Digital Island cuts off workers from mainland

A hurricane hit Digital Island on Tuesday as the provider of Internet network services announced grim earnings and the resignation of its chief financial officer, along with more layoffs.

The San Francisco-based company announced a net loss of $1.19 billion, or $15.11 a share, for the fiscal second quarter on revenue of $32.8 million. That compares with a loss of $92.7 million, or $1.49 a share, on revenue of $11.3 million for the same period last year.

"They managed to grow revenues in a difficult environment and reduce gross margin losses. However, neither of these gains were as good as we expected," said Tom Watts, an analyst at Merrill Lynch.

The results show further signs of an anemic technology market that has eroded the balance sheet of even Digital Island's strongest competitors such as Akamai, which also posted greater losses last quarter.

The results include a charge of $1.04 billion related to goodwill and intangible assets associated with recent acquisitions, including Sandpiper Networks, Live On Line and software Networks.

Merrill Lynch analyst Christopher Giordano said the company would have posted a loss of $1.93 a share without the charge, which still falls short of analysts' consensus estimate of a $1.91 loss per share as surveyed by First Call. Analysts also expected the company, which provides hosting and content delivery services, to generate $36.2 million in revenue.

Digital Island announced that it would cut an additional 10 percent of its employees by the end of June 2001, bringing the total carnage to 22 percent. Competitor Akamai also told investors in April that it would reduce its work force by 14 percent.

In addition, the company revealed that its CFO, Tom Thompson, has resigned and will be replaced by company Treasurer Addo Barrows until the position is filled permanently.

Digital Island also lowered revenue estimates. For the fiscal year ending in September 2001, the company expects revenue in a range between $140 million and $145 million. Analysts polled by First Call previously estimated revenue of $171 million for the year.