===============================================================================

                                  UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                             Washington, D.C. 20549
                           --------------------------

                                    FORM 10-Q

(Mark One)

[X]     Quarterly report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934. For the quarterly period ended June 30, 1999

[ ]     Transition report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934.  For the transition period from _____________
        to _____________.

Commission file number            000-23795
                      ------------------------------------

                          EXODUS COMMUNICATIONS, INC.
           --------------------------------------------------------
            (Exact name of registrant as specified in its charter)

           Delaware                                     77-0403076
 -------------------------------           ------------------------------------
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
  incorporation or organization)

             2831 Mission College Blvd.,  Santa Clara, CA 95054
   ------------------------------------------------------------------------
                   (Address of principal executive offices)
                                  (Zip Code)

                              (408) 346-2200
   ------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.      Yes   [X]       No     [ ]

The number of shares outstanding of the issuer's common stock, par value $0.001,
as of August 10, 1999 was 83,209,284 shares. This number reflects the effect of
a two-for-one stock split effected August 12, 1999.

 ===============================================================================
<PAGE>

                          EXODUS COMMUNICATIONS, INC.

                                     INDEX
                                     -----

PART I.  Financial Information
         ---------------------

         Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets - June 30, 1999 and
                  December 31, 1998

                  Condensed Consolidated Statements of Operations - Three
                  and Six Month Periods Ended June 30, 1999 and 1998

                  Condensed Consolidated Statements of Cash Flows - Six
                  Month Periods Ended June 30, 1999 and 1998

                  Notes to Condensed Consolidated Financial Statements

         Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations

         Item 3.  Quantitative and Qualitative Disclosures About Market
                  Risk

PART II. Other Information
         -----------------

         Item 1.  Legal Proceedings

         Item 2.  Changes in Securities and Use of Proceeds

         Item 3.  Defaults Upon Senior Securities

         Item 4.  Submission of Matters to a Vote of Security Holders

         Item 5.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K

Signatures
<PAGE>










PART I.  FINANCIAL  INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


                          EXODUS COMMUNICATIONS, INC.

                       CONDENSED CONSOLIDATED BALANCE SHEETS
                (In Thousands, Except Share and Per Share Data)

<TABLE>
<CAPTION>
                                                       June 30,     December 31,
                                                        1999           1998
                                                     -------------  -------------
<S>                                                  <C>            <C>
                            Assets
Current assets:
  Cash and cash equivalents.........................     $330,605       $150,891
  Accounts receivable, net..........................       24,984         11,174
  Prepaid expenses and other current assets.........        6,439          4,677
                                                     -------------  -------------
    Total current assets............................      362,028        166,742
Property and equipment, net.........................      166,214         68,306
Restricted cash equivalents and investments.........       43,436         45,614
Other assets........................................       52,373         12,624
                                                     -------------  -------------
                                                         $624,051       $293,286
                                                     =============  =============
         Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
  Current portion of equipment loans and line of
   credit facilities................................       $7,164        $14,367
  Current portion of capital lease obligations......       11,863          5,140
  Accounts payable..................................       22,758          9,208
  Accrued expenses..................................       17,974          6,771
  Accrued interest payable..........................       15,880         11,563
                                                     -------------  -------------
    Total current liabilities.......................       75,639         47,049
Equipment loans and line of credit facilities,
 less current portion...............................       10,775         15,695
Capital lease obligations, less current portion.....       27,732         11,401
Convertible subordinated notes......................      250,000        --
Senior notes........................................      275,375        200,000
                                                     -------------  -------------
    Total liabilities...............................      639,521        274,145
                                                     -------------  -------------
Stockholders' (deficit) equity:
  Common stock, $0.001 par value: 300,000,000 and
   50,000,000 shares authorized as of June 30, 1999
   and December 31, 1998, respectively; 82,850,616
   and 80,269,408 shares issued and outstanding
   as of June 30, 1999 and December 31, 1998,
   respectively.....................................           83             80
  Additional paid-in capital........................      125,236        117,160
  Deferred stock compensation.......................         (705)        (1,080)
  Accumulated deficit...............................     (140,084)       (97,019)
                                                     -------------  -------------
    Total stockholders' (deficit) equity............      (15,470)        19,141
                                                     -------------  -------------
                                                         $624,051       $293,286
                                                     =============  =============
</TABLE>
     See accompanying notes to condensed consolidated financial statements.
<PAGE>


