Intel will curtail investment in its online services division because of lower-than-expected revenue, chief executive Craig Barrett said yesterday. Intel Online Services, which competes in the Web hosting and management market against Exodus and others, was announced with great fanfare in April 1999. Although the division continues to gain customers, Barrett said, "revenue per customer was less than anticipated". As a result, the company will cut back on installing servers and other equipment in its data centres. In a conference call, Barrett also termed the current economic condition in the US a "recession" that could continue its deepening effect in the second half of the year. "We're still optimistic that the second half of the year will show the most strength, but the downside is no one knows how deep the recession will go," he said. "I think it's pretty clear that the manufacturing world is in pretty bad shape right now." Barrett's comments came on the eve of the Intel Developer Conference, a twice-yearly technical event for Intel partners and developers. This year, the three-day event promises to be a mix of positive announcements and cautious statements about the future. On the optimistic side, the chipmaker is expected to announce that it has "taped out", or completed, the design phase for "McKinley", a codename for a server chip coming in 2002. The company is also expected to provide an update to the road map for the Pentium 4 and the XScale, an energy-efficient processor for handheld computers and cell phones. On the downside, Intel can expect to face a number of questions about the limping economy, slow PC demand, and the company's progress in spreading into communications, networking and other fields. Although some of the company's plans to diversify have borne fruit, others have not. Services in particular haven't proved to be a boon. Earlier this year, the company terminated an e-commerce hosting service for small and medium-sized businesses. Last week, Intel put the lights out on Intel Media Services, a dedicated network for streaming media. Intel Media Services rented airtime and other services to companies that wanted to broadcast stockholder meetings, training courses or other events over the Web. Intel Online Services was inspired, in part, by Intel's ability to manage factories all over the world. The new centres were to become "bit factories" that would process data and conduct Internet transactions on behalf of large corporations and even telecommunications providers. Data centres housing thousands of servers were erected in Santa Clara, Europe and Asia. Each centre costs roughly £35m to £70m or more. Barrett said the need for these types of hosting services exists. "We still firmly believe in managed services." Nonetheless, Intel's business has not taken off as planned, requiring cutbacks. The company will not cut back on new data centres as much as on installing new hardware inside existing centres. "Revenue per customer drives the number of servers per customer," he said, "We will [limit] the build-out of the hardware." See Chips Central for daily hardware news, including interactive roadmaps for AMD, Intel and Transmeta. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Enterprise forum Let the editors know what you think in the Mailroom. And read what others have said.