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Mixed VeriSign results, closes unit

Expects decline in domain business to slow

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ComputerWire: IT Industry Intelligence

VeriSign Inc yesterday announced it is to close a poorly performing sales division, after a mixed third quarter that saw sequential revenue dips in its domain name and telecoms business, but encouraging highlights including an increased cash pile,

writes Kevin Murphy.

"It's fair to say our results were mixed with some areas performing as planned and others, such as our third-party products business, dictating a new course of action," CEO Stratton Sclavos said in a conference call with analysts.

The company said it is closing its third-party product resale business, which will remove $25m to $30m from its top line in the fourth quarter. However, the company said the move, which will cost about 60 jobs, will not adversely affect its net income.

The company reported a GAAP net loss of $80m, compared to a net loss of $386.7m a year ago, on revenue that was up 18% at $301.4m. Pro forma net income, which excludes write-downs and the like, was down 26% at $44.1m.VeriSign said it improved its balance sheet, adding $45m to its current assets for an end of quarter total of $327m.

VeriSign's Mass Markets division, which included domain names, digital certificates and payment processing services, contributed $100m or 33% of revenue, with 67% of sales coming from its Enterprise and Service Provider (ESP) division, which provides telecommunications and security services.

While the overall market for domain names in .com, .net and .org (CNO) actually grew, reversing a recent downwards trend, VeriSign's share continued its dive. But the company expects this decline to slow as the quality of its customer base improves. The company said the percentage of customers buying extra services increased to 35%.

The VeriSign CNO registry grew by 200,000 domains to a total of 27.5 million, Sclavos said. But VeriSign's registrar's share of this was down to 8.7 million, down 900,000, or almost 10%, sequentially.

Including names in non-CNO domains, VeriSign's registrar business had 9.7 million names under management, down 600,000 or about 6% on the second quarter. This was 200,000 names better than previously thought, but further declines are expected.

"We expect to have approximately nine million names under management at the end of the year," Sclavos said. "We also believe we will see steady renewal rate improvement as the [customer] base stabilizes and the majority of names have a historic track record."

The registrar unit grossed 500,000 new registrations in the quarter, about 9% less than in the second quarter. It renewed 700,000 registrations, meaning the renewal rate was 48%, better than the 45% rate seen in the second quarter, a rate Sclavos said will be repeated or bettered in the fourth quarter.

The ESP division was affected by the fact that the "weak overall telecoms market still persists" Sclavos said, saying he expects "flat to modest growth" in the fourth quarter. He added that "visibility into enterprises remains limited" with buyers "still very cautious".

VeriSign continues to invest in growing this business, which is still fairly new to the company, adding extra signaling points to its SS7 network, building up its affiliates network, and branching out into overseas markets during the quarter.

The digital certificate business, part of the mass markets and ESP units, issued 95,000 new and renewed certs in the quarter, down 10,000 on the second quarter, ending September with a flat 400,000 active certs. VeriSign's payment business added 5,000 merchants to get to a total of about 80,000.

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