                          EXODUS COMMUNICATIONS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                     Three Months Ended   Six Months Ended
                                           June 30,           June 30,
                                    -------------------  -------------------
                                      1999      1998       1999      1998
                                    --------- ---------  --------- ---------
<S>                                 <C>       <C>        <C>       <C>
Revenues.........................    $42,499   $10,071    $72,586   $17,176
                                    --------- ---------  --------- ---------

Costs and expenses:
    Cost of revenues.............     34,596    12,983     62,706    22,864
    Marketing and sales..........     11,970     7,163     22,234    13,580
    General and administrative...      8,835     3,000     15,890     5,657
    Product development..........      1,551       719      2,836     1,364
                                    --------- ---------  --------- ---------
Total costs and expenses.........     56,952    23,865    103,666    43,465
                                    --------- ---------  --------- ---------

Operating loss...................    (14,453)  (13,794)   (31,080)  (26,289)
Net interest expense.............      6,448       282     11,985     1,108
                                    --------- ---------  --------- ---------
    Net loss.....................    (20,901)  (14,076)   (43,065)  (27,397)
Cumulative dividends and
  accretion on redeemable
  convertible preferred stock....        --        --          --    (2,014)
                                    --------- ---------  --------- ---------
Net loss attributable to
  common stockholders............   ($20,901) ($14,076)  ($43,065) ($29,411)
                                    ========= =========  ========= =========

Basic and diluted net loss
  per share.......................    ($0.25)   ($0.18)    ($0.53)   ($0.64)
                                    ========= =========  ========= =========

Shares used in computing basic
  and diluted net loss per share..    82,327    77,649     81,693    45,841
                                    ========= =========  ========= =========
</TABLE>
        See accompanying notes to condensed consolidated financial statements.
<PAGE>


                          EXODUS COMMUNICATIONS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In Thousands)


                                                            Six Months Ended
                                                               June 30,
                                                         --------------------
                                                           1999       1998
                                                         ---------  ---------
Cash flows from operating activities:
  Net loss.............................................  ($43,065)  ($27,397)
  Adjustments to reconcile net loss to net cash used
  for operating activities:
    Depreciation and amortization......................    12,634      4,689
    Loss on disposal of property and equipment.........       --         248
    Noncash warrant expense............................       --         786
    Amortization of deferred stock compensation........       375        752
    Amortization of debt issuance costs................       425        198
    Interest accretion on restricted cash equivalents
     and investments...................................    (1,139)       --
    Changes in operating assets and liabilities:
        Accounts receivable............................   (12,835)    (2,547)
        Prepaid expenses and other assets..............    (6,689)      (905)
        Accounts payable...............................    13,121      4,892
        Accrued expenses...............................    11,099      2,857
        Accrued interest payable.......................     4,317        --
                                                         ---------  ---------
            Net cash used for operating activities.....   (21,757)   (16,427)
                                                         ---------  ---------
Cash flows from investing activities:
  Purchases of property and equipment..................   (81,491)   (17,842)
  Business acquired, net of cash received..............   (20,009)       --
  Release (increase) of restricted cash
   equivalents and investments.........................     3,325       (185)
  Other assets.........................................    (7,967)      (243)
                                                         ---------  ---------
           Net cash used for investing activities......  (106,142)   (18,270)
                                                         ---------  ---------
Cash flows from financing  activities:
  Proceeds from issuance of redeemable
   convertible preferred stock and warrants............       --       2,176
  Proceeds from issuance of common stock...............     8,079     70,460
  Notes receivable from stockholders, net..............       --          87
  Repayment of bank borrowings.........................       --      (3,000)
  Proceeds from sale-leaseback transactions............       --       4,035
  Payment on capital lease obligations.................    (3,861)      (895)
  Proceeds from debt...................................       --      14,448
  Repayment of debt....................................   (12,280)    (2,164)
  Proceeds from convertible subordinated
   notes, net..........................................   242,250        --
  Proceeds from senior notes, net......................    73,425        --
                                                         ---------  ---------
            Net cash provided by financing activities..   307,613     85,147
                                                         ---------  ---------
Net increase in cash and cash equivalents..............   179,714     50,450
Cash and cash equivalents at beginning of period.......   150,891     10,270
                                                         ---------  ---------
Cash and cash equivalents at end of period.............  $330,605    $60,720
                                                         =========  =========
Supplemental disclosure of cash flow information:
  Cash paid-interest...................................   $14,423     $1,016
                                                         =========  =========
  Noncash investing and financing activities:
    Assets recorded under capital lease................   $26,915     $6,007
                                                         =========  =========
    Cumulative dividends and accretion on
       Series C and D redeemable convertible
       preferred stock and warrants....................  $   --       $2,014
                                                         =========  =========
    Conversion of redeemable convertible
       preferred stock to common stock.................  $   --      $43,576
                                                         =========  =========

