Exodus files for bankruptcy protection

by Ashlee Vance

September 27, 2001 —

Beleaguered Web hosting company Exodus Communications Inc. filed for Chapter 11 bankruptcy Wednesday as it looked to buy time for a companywide reorganization, the company said in a statement.

One of the world's largest hosting firms, Exodus maintains data centers throughout North America, Europe and Asia. However, the company has been punished by cutbacks in Internet-related spending and forced to file voluntary petitions for reorganization under Chapter 11 of the U.S. bankruptcy code.

Exodus also announced that GE Capital will commit up to US$200 million in financing, which will be used to cover operating expenses and employee obligations, according to a statement.

The company will continue to run without interrupting any customers' service as it begins to tighten fiscal policies, according to the Wednesday statement.

"I am kind of surprised that there was no direct, official indication from Exodus that this was coming, but ultimately you could read between the lines," said Melanie Posey, an analyst with research firm International Data Corp.

The company needs to cut back on excessive spending, particularly among its top executives, Posey said.

"The most immediate thing they can do is cut the bloat at the top level of management," she said. "There were lots of VPs of this and that, and it was not clear what their functions were."

Analysts say that the Sept. 11 terrorist attacks could provide a boon for the hosting industry, as companies look outside their own organizations for data management services and better protection of their information. Although these upticks have not come into full effect yet, Posey warned that Exodus' struggles should not put a damper on an industry that still shows promise.

"You can't look at what happened to Exodus and say this occurred because outsourced hosting is not a valuable business proposition," Posey said.

If Exodus can trim spending through heavy layoffs and a focus on profit instead of expanding market share, the company should be able to turn itself around and pull through, Posey said.

The company did not return calls seeking comment.

Exodus, based in Santa Clara, California, can be reached at +1-408-346-2200 or http://www.exodus.com/.

IDG News Service