Five months after it saying it would stop manufacturing Intel-based servers, Micron Electronics, Inc. is now set to exit the PC business altogether. Instead, the company says it's increasing its focus on the hosting market, announcing Friday that its HostPro subsidiary will merge with Interland, Inc. in a $130 million stock deal.

Interland posted revenues of $10.4 million in its most recent quarter. In fiscal second quarter results released Friday, Micron reported $10 million in hosting revenues. Micron management says it now expects the combined operations to post pro forma revenues of $160 million for the fiscal year 2002, ending Aug. 31, 2002, while realizing $20 million to $30 million in cost savings. The combined company would be based in Atlanta, with six data centers and 112,000 customers.

The companies expect the merger to be completed this summer, pending approval. The resulting hosting firm will focus on selling managed hosting services to midsize and small businesses, as well as value-added offerings, including E-mail, data transfer, and professional services, according to Micron.

In a statement, Micron Electronics chairman and CEO Joel Kocher said, "Hosting will serve as the foundation for many opportunities as small and midsize enterprises increasingly outsource IT." He also said that the company is divesting its MicronPC.com unit because of "the recent drastic downturn in the economy and the PC industry." Earlier this week, U.S. Bancorp Piper Jaffray analyst Ashok Kumar predicted that the PC industry this year will suffer its first ever year-over-year sales decline.

Micron (MU-NYSE) says it has signed a non-binding letter of intent to sell MicronPC.com to an unspecified equity investment firm, which would continue to operate the unit as an ongoing business if the deal is completed. The company and its subsidiaries posted revenues of $1.6 billion in fiscal 2000. Micron Electronics also said Friday that it will sell its memory services unit SpecTek to sister company Micron Technology, Inc., fulfilling an earlier agreement.

Says Daniel Briere, CEO of telecom consulting firm TeleChoice, "They will face tremendous competition because of the sheer number of players, the industry's loss of much dot-com and ASP business, and the fact that many players are spending huge amounts of money to build data centers and have to start recouping their investments."