     See accompanying notes to condensed consolidated financial statements.
<PAGE>


                          EXODUS COMMUNICATIONS, INC.
                          ---------------------------
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             ----------------------------------------------------
                                  JUNE 30, 1999
                                 --------------


NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information, the instructions to Form
10-Q and Article 10 of Regulation S-X.  Accordingly, they do not contain
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.  In the opinion
of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the
Company's financial position as of June 30, 1999 and the results of its
operations and cash flows for the six month periods ended June 30, 1999
and 1998.  These financial statements should be read in conjunction with
the Company's audited financial statements as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31,
1998, including notes thereto, included in the Company's 1998 Annual
Report on Form 10-K.  Operating results for the six month period ended
June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.


NOTE 2 - NET LOSS PER SHARE

Basic and diluted net loss per share has been computed by dividing the
net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding.  Diluted net loss per
share for the three and six month periods ended June 30, 1999 and 1998
does not include the effect of (i) 21,591,000 and 13,036,000 shares
issuable under stock options outstanding with weighted average exercise
prices of $9.81 and $1.67 as of June 30, 1999 and June 30, 1998,
respectively, and (ii) 266,000 and 988,000 shares issuable pursuant to
warrants to purchase common stock with weighted average exercise prices
of $3.59 and $1.99, as of June 30, 1999 and June 30, 1998, respectively.


NOTE 3 - REVENUE RECOGNITION

The Company's revenues consist of (i) monthly fees from customer use of
Internet Data Center sites, network services and managed services
including professional services and use of equipment and software
provided by the Company, (ii) revenues from sales of third-party
equipment to customers and (iii) fees for installation and certain
professional services. Currently, substantially all of our revenue is
derived from services. Revenues (other than installation fees, equipment
sales to customers and certain professional services) are generally
billed and recognized ratably over the term of the contract, which is
generally one year. Installation fees are typically recognized at the
time the installation occurs, and equipment revenues are typically
recognized when the equipment is delivered to the customer or placed
into service at an Internet Data Center. We sell third-party equipment
to our customers as an accommodation to facilitate their purchase of
services. One-time professional service fees are typically recognized
when services are rendered.


NOTE 4 - PROPERTY AND EQUIPMENT

   Property and equipment consisted of the following (in thousands):



<TABLE>
<CAPTION>
                                             June 30,   December 31,
                                              1999         1998
                                           -----------  -----------
<S>                                        <C>          <C>
  Data centers and related equipment.......   $92,436      $43,959
  Furniture, fixtures, computer equipment
    and other..............................    61,953       32,887
  Construction in progress.................    40,579        8,497
                                           -----------  -----------
                                              194,968       85,343
  Less accumulated depreciation and
    amortization...........................    28,754       17,037
                                           -----------  -----------
                                             $166,214      $68,306
                                           ===========  ===========
</TABLE>

Computer equipment and certain data center equipment are recorded under
capital leases that aggregated $47,151,000 and $20,236,000 as of June
30, 1999 and December 31, 1998, respectively. Accumulated amortization
on the assets recorded under capital leases aggregated $8,629,000 and
$4,426,000 as of June 30, 1999 and December 31, 1998, respectively.


