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Loudcloud lays off 19 percent

In one of the Net's quickest riches-to-rags stories, the closely watched Net infrastructure company announces layoffs of 19 percent of its staff, amid other financial cutbacks.

In one of the Net's quickest riches-to-rags stories yet, closely watched Net infrastructure company Loudcloud announced layoffs of 19 percent of its staff, amid other financial cutbacks.

Loudcloud, started by Netscape co-founder Marc Andreessen in 1999, went public just two months ago, raising about $140 million after expenses in an offering that had a decidedly lukewarm reception on Wall Street. Even with that infusion of funds, analysts said the company's cash-burn rate kept it in precarious financial territory.

The company has been closely watched as a leading indicator of how well capital-intensive infrastructure companies can survive in a market where funding is scarce and potential customers are increasingly skeptical of expanding their presence on the Net.

Executives said the layoffs were in part related to the maturation of the company's business, which is built around automating Web site management functions ordinarily performed by individual people.

"The initiatives that we are announcing today are part of our ongoing efforts so that we prudently manage our cash expenditures," said Ben Horowitz, Loudcloud's chief executive. "We are confident that we can maintain our superior levels of quality and customer service with our planned staffing levels."

Loudcloud said it will lay off about 122 employees, leaving the company with 507 workers.

The company has been criticized for building a business that requires substantial up-front expenditures as it brings new customers on board, giving it a fast cash-burn rate even as outside funding sources dry up. Last quarter, it reported expenditures of more than $38 million, not including stock expenses, on revenue of $8.9 million.

Analysts had previously said the company appeared to be about $27 million short of the ability to reach the breakeven point, based on current projections.

"We currently estimate that Loudcloud is funded through the next seven quarters," wrote Goldman Sachs analyst Matthew Janiga in a research note Tuesday. "However, we are confident that the company has the ability to raise the required capital."

Loudcloud executives said the layoffs--which would make up "two thirds to three fourths" of the current round of cost reductions--were tailored toward closing that funding gap.

"We believe we will be able to reach a cash-flow breakeven point using our existing cash and financial resources," Chief Financial Officer Rod Sherwood said on a conference call.

The company did not give details on how much money the layoffs would save, saying it would provide more information during an upcoming earnings conference call. CEO Ben Horowitz declined to give any information on earnings for the company's last fiscal quarter, which ended yesterday.

Loudcloud also announced a couple of new faces in its management ranks, as the start-up focuses on drumming up new business.

Shellye Archambeau, previously chief marketing officer of now-defunct NorthPoint Communications, was appointed to the same position at Loudcloud. Archambeau also headed Blockbuster Entertainment's e-commerce division.

John O'Farrell, former executive vice president of international operations for Excite@Home, was appointed to a newly created position of executive vice president of business development.

The company's stock price climbed more than 8 percent Tuesday, bringing it above its March IPO price of $6.