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U.S. Interactive Misses Lowered Street Estimates, Announces Cuts

I-shop U.S. Interactive Thursday confirmed its third quarter revenues came in just short of lowered expectations and indicated that it has plans for substantial changes to its business.

U.S. Interactive also announced that its recently appointed president, Mohan Uttarwar, has been named chief executive, succeeding William Jennings, who will be bumped up to chairman.

"We are clearly disappointed by our third-quarter numbers, and we are aggressively taking strategic actions to improve our operations going forward," Uttarwar said.

"The underlying reasons for our performance are varied and include a sharp reduction in demand for the company's services by dot-com organizations, a lengthening of the sales cycle by Fortune 1000 and other well-established prospective clients, and an increase in expenses due to bad debts."

Revenues for U.S. Interactive's third quarter were $17.8 million, up 80 percent over revenues of $9.9 million for the year-ago period, but coming in below the approximately $20 million the company estimated in a late September earnings warning.

Overall quarterly operating losses totaled $45.7 million, or $1.05 per share. That's versus $4.1 million, or $0.10 per share for the year-ago period.

Wall Street anticipated a loss of $0.31 per share, a number significantly lower from the per-share loss of $0.03 that the Street had been expecting prior to U.S. Interactive's September warning.

In addition to spending about $1.6 million mostly on severance packages, the company also said it had written off $8.8 million in uncollected billings, most of which were from dot-coms.

The company blamed excessive overhead for the revenue shortcomings.

"Overall, our operating expenses are too high," Uttarwar said. "We built our infrastructure for a level of business that unfortunately has not materialized because of dramatic market changes."

U.S. Interactive said it has some ideas about how to get back on track, unveiling a sizable cost-cutting plan that also involves some as-yet-unspecified retooling of the company's core businesses.

The company said it would let go about 28 percent of its employees before the end of the year. Some of its offices will be shut down, as well, and the firm will relocate its corporate headquarters to Cupertino by March.

Those changes are part of a larger transformation for the company. According to a statement, U.S. Interactive will cut costs thanks to "a newly refined business strategy that focuses on selected vertical markets and core competencies."

Uttarwar said the new business strategy is designed to favorably position the company for growth, but declined to comment on specifics.

"Traditionally, U.S. Interactive provided comprehensive e-business solutions to a broad variety of clients in many industries," Uttarwar said. "However, we have concluded we cannot be all things to all people. As the Internet sophistication of our client companies increases, we must now focus on providing services that use our core strengths to meet their ever more complex needs."