NOTE 5 - ACQUISITIONS

On October 2, 1998, the Company purchased substantially all of the
assets, including customer agreements, and assumed certain liabilities
of Arca Systems, Inc. ("Arca"), a wholly owned subsidiary of
Cyberguard Corporation. Arca is a provider of advanced network and
system security consulting services and designs and develops security
technology solutions for complex and sensitive information systems. Arca
operates as a wholly owned subsidiary of the Company. Total
consideration paid, including direct acquisition costs, aggregated
approximately $5,800,000. The acquisition was accounted for as a
purchase with the results of Arca included from the acquisition date.
The excess of the purchase price over the fair value of tangible net
assets acquired amounted to approximately $5,000,000 and was attributed
primarily to workforce in place ($2,500,000) and goodwill ($2,400,000).
These amounts are generally being amortized on a straight-line basis
over 10 years.

On February 1, 1999, the Company purchased all of the capital stock of
American Information Systems, Inc ("AIS"). AIS provides hosting services
as well as professional services. Total consideration paid, including
direct acquisition costs, aggregated approximately $20,500,000. The
acquisition was accounted for as a purchase with the results of AIS
included from the acquisition date. The excess of the purchase price
over the fair value of tangible net assets acquired amounted to
approximately $18,700,000 and was attributed primarily to goodwill
($15,000,000), customer lists ($3,200,000) and assembled workforce
($500,000).  These amounts are being amortized on a straight-line basis
over periods ranging from 5 to 7 years.

The following summary, prepared on an unaudited pro forma basis,
reflects the condensed consolidated results of operations for the three
and six month periods ended June 30, 1998, assuming Arca and AIS had
been acquired as of the beginning of the periods presented (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                        Three Months  Six Months
                                                            Ended        Ended
                                                           June 30,     June 30,
                                                        -----------  -----------
                                                            1998         1998
                                                        -----------  -----------
<S>                                                     <C>          <C>
Revenues                                                   $12,608      $22,196
Net loss attributable to common stockholders              ($15,136)    ($31,296)
Basic and diluted net loss per share                        ($0.19)      ($0.68)
Shares used in pro forma per share computation              77,649       45,841
</TABLE>

Pro forma financial information for the six month period ended June 30,
1999 giving effect to the acquisition of AIS is not presented as it
would not have differed materially from the Company's condensed
consolidated results from operations during that time period.

The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods
presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved
from combined operations.


NOTE 6 - BANK BORROWINGS, EQUIPMENT LOANS AND LINE OF CREDIT FACILITIES

The Company has a $7,000,000 bank line of credit bearing interest at the
bank's prime rate. As of June 30, 1999, no amount was outstanding under
the line of credit. The line of credit expires in August 1999.

On July 1, 1998, the Company issued $200,000,000 of 11 1/4% Senior Notes
due 2008 for aggregate net proceeds of approximately $193,400,000 (net
of discounts to the initial purchasers and offering expenses).  Interest
is payable semi-annually on January 1 and July 1 of each year commencing
January 1, 1999. The Company initially deposited approximately
$42,400,000 with an escrow agent that would be sufficient to pay when
due the first four semi-annual interest payments.  As of June 30, 1999
restricted cash equivalents and investments include approximately
$33,100,000 for the remaining three interest payments.  Subject to
significant exceptions, the Senior Notes Indenture restricts, among
other things, the Company's ability to incur additional indebtedness and
the use of proceeds therefrom, pay dividends, make certain other
restricted payments, incur certain liens to secure indebtedness or
engage in merger transactions.

