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Loudcloud Cuts 19%

Managed services provider Loudcloud Inc. announced this week it will lay off 19-percent of its workforce and implement cost reductions expected to allow the company to reach cash flow breakeven with its existing cash resources.

"At the time of our offering, we had already completed a series of steps to make our cost structure more efficient," said Marc Andreessen, Loudcloud's chairman and co-founder. "The success of the first part of this initiative leaves us confident that we are taking the correct steps today."

Andreessen said these steps include changes in the underlying technology and datacenter facility components that comprise Loudcloud's infrastructure network.

The cost-cutting program is the result of a review of the company's operating and financial structure. It also reflects the benefits the company is realizing from its proprietary Opsware automation software. A large driving force behind the moves is the fact that Loudcloud's March IPO did not raise as much money as was originally planned.

"The initiatives we're undertaking today stem largely from the funding gap that has been present as a result of our having raised less proceeds than we anticipated from our IPO in March because of the state of the markets at that time," explained Rod Sherwood, executive VP and CFO. "Our actions today eliminate that gap."

Sherwood opted to hold back from mentioning the specific dollar amount that Loudcloud would save until a conference call planned to discuss financial results from the first quarter, which closed April 30. He did point out that analysts had previously pegged the deficit to reach cash flow breakeven at $28 million.

Among the cost restructuring initiatives announced today are a workforce reduction of 19 percent, representing 122 employees and resulting in a post-restructuring workforce of 507 employees. The reduction is designed to facilitate continued focus on customer sales, support and satisfaction, as well as the company's core R&D efforts, while scaling back other internal support functions.

In addition, Loudcloud is taking steps to maximize utilization of its existing investments in technology and data center facilities. Additional cash savings are expected through the reduction of a variety of headcount-related and discretionary expense items.

"We are beginning to recognize the leverage in our business model, which is designed to replace human capital with technological automation. Therefore, we are confident that we can maintain our superior levels of quality and customer service with our planned staffing levels," said Ben Horowitz, Loudcloud's president and CEO.

Loudcloud also announced this week the appointments of Shellye Archambeau as chief marketing officer and John O'Farrell to the newly created role of executive VP of business development.

Prior to joining Loudcloud, Archambeau was chief marketing officer of Northpoint Communications, president of Blockbuster Entertainment's e-commerce division and vice president of IBM's Asia-Pacific division.

O'Farrell previously served as executive VP, international, for Excite@Home and held numerous management positions for MediaOne Group/US WEST Inc., including president, US WEST Interactive Services Group, and VP corporate strategy.



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