Apr 5, 2002 : The webhost industry: week review

📅 April 5, 2002 - It was another tough week for the telecom sector, as a number of companies announced staff layoffs, filed for bankruptcy or revealed other financial difficulties.

One of the biggest announcements of the week came from telecommunications firm WorldCom, which confirmed Thursday after a day of rumors that it would lay off 3,700 employees in the United States, or six per cent of it U.S. workforce, in an effort to meet its growth targets.
"The reduction is being taken to better align its costs with its projected 2002 revenue guidance of mid-single digit growth - guidance given in February 2002," the company said in a release.
The cuts represent four per cent of WorldCom's global workforce.
The announcement followed a gloomy picture painted late last week by telco XO Communications, which said it was likely to file for bankruptcy protection in the near future.
"We anticipate that in order to complete any proposed investment and recapitalization it will be necessary for XO Parent to file a voluntary petition for relief under chapter 11 of title 11 of the Bankruptcy Code," the company said in its annual report. "Accordingly, and as indicated in our previous disclosures, we anticipate that all, or substantially all, of the value of all investments in common stock of XO Parent will be lost." The company is currently considering two different buyout proposals.
Speaking of bankruptcy, if you thought ISP giant PSINet was dead, think again. Optical ISP Cogent Communications said Tuesday it had completed its acquisition of certain PSINet assets, and that it would continue to maintain and develop the PSINet brand. Cogent paid approximately $10 million for parts of PSINet's customer base, backbone network and associated equipment and rights to intellectual property. Cogent said it would "immediately incorporate a revenue stream from a set of products that complement Cogent's core offering of 100 Mbps Internet connectivity for $1,000 per month." PSINet filed for bankruptcy last June.
Meanwhile, fiber provider Metromedia Fiber Network said Monday it had appointed a new CEO and VP to lead the company through its financial restructuring, and that it had defaulted on interest payments to Nortel Networks. Last month, the company said it would try to restructure its finances, but warned it could not guarantee that the restructuring would be a success. MFN also said it had delayed the filing of its Form 10K for the year ended December 31, 2001, due to the issues currently surrounding the company.
Web hosting firm Digex said in its annual report Monday that it would likely require additional cash in the future to sustain company growth. The company, which specializes in complex managed solutions, said it is fully funded through 2002 as a result of funding from parent company WorldCom, but added additional cash would be required in the future.
"We have incurred significant net losses and operating cash flow deficits since inception," the company said. "We expect to continue experiencing negative cash flow from operating and investing activities."
In more upbeat news, Texas-based Rackspace Managed Hosting had a reason to celebrate Monday. The company announced that the end of March 2002 marked a full year of financial profitability and 12 months of 100% network uptime for the hosting firm.
There was also some good news from Intel Online Services, the Web services arm of chip giant Intel, as the company said Tuesday it had been selected by auction site eBay to provide hosting services to a portion of the company's operations. Intel Online Services said it was added to eBay's family of providers as part of its continuing Web hosting diversification strategy geared at providing maximum uptime.
It was also a good week for Rackshack, a Texas-based Web hosting firm, which announced a major partnership and also purchased a prominent online community. The company said Wednesday it had signed a three year, $20 million deal with hardware giant Compaq to equip Rackshack's data centers with ProLiant servers for Linux-based Web hosting solutions.
Rackshack also confirmed it had purchased Webhostingtalk.com, an online Web hosting community with over 12,000 registered members. Details of the purchase are still pending.
Streaming Media Corporation, a provider of streaming technology and solutions, also made a hosting-related acquisition this week: the company said late Wednesday it had purchased NaviSite's Streaming Media Group. NaviSite's Streaming Media Group, a division of the managed hosting firm, provides Internet multimedia services managed from its own delivery platform.
The hosting industry also welcomed a new player this week, after ICANN-accredited domain name registrar Dotster Inc. announced on Wednesday the launch of HostLane, a full-featured Web hosting service specializing in shared and managed hosting plans.
And as we head in to the weekend, here are some interesting statistics released this week by Tier 1 research on the hosting industry: There are more than 800 data centers worldwide, totaling over 40 million gross square feet of space. Less than half of that space is in operation, and over 50% of the total operational space is within the United States. Makes you wonder about in which direction the hosting industry might grow.