Exodus CEO attempts to calm fears

By Jennifer Mears
Network World Fusion, 09/27/01

SANTA CLARA - A day after filing for Chapter 11 bankruptcy protection, Exodus Communications CEO William Krause held a conference call with customers to quell their fears and let them know steps are already being taken to reduce the Web hosting firm's financial troubles.

Krause said the firm, which is struggling under $3.5 billion in debt it amassed in building out data centers, is closing 10 of its hosting facilities that are still under construction and currently non-operational. The closures will have "no consequences to any of our customers because fortunately - or unfortunately - none of you have signed up to utilize them yet, which is why we're closing them," Krause said. "On the other hand the 44 centers that we have operational are open and ready to serve you, and we'd love to have more of your business."

Krause didn't say where the data centers that will be closed are located, but estimated the closures will save Exodus between $20 million and $25 million a quarter.

In addition, Krause said the company would continue to resize the company, an effort begun last spring. The firm has reduced its number of employees from 4,500 to fewer than 3,000. He said the cuts come in "overhead" areas, such as sales and marketing, and do not affect line operations or customer service.

As for Wednesday's filing, Krause stressed that Chapter 11 does not liquidate a company and close it down; rather, it protects a company from its creditors during reorganization. In Exodus' case, that means it will save some $80 million in interest payments per quarter. Krause wouldn't detail what the restructuring plans are, but estimated the process could take between four and eight months.

He suggested a scenario, similar to what happened with Covad Communications Group, in which creditors would get a fraction on the dollar and write off the company's debt. At the same time, Krause did not rule out the possibility of an acquisition.

"If we have somebody who wants to buy our company that is deemed by our creditors and shareholders to have value, we will absolutely bring that forward," he said. "However, it's our intent to operate as an independent company, and I am confident given the assets and resources that we have that we can do that. And, in particular, the action that we took yesterday (Wednesday) gives us increased ability to do that."

Krause also told customers that, by law, suppliers under contract to Exodus before the filing are required to continue providing service, and Exodus is required to pay them. He conceded the firm was having trouble with a storage service provider that is "misbehaving." But says Exodus is working to right the situation by talking with that provider, as well as seeking backstop services from suppliers such as EMC, Hewlett-Packard, Compaq and Sun.

Krause said that was the only product supplier difficulty he was aware of.

Exodus is taking steps to ensure customers are apprised of its progress through the restructuring process, Krause said, including posting relevant information to a special page on the company's Web site. In addition, customers can e-mail specific questions to Krause at Customercomm@exodus.net, he said.

Exodus CEO attempts to calm fears

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