Infrastructure providers cut back

by Jennifer Mears

May 2, 2001 —

Web hosting and infrastructure providers this week announced streamlining measures
that range from layoffs to an executive realignment as they focus on stabilizing
in the shaky economy.

On Tuesday, Exodus Communications Inc. announced the departure of several top
executives. The resignations of Chief Financial Officer R. Marshall Case, COO
Don Casey and Chief Marketing Officer Beverly Brown follow last week's news
from Exodus that it posted a cash net loss of $118.3 million.

CEO Ellen Hancock says the company has imposed cost-cutting measures, including
a $300 million reduction in capital expenditures for the year. But she says
the executive departures are not related to that news. Case and Brown left for
personal reasons, while Casey's departure resulted from organizational changes
stemming from Exodus' acquisition of Global Center and its focus on the global
marketplace, Hancock says.

Casey's duties will be split among Hancock and other executives, including
Laurie Priddy, former COO of Global Center, Hancock says.

Dick Stoltz, who has been a senior advisor for strategy and finance at Exodus
since he stepped down as CFO and COO last year, will serve as CFO until a permanent
replacement can be found, Hancock says. Stoltz says the company stands by its
revenue forecasts and still expects to reach profitability in the first half
of next year.

"We believe that we have a market-leading position, an achievable and
fully funded business plan, and solid long-term demand for our services,"
Hancock said during a conference call with analysts to discuss the executive
changes.

Also on Tuesday, managed infrastructure provider Digital Island Inc. announced
it is laying off 203 of its 850 employees by the end of June. It also announced
the departure of its CFO, Tom Thompson, to pursue other interests. Addo Barrows,
Digital Island's treasurer, is serving as CFO as the company seeks a replacement.

The layoff news came as Digital Island announced a second quarter loss of $1.19
billion, or $15.11 per share. The loss includes a noncash charge of $1 billion,
related to goodwill and intangible assets associated with recent acquisitions,
such as content delivery provider Sandpiper Networks. Digital Island's quarterly
loss before the charge was $77.7 million, compared to $67.4 million the quarter
before.

The company reported revenue of $32.8 million, compared to $31.6 million the
quarter before, and $11.3 million in the second quarter of 2000.

While the slowing economy resulted in fewer new customers during the second
quarter, Digital Island CEO Ruann Ernst says the company increased market share
with enterprise customers in the areas of content delivery and managed hosting.

Loudcloud Inc., a managed infrastructure provider that doesn't own its own
data centers, also announced cost-cutting measures on Tuesday, including a 19
percent reduction of its staff, or 122 positions (Loudcloud to cut workforce
by 19 percent). The cost-cutting measures will help Loudcloud reach cash-flow
breakeven with its existing resources, company officials said in a statement.
The cuts follow Loudcloud's disappointing initial public offering in March.

The staff cuts, which come primarily in the area of internal support, reflect
the benefits of Loudcloud's Opsware automation software, which is designed to
"replace human capital with technological automation," Loudcloud President
and CEO Ben Horowitz.

The company says the cuts won't affect its customer support or R&D efforts.

Meanwhile, managed Web hosting services provider Digex Inc. Wednesday reported
net losses of $44.2 million, or 69 cents per share in the first quarter, compared
to $25.9 million, or 41 cents per share, a year earlier. The company reported
revenues of $53.1 million, more than double its revenue a year earlier.

Digex has rolled out new managed services and expanded its enterprise customer
base since it announced its pending merger with WorldCom Inc., company officials
said.

"WorldCom delivers several important financial advantages to Digex, including
the ability, through its data centers and network, to expand capacity and enter
new markets with very low levels of capital investment," CFO Tim Adams
said in a statement.

He says Digex plans to open WorldCom data centers in France, Germany, the New
York metropolitan area and Tokyo during the next several months.

Network World