On March 3, 1999, the Company issued $250,000,000 of 5% Convertible
Subordinated Notes ("the "Convertible Notes") due 2006 for aggregate
net proceeds of approximately $242,300,000 (net of offering expenses).
The Convertible Notes are convertible into the Company's common stock at
a conversion rate of 43.7852 shares per $1,000 principal amount of
Convertible Notes, subject to adjustment in certain events and at each
holder's option.  The Convertible Notes will not be subject to
redemption prior to March 20, 2001, and generally will be redeemable on
or after that date at the option of the Company, at the redemption
prices set forth in the indenture to the Convertible Notes
("Convertible Notes Indenture"), subject to certain provisions.  In
the event of a Change in Control (as defined in the Convertible Notes
Indenture), each holder of the Convertible Notes has the right, subject
to certain conditions and restrictions, to require the Company to
repurchase all or any part of the holder's Convertible Notes at a
repurchase price of 100% of the principal amount, plus accrued interest
of the Convertible Notes being repurchased.  Interest on the Convertible
Notes is payable on March 15 and September 15 of each year, commencing
on September 15, 1999.  The Convertible Notes are unsecured obligations
of the Company and are subordinated to all existing and future Senior
Indebtedness (as defined in the Convertible Notes Indenture) and
effectively subordinated to all indebtedness and other liabilities of
the Company's subsidiaries.

On June 22, 1999, the Company issued $75,000,000 of 11 1/4% Senior Notes
due 2008 at 100.50% for aggregate net proceeds of approximately
$73,400,000 (net of discounts to the initial purchasers and offering
expenses).  The Company issued these Senior Notes under the Indenture
dated July 1, 1998 under which it previously issued the $200,000,000
Senior Notes due 2008 (the "Original Notes").  These Senior Notes are
subject to substantially the same terms and conditions as the Original
Notes. Interest is payable semi-annually on January 1 and July 1 of each
year commencing July 1, 1999.  Concurrently with the closing of the
offering, the Company deposited approximately $8,400,000, which is
included in restricted cash equivalents and investments at June 30,
1999, with an escrow agent that would be sufficient to pay when due the
first three interest payments.


NOTE 7 - COMPREHENSIVE INCOME

There were no material differences between net loss and comprehensive
loss during the three and six months ended June 30, 1999 and 1998.


NOTE 8 - SEGMENT INFORMATION

The Company operates a number of Internet Data Centers throughout the
United States and one in Europe. The Company establishes these Internet
Data Centers using a consistent investment and operating model. As a
result, the expected long term economic characteristics and financial
performance are similar. In particular, each data center provides the
same Internet related services to a similar type of customer who may
locate its servers in multiple Internet Data Centers. As a result, the
Company believes these Internet Data Centers represent one reportable
segment under the aggregation criteria of Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of
an Enterprise and Related Information." The Internet Data Center
segment revenues equal the Company's consolidated revenues. A
reconciliation between the Internet Data Center segment operating profit
(loss) and total assets and the Company's consolidated operating loss
and total assets is as follows (in thousands):

<TABLE>
<CAPTION>
                                                            Three Months Ended        Six Months Ended
                                                                  June 30,                June 30,
                                                        ------------------------  ----------------------
                                                           1999         1998        1999        1998
                                                        -----------  -----------  ---------  -----------
<S>                                                     <C>          <C>          <C>        <C>
Operating profit (loss): Internet Data Centers......        10,587       (1,428)    15,339       (2,830)
Operating loss: corporate areas.....................       (25,040)     (12,366)   (46,419)     (23,459)
                                                        -----------  -----------  ---------  -----------
Total operating loss................................      ($14,453)    ($13,794)  ($31,080)    ($26,289)
                                                        ===========  ===========  =========  ===========

                                                           June 30,  December 31,
                                                             1999         1998
                                                        -----------  -----------

Total assets: Internet Data Centers.................      $116,669      $52,459
Total assets: corporate assets......................       507,382      240,827
                                                        -----------  -----------
Total assets........................................      $624,051     $293,286
                                                        ===========  ===========
</TABLE>


Note 9 - SUBSEQUENT EVENT

On July 21, 1999, the Company's Board of Directors approved a two-for-
one Common Stock split, which is to be effected in the form of a stock
dividend.  Shareholders of record on July 29, 1999 (the record date)
will receive one additional share for every share held on that date.
The shares were distributed on or about August 12, 1999.  All share
numbers in the condensed consolidated financial statements and
accompanying notes for all periods presented have been adjusted
retroactively to reflect the two-for-one common stock split.

