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http://dailynews.yahoo.com/htx/nm/20010630/wr/column_nettrends_dc_4.html

Saturday June 30 8:43 AM ET

NetTrends: c By Andrea Orr

PALO ALTO, Calif. (Reuters) - By now, the story of a star Internet company rapidly running out of money and losing favor on Wall Street has become familiar. But it wasn't supposed to happen to Exodus Communications Inc. (NasdaqNM:EXDS - news)

Unlike so many virtual companies with only virtual assets, Exodus is as much brick-and-mortar as it is dot-com. It provides fortress-like buildings for companies to house critical computer servers that must keep running through power outages, earthquakes and other disruptions.

As the leader in this fast-growing Web-hosting industry, Exodus was regarded as the quintessential business of the future that would be standing tall even after many flimsier dot-com companies fell.

Last week, though, Exodus revealed it was fighting for survival, too. Its stock, already deeply depressed from its all-time high of $86, went into a sharp decline, as many investors questioned whether it could make it through the year. The stock closed Tuesday at $2.11 per share.

``It's surprising that it happened this quickly,'' said Peter Giglio, an analyst with Gerard Klauer Mattison & Co. in New York.

Exodus' swift decline provided another sign of how even many of the most seemingly stable companies have been left on shaky ground because of the Internet fallout. Everyone knew Exodus would lose some business from dot-com customers going under. But it also has many customers from traditional industries, and it was supposed to have more than enough cash on hand to make it through the lean times.

As recently as last month, Exodus had assured its shareholders that it had some $1.1 billion in the bank. Then last week it said there would only be $200 million left by the end of the year. That's not a lot for a debt-laden, money-losing company that is expected to have expenses of $900 million this year.

It turned out, Exodus didn't really have access to all the cash it said it did. As its financial situation deteriorated last week, it was basically forced to repay a $150 million loan early. As long as the loan remained outstanding, it was unable to spend much of its other money it badly needed.

``Under that bank facility we had to keep $100 million of cash in the bank, so effectively the $150 million was really only $50 million,'' acting Chief Financial Officer Dick Stoltz said in a conference call with analysts. ``We felt it was substantially restricting.''

Restrictive loans are only one of the company's problems. It also said it was seeing a slowdown in the rate of new customers signing up, higher cancellations from existing customers, and reduced orders from remaining customers.

In the face of so many challenges, Exodus cobbled together a strategy for survival in which it would slash its 2002 capital spending to less than a quarter of 2001's already reduced levels.

But, after making numerous warnings this year that results would come in below plans, it had a hard time selling Wall Street on this latest plan.

Industry analysts one after another moved to downgrade the stock, saying it was just too risky. One even called his past support of the stock one of the worst mistakes of his career.

Not long ago, Exodus had been a favorite investment, even among money managers who were avoiding the pure dot-com companies. Most analysts saw Exodus shares rising to around $100 and said the company's only real problem would be growing fast enough to keep up with the explosive demand for Web hosting.

Asked last week to explain what went wrong, many suggested that even though Exodus wasn't really a dot-com, it had assumed many reckless dot-com practices. Specifically, it had taken on too much debt to grow too fast, never thinking its potential was anything short of limitless.

Although Exodus will not say what portion of its Web-hosting network is now in use, many analysts estimate it is less than 50 percent. ``It comes down to two words,'' said Adams Harkness & Hill analyst Alex Arnold, offering his own take on Exodus' troubles. ``Capacity utilization.''

Still, others admitted that Exodus' practices were only half the problem. If the company acted like a dot-com, many on Wall Street and in high-tech research firms were only too willing to treat it like one, making aggressive forecasts for the growth in the Web-hosting industry, and for Exodus' ability to dominate it.

While Exodus is the market leader, it has not achieved anywhere near the level of dominance a company like Microsoft Corp (NasdaqNM:MSFT - news) has in operating systems. Exodus' share of the highly fragmented Web-hosting market is about 15 percent, and it faces mounting competition from others, including International Business Machines Corp. (NYSE:IBM - news).

-- K (infosurf@yahoo.com), June 30, 2001