Guardian iT quits web hosting as it plunges into the red

Guardian iT, the data recovery group, became the latest in a growing line of tech companies to fall victim to internet hotel over-capacity yesterday as it announced its withdrawal from the web hosting market.

The group, which saw its shares halve last month after it issued a profits warning, blamed low levels of demand and over-capacity for web hosting businesses for its decision to cut its losses and exit. Peter MacLean, the chief executive, said: "Looking forward, the situation was going from bad to worse in the overall market, with a substantial downward impact on pricing. We decided it was the right time to leave the market."

Guardian entered web hosting in June 2000 and only started a live service in January. The failure of the internet revolution has left many of the web hosting companies that mushroomed on the back of the dot.com boom struggling to stay in business. Last week, CityReach, a competitor, had to call in the administrators and TeleCity, a rival, launched a £18m rescue rights issue.

Guardian said its withdrawal would lead to one-off charges of about £8m, to be taken in the second half. Most of this relates to the writedown of assets in its Heathrow web hosting facility, which the group will convert for use of its core business continuity services at an extra cost of £4m. Mr MacLean said the group had deliberately entered the market "step by step" and knew it could reuse much of its initial investment.

Guardian iT will focus on its core activities – providing disaster recovery services throughout Europe by backing up data to deal with computer failures. Yesterday, it reported a pre-tax loss of £1.7m for the six months to 30 June, compared with a profit of £2.8m a year earlier. Profit before goodwill amortisation and exceptional items rose to £5.2m from £4.2m. Turnover was £58.3m, up 75 per cent. Guardian iT's shares gained 7.5p to close at 275p.