Jul 5, 2002 : The webhost industry: week review

📅 July 5, 2002 - As long as we keep learning from our missteps, it will soon be very nearly impossible to surprise the folks in the Web hosting industry. It is difficult to imagine anything topping last week's faulty-accounting announcement by WorldCom for sheer out-of-the-blue shock factor. In fact, it's difficult to imagine something that could top that.
As expected, ongoing coverage of developments in the WorldCom accounting scandal were among this week's most prominent news, as the company sought an audience with the Nasdaq and suggested that it would consider more layoffs, while analysts increasingly predicted a bankruptcy for the troubled communications giant.
Speaking with reporters early in the week, WorldCom's recently-appointed CEO John Sidgmore discussed the company's plans for the immediate future as it works to avoid what would be the largest bankruptcy filing in US history.
After finalizing plans for 17,000 layoffs the week before, Sidgmore said WorldCom is looking at taking whatever steps are necessary to keep the company cash-flow positive. With about $2 billion in cash, WorldCom is working with banks and other organizations to avoid the bankruptcy filing.
He also said the company had requested an audience with the Nasdaq stock market to argue for the re-listing of WorldCom's stock, which fell below 10 cents before trading was suspended, and was subsequently delisted.
Later in the week, analyst group and Frost & Sullivan division Stratecast Partners released a report focused on the struggles of both WorldCom and Qwest, and suggesting that WorldCom would be unable to avoid a bankruptcy filing.
"Stratecast expects that it will be exceedingly difficult for WorldCom to continue as a going concern in its current form, and we believe it is likely that WorldCom will be compelled to seek bankruptcy protection with hopes of restructuring," said co-founder and chief strategist Mike Smith.
And on Friday, a US District Judge selected former SEC chairman Richard Breeden as the court-appointed monitor in the SEC's civil suit against WorldCom for its accounting practices. Breeden's responsibilities will include ensuring that no documents are destroyed and no payouts are made to executives during the investigation.
As though concerned that we had forgotten who the original telecommunications giant under investigation for improper accounting practices was, Global Crossing made headlines too this week, coming under investigation by the FBI for allegations of destroying documents.
Global Crossing said its own internal review found no merit in the allegations.
And while WorldCom and Global Crossing worked to reorganize their organizations back into workable businesses, other companies looked to selling equity to raise funds, and selling assets outright.
Manged service provider SAVVIS Communications Corp. said on Tuesday that it had secured an equity investment of $20 million from Bear Stearns asset management fund Constellation Ventures, in exchange for preferred stock, bringing the company's total new investment to $178 million. Constellation Ventures will hold approximately eight percent of SAVVIS's voting stock, and its managing director Clifford H. Friedman will join SAVVIS's board of directors.
And on Tuesday, data center operator Clear Blue Technologies and holdings firm Israel Corporation announced that their proposed purchase of the assets of PSINet Europe had been approved and cleared by the European Commission. Clear Blue says Richard E. Williams will replace R. Scott Arnell as president and CEO of PSINet Europe.
Affecting the hosting industry from the equipment manufacturing end this week was Apple, which announced early in the week that it has released its new Xserve rack-mount server, based on the Mac OS X server operating system and G4 processor.
Following the release of the new Apple server, application development provider machinemen announced that it would launch a new Web hosting service based on the Xserve hardware, called XserveRack.com. The company said the service would focus on enterprise-level solutions as well as attractive pricing for the reseller market.
In the high-end server world, chip manufacturer Intel is reportedly preparing for the release of its Itanium 2 chip next week. The new chip is the follow-up to the company's previously-released and poorly-received Itanium chip. With Microsoft, HP, IBM and Fujitsu all reportedly planning to release products supporting the chip next week, observers say that this time, Intel is poised to capture a portion of the high-end server market dominated by Sun Microsystems.
And in a follow-up to its legal thrust-and-parry with Speedera last week, content delivery network provider Akamai announced this week that it has been granted a permanent injunction against Digital Island, the content delivery provider now a part of the organization billed as Exodus, a Cable & Wireless service, for infringing on a patent granted to Akamai's founders.
In response to the ruling, Cable & Wireless issued a statement saying that the injunction would not impact its customers, and referred only to a now-defunct part of Digital Island's operations.
The bad news from the telecom sector is showing no signs of letting up, and there can be no mistake that the immediate future of the Web hosting business will involve a lot of WorldCom, especially considering the fact that, if all the predictions are true, then we?re still approaching the biggest bankruptcy in US history. And while that may not come as a surprise at this point, it would still carry almost-immeasurable significance for the entire communications industry.