The 57-year-old chief executive of Exodus Communications has previously worked with the likes of Lou Gerstner at IBM and Steve Jobs at Apple Computer. But nothing in her resume--which also includes a brief stint with National Semiconductor--prepared her for the swiftness of the downturn in the technology sector, a downturn that has left her company reeling.
Along with other Web hosting companies, such as Digex, AboveNet and Intel Online Services, Exodus has been hard hit. The company maintains and installs the computers and other Internet infrastructure required to run complex Web sites. And when the dot-coms died, business fizzled.
Now these hosting companies are offering professional services and other so-called managed services in an effort to attract more stable big business customers.
Hancock, in a recent interview with CNET News.com, discusses what she's learned from the latest tech slump, what Exodus could have done differently and assesses the overall health of the industry.
How would you assess the current high-tech industry and what do you
project for the next year or so?
The industry has seen an impact on the funding issues as it relates to
both dot-coms, but also the early-stage technology companies...and
certainly that has had an impact on the industry. Another impact that is
widely discussed is on the bandwidth and the amount of fiber that many
of these telcos and CLECs (competitive local exchange carriers) have in fact made available, particularly in
the United States.
Why did you trim your annual salary to $1?
That was last year. Last year we put me on a dollar salary, but this
year we had me on a more standard salary. It was our view going into
that year that
we were a high-growth company and there was a lot of focus on our stock,
and that I was allowed to choose between an increase or taking most of
it in
stock. And so I chose to bet on the company and bet on its stock. The
view this year was that we're a more mature company, that we should be
running
our business similar to companies much larger in size, and that we
should go back to a more conventional salary structure.
Given the change in climate, was the acquisition of GlobalCenter and
the expanded number of data centers that came with it a smart move?
I still am very supportive of that acquisition in many ways. It did give
us data centers in some locations that we'd had problems getting in to.
But also, a large part of the value of that deal to me is that we have
this arrangement with Global Crossing where we essentially buy bandwidth
as if we were a subsidiary of theirs. So we get the best prices
available in the industry.
What should you have done differently to prepare your company for the
downturn?
Oh sure. With hindsight, you could do a lot of really good things. With
hindsight, we would not have hired a whole lot of people in the fourth
quarter. That is where we significantly added to our employee base,
because we honestly thought we were headed for a $2 billion business. We
also brought in all the GlobalCenter people in the first quarter of this
year, and then we did more staffing ourselves. So, we overstaffed
against our current view of the business. So I'd have done that
differently.
We also did have a fair amount of faith and trust in many of these start-up businesses, and I have to say that we've implemented much tighter controls relative to funding. We won't go into some deals now if we're not sure that the other company has essentially the funding that it needs. We do much more in the way of credit checks now and talking with people who have invested, so we're doing a much more thorough job of reviewing the customers than we had in the earlier days.
You talked about the additional hiring, and you had to lay off many
of those people. Have the layoffs at Exodus improved the company's
bottom line? When will they?
Some of them have as we're going into this quarter. We announced on the
(quarterly financial results) call that we're currently at 3,500 people.
It's our intent to be at 3,000 by the end of this quarter. And so the
savings relative to payroll will take effect most of it in the fourth
quarter and certainly into the first quarter.
Is that reduced headcount the same as was previously announced, or
are these new layoffs?
This is the first time we've announced the exact number. So it was this
earnings call last week that we indicated that we think the right number
for this company is at 3,000. In the earlier call we'd just indicated
that we were assessing it and that we were going to make further
reductions and this time is the first time that we've quantified those
reductions.
Do you think your story is resonating with Wall Street?
I would say it doesn't feel like it's fully resonating. I would say I
believe we've made some movement. There were some concerns on Wall
Street that we had no new bookings in April and May. I think we were
real clear that that was incorrect and that we had $200 million of new
bookings in the quarter. I think that resonated a little bit. We also
had 264 new customers. I think people saw that as a bright spot. So I
would say that we're beginning to get some cautious, optimistic
sentences in some of the reports. So we'll just have to keep proving
where we are with our own execution.
Why do you think Exodus stock has been popular with short
sellers?
I believe that we had a series of disconnects about our business with
some analysts. One was whether there's a glut of data centers.
Absolutely not true. We opened up four new data centers in the quarter.
We expect to open a new data center on the East Coast this quarter and
it looks like we'll need to open another data center on the West Coast
this year. So we don't believe the glut theory. Second, the theory goes,
is that because of a glut, we're doing massive discounting. And we say,
'Sorry, we're not doing that.' And then there was the comment that
'They're not going to have enough cash, because if they spent this much
in the first half, they must be going to spend that much in the second
half.' And the answer is, we're not. So we did have some disconnects
with the analysts, and I believe that did have an
impact on how people feel about the stock.
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