On July 27, 1999, the Company completed its acquisition of Cohesive
Technology Solutions, Inc. ("Cohesive") for approximately $115,000,000
in cash and common stock of the Company and the assumption of Cohesive
options. Cohesive is a technology professional services organization
with expertise in networking, web applications and technology solutions.
The Company expects to account for the purchase of Cohesive under the
purchase method of accounting and anticipates a significant portion of
the purchase price will be allocated to goodwill.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of
the Securities Act of 1933. Forward-looking statements are identified by
words such as "believes," "anticipates," "expects," "intends," "will,"
"may" and other similar expressions. In addition, any statements which
refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements.  In addition,
the section labeled "Factors Affecting Future Results" consists
primarily of forward-looking statements. We undertake no obligation to
revise forward-looking statements. Readers are urged to review and
consider carefully the various disclosures made by us in this report and
in our other reports filed with the Securities and Exchange Commission,
including our 1998 Annual Report on Form 10-K, that advise interested
parties of risks and uncertainties that may affect our business. These
risks and uncertainties include: difficulties in achieving timely
expansion of our network and opening of additional Internet Data
Centers, difficulties in executing our current business plan, retaining
customers and attracting new customers, and difficulties in developing
and deploying new services.  Our actual results may differ materially
from any forward-looking statements due to such risks and uncertainties.


Overview

We are a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations.
Our solutions include Internet Data Centers, network services and
managed services including professional services, that together provide
the high performance, scalability and expertise that enterprises need to
optimize Internet operations. We deliver our services from our
geographically distributed, state-of-the-art Internet Data Centers that
are connected through a high-performance Internet backbone network.

We are the successor to a Maryland corporation that was formed in August
1992 to provide computer-consulting services. We began offering server
hosting and Internet connectivity services in late 1995, opened our
first dedicated Internet Data Center in August 1996 and introduced
managed services in 1997 and professional services, a subcategory of
managed services, in 1998. We have derived most of our revenues from
customers for whom we provide these services.  Each of our Internet Data
Center customers initially purchases a subset of our service offerings
to address specific departmental or enterprise Internet computing needs,
and some of these customers purchase additional services as the scale
and complexity of their Internet operations increase. We sell our
services under contracts that typically have minimum terms of one year.
Customers pay monthly fees for the services utilized, as well as one-
time fees for installation, certain professional services and for
equipment they purchase from us.

We opened our first Internet Data Center in the San Francisco
metropolitan area in August 1996. Since that time, we have opened eleven
additional domestic Internet Data Centers in the metropolitan areas of
New York (March 1997), San Francisco (second site-August 1997; third
site-June 1998; and fourth site June 1999), Seattle (September 1997 and
June 1999), Los Angeles (October 1997), Washington, D.C. (December 1997
and May 1999), Boston (July 1998), and Chicago (April 1999).  In
addition, we opened our first Internet Data Center outside of the United
States in London in June 1999. We plan to open six additional Internet
Data Centers and three server hosting sites in the second half of 1999.
The building of Internet Data Centers has required us to obtain
substantial equity and debt financing. See "-Factors Affecting Future
Results-Our Substantial Leverage and Debt Service Obligations Adversely
Affect Our Cash Flow" and "-Liquidity and Capital Resources" below.

In October 1998, we purchased the assets of Arca Systems, Inc. ("Arca"),
a provider of advanced network and system security consulting services.
In February 1999, we acquired American Information Systems, Inc.
("AIS"), a regional provider of co-location, web hosting and
professional services. In July 1999, we completed our acquisition of
Cohesive Technology Solutions, Inc. ("Cohesive"), a technology
professional services organization with expertise in networking, web
applications and technology solutions.

We intend to expand domestically and internationally.  Prior to building
an Internet Data Center in a new geographic region, we employ various
means to evaluate the market opportunity in a given location, including
market research on Internet usage statistics, the pre-selling of
services into the proposed market and analysis of specific financial
criteria. We typically require at least six months to select the
appropriate location for an Internet Data Center, construct the
necessary facilities, install equipment and telecommunications
infrastructure, and hire the operations and sales personnel needed to
conduct business at that site. Expenditures related to an Internet Data
Center commence well before the Internet Data Center opens, and it takes
an extended period to approach break-even capacity utilization at each
site. As a result, we expect that individual Internet Data Centers will
experience losses for an excess of one year from the time they are
opened. We experience further losses from sales personnel hired to test
market our services in markets where there is no, and may never be an,
Internet Data Center. As a result, we expect to make investments in
expanding our business rapidly into new geographic regions which, while
potentially increasing our revenues in the long term, will lead to
significant losses for the foreseeable future. See "-Factors Affecting
Future Results-Rapid Expansion Produces a Significant Strain on Our
Business" for risks related to the foregoing forward-looking statements.

