct Internet traffic, said on Wednesday it will divest its slower growing units and focus on Web site-naming and Internet security services, under a plan that could cut its workforce in half.
VeriSign shares closed 1.7 percent higher Wednesday after it said businesses targeted for divestiture include its communications, billing and commerce units. Once the strategy shift is completed, the company said it expects revenue growth, profit margins and net income “will be higher.”
“Our company knows more about the Internet infrastructure than anyone else. (We) helped design the modern Internet -- that’s our core competency. We are going to focus on that,” Chief Executive Bill Roper said at a meeting with analysts broadcast over the Internet.
Verisign expects to complete the restructuring by the end of next year, or early 2009.
Depending on which units actually get divested, total annual revenue could shrink to a range of $900 million to $1.2 billion in 2008 from an estimated $1.5 billion in 2007, said VeriSign senior vice president Todd Johnson.
Johnson said VeriSign will focus on its businesses that allow people or companies to license Web address names; its service that secures and authenticates Internet traffic; and an identity protection business.
About half of VeriSign’s roughly 4,500 employees are expected to be separated from the company. A “significant number” of employees will end up going with the divested business, depending on the types of buyers, Johnson said.
“We are well into the process (and) we have hired Morgan Stanley to work with us. On average, we have started more-formal discussion with potential buyers,” he said.
VeriSign makes and operates a key piece of the infrastructure that makes the Internet operate: switchboards that direct every piece of traffic to Web locations with .com or .net at the end of their addresses. It also manages the licensing of those Web site names.
Every time a Web surfer enters an Internet address, it first travels through a VeriSign server, which directs it to its final destination. The system also handles other types of Internet exchanges, including ones that are originated via computer or handle phone calls.
Earlier this month the company reported a 24 percent increase in quarterly profit to $19 million. Its Internet Services Group contributed 63 percent of revenue from continuing operations, with its Communications Services Group accounting for the remainder.
Johnson said the company was not being spruced up to be sold.
Asked if he expected VeriSign to attract attention from a larger suitor, Johnson said: “the more successful, lean and focused you are, the more interesting you become. But that’s not the intent of this. The idea is to (seek) a better return to shareholders and to provide a better place to work for our employees.”
VeriSign shares closed up 55 cents to $33.70 on Nasdaq on Wednesday. The stock is up 40 percent since the beginning of the year.
Editing by John Wallace and Tim Dobbyn