After 7 years, Annapolis-based USinternetworking Inc. profitable

Annapolis-based USinternetworking Inc. yesterday reported its first-ever profitable quarter with net income of $1.5 million for its 2004 fourth quarter.

The application service provider also forecast that 2005 annual income would stay in the black.

This was a great quarter for USi, said Andrew A. Stern, the company's chairman and chief executive officer, in a prepared statement.

Revenue grew by 32 percent over the comparable 2003 quarter to reach $24.9 million, according to unaudited figures provided by USi. The 7-year-old firm, which signed nine new major clients during the quarter, said new revenue fueled quarterly growth.

Demand for application outsourcing is growing as more and more enterprises recognize that the software as a service model is a less expensive, more reliable means for realizing true business value from large scale software applications, Stern said in the statement.

The news comes as industry analysts say the application service provider market is experiencing a rebirth.

The industry first surfaced in the 1990s as entrepreneurs gambled that businesses would choose cheaper information technology products for their basic needs, if given the choice. ASPs promised to replace costly IT systems built from scratch with customized versions of prepackaged software programs.

The idea became popular, and by 2000 there were about 3,000 to 5,000 such companies nationwide, according to a Gartner Inc. analyst. But ASPs such as USi were devastated by the dot-com bust that wiped out the sector's chief customers. About 60 percent folded after 2000.

USi filed for bankruptcy in January 2002, just three years after going public. It emerged from bankruptcy as a private company in May 2002 after receiving an $81.3 million investment from global private equity firm Bain Capital.

Everyone liked the premise of [ASPs] but no one really thought out how it would be delivered, paid for and sold, said Ted Chamberlin, a technology analyst at Gartner Inc. in Stamford, Conn.

Lately the sector has been trying to rename itself to shed its image of being associated with the dot-com era. Rather than identifying themselves as ASPs, some businesses are calling themselves software-as-a-service and on demand services, according to Gartner analysts.

USi reinvented itself by seeking more stable customers. More than 60 percent of the company's revenue now comes from clients with more than $1 billion in annual revenue, according to company spokeswoman Karen Wentworth.

Chamberlin said the surviving ASPs have created leaner, meaner businesses and must continue to reject business that would push them out of the factory mentality of only doing basic software customizations that can be reused in the future for other clients.

They're really sticking to their knitting, Chamberlin said of current ASP companies.

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