Since we began to offer server hosting and Internet connectivity
services in 1995, we have experienced operating losses and negative cash
flows from operations in each quarterly and annual period. As of June
30, 1999, we had an accumulated deficit of approximately $140 million.
The revenue and income potential of our business and market is unproven,
and our limited operating history makes an evaluation of our prospects
and us difficult. We intend to invest in new Internet Data Centers and
other sites, product development, sales and marketing programs, and
therefore we believe that we will continue to experience net losses on a
quarterly and annual basis for the foreseeable future.  Companies, such
as Exodus, in the new and rapidly evolving market for Internet system
and network management solutions encounter risks, expenses and
difficulties that affect their business and prospects. There can be no
assurance that we will ever achieve profitability on a quarterly or an
annual basis or will sustain profitability if achieved. See "-Factors
Affecting Future Results-Our Short Operating History and Heavy Losses
Make Our Business Difficult to Evaluate" for risks related to the
foregoing forward-looking statements.


RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of total revenues for the three and six month periods ended
June 30, 1999 and 1998. This information has been derived from our
unaudited condensed consolidated financial statements which, in
management's opinion, have been prepared on substantially the same basis
as the audited financial statements included in our 1998 Annual Report
on form 10-K and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the
financial information for the quarters presented.  This information
should be read in conjunction with the Condensed Consolidated Financial
Statements and accompanying Notes included in this Form 10-Q. The
operating results in any quarter are not necessarily indicative of the
results to be expected for any future period.

<TABLE>
<CAPTION>
                                     Three Months Ended   Six Months Ended
                                           June 30,           June 30,
                                    -------------------  -------------------
                                      1999      1998       1999      1998
                                    --------- ---------  --------- ---------
<S>                                 <C>       <C>        <C>       <C>
Revenues.........................      100.0%    100.0%     100.0%    100.0%
                                    --------- ---------  --------- ---------
Costs and expenses:
    Cost of revenues.............       81.4%    128.9%      86.4%    133.1%
    Marketing and sales..........       28.2%     71.1%      30.6%     79.1%
    General and administrative...       20.8%     29.8%      21.9%     33.0%
    Product development..........        3.6%      7.2%       3.9%      7.9%
                                    --------- ---------  --------- ---------
Total costs and expenses.........      134.0%    237.0%     142.8%    253.1%
                                    --------- ---------  --------- ---------

Operating loss...................     (34.0%)  (137.0%)    (42.8%)  (153.1%)

Net interest expense.............       15.2%      2.8%      16.5%      6.4%
                                    --------- ---------  --------- ---------
    Net loss.....................     (49.2%)  (139.8%)    (59.3%)  (159.5%)
                                    ========= =========  ========= =========
</TABLE>

Revenues

Our revenues consist of (i) monthly fees from customer use of Internet
Data Center sites, network services and managed services including
professional services and use of equipment and software provided by us,
(ii) revenues from sales of third-party equipment to customers and (iii)
fees for installation and certain professional services. Currently,
substantially all of our revenue is derived from services. Revenues
(other than installation fees, equipment sales to customers and certain
professional services) are generally billed and recognized ratably over
the term of the contract, which is generally one year. Installation fees
are typically recognized at the time the installation occurs, and
equipment revenues are typically recognized when the equipment is
delivered to the customer or placed into service at an Internet Data
Center. We sell third-party equipment to our customers as an
accommodation to facilitate their purchase of services. One-time
professional service fees are typically recognized when services are
rendered.

Our revenues increased 322% and 323% to $42.5 million and $72.6 million
for the three and six month periods ended June 30, 1999 from $10.1
million and $17.2 million in the same respective periods of the prior
year. This growth in revenues was the result of increases in the number
of new customers, substantially all of which were Internet Data Center
customers, increases in revenues from existing customers and revenue
contributions from ARCA and AIS.


Cost of Revenues

Our cost of revenues is comprised of the costs for our backbone network
and local telecommunications loops, depreciation, salaries and benefits
for our customer service and operations personnel (customer service
personnel, network engineers and professional services personnel), rent,
repairs and utilities related to our Internet Data Centers and other
sites and costs of third party equipment sold to customers.

Cost of revenues increased 166% and 174% to $34.6 and $62.7 million for
the three and six month periods ended June 30, 1999 from $13.0 million
and $22.9 million in the same respective periods of the prior year.
These increases in cost of revenues in absolute dollars were primarily
the result of costs associated with hiring additional employees and
consultants, increased traffic on our network, depreciation due to
capital expenditures, utilities and other costs related to the opening
and expanding of Internet Data Centers. Our cost of revenues as a
percentage of revenues decreased to 81% and 86% for the three and six
months ended June 30, 1999 from 129% and 133% for the same respective
periods of the prior year. This decline was due primarily to our
increase in revenue between comparison periods. We expect that cost of
revenues will continue to increase in absolute dollars but will continue
to decline as a percentage of total revenue as existing costs are spread
over more substantial operations.


Marketing and Sales

Our marketing and sales expenses are comprised of salaries, commissions
and benefits for our marketing and sales personnel, printing and
advertising costs, public relations costs, consultants' fees and travel
and entertainment expenses.

Our marketing and sales expenses increased 67% and 64% to $12.0 million
and $22.2 million for the three and six month periods ended June 30, 1999
from $7.2 million and $13.6 million in the same respective periods of
the prior year. The increase in absolute dollars was primarily the
result of increased compensation and related expenses associated with
hiring additional marketing and sales personnel. Our marketing and sales
expense as a percentage of revenues decreased to 28% and 31% for the
three and six months ended June 30, 1999 from 71% and 79% for the same
respective periods of the prior year. This decline was primarily due to
our significant increase in revenue between comparison periods.  We
expect that marketing and sales expense will continue to decrease as a
percentage of total revenue as existing costs are spread over more
substantial operations.

General and Administrative

Our general and administrative expenses are primarily comprised of
salaries and benefits for our administrative and management information
systems personnel, consulting fees, recruiting fees, and amortization of
intangible assets.

Our general and administrative expenses increased 195% and 181% to $8.8
million and $15.9 million for the three and six month periods ended June
30, 1999 from $3.0 million and $5.7 million in the same respective
periods of the prior year. The increase in absolute dollars was primarily
the result of increased compensation expenses associated with additional
hiring of general and administrative personnel and the amortization of
intangible assets related to the acquisitions of Arca and AIS. Our
general and administrative expense as a percentage of revenues decreased
to 21% and 22% for the three and six month periods ended June 30, 1999
from 30% and 33% for the same respective periods of the prior year. This
decline was primarily due to our significant increase in revenue between
comparison periods.  We expect that general and administrative expense
will continue to decrease as a percentage of total revenue as existing
costs are spread over more substantial operations.


Product Development

Our product development expenses primarily consist of salaries and
benefits for our product development personnel and fees paid to
consultants.

Our product development expenses increased 116% and 108% to $1.6 million
and $2.8 million for the three and six month periods ended June 30, 1999
from $0.7 million and $1.4 million in the same respective periods of the
prior year. Our product development expenses grew primarily due to the
addition of product development personnel to support our expanded
service offerings. Our product development expense as a percentage of
revenues decreased to 4% for both the three and six months ended June
30, 1999 from 7% and 8% for the same respective periods of the prior
year.  This decline was due to our significant increase in revenue
between comparison periods.


Net Interest Expense

Our net interest expense increased to $6.4 million and $12.0 million for
the three and six month periods ended June 30, 1999, from $0.3 million
and $1.1 million for the same respective periods of the prior year. The
increase in net interest expense was primarily the result of interest
expense associated with our 11 1/4% Senior Notes issued July 1, 1998 and
our 5 % Convertible Subordinated Notes which were issued March 3, 1999.

We expect that net interest expense will continue to increase as we
incur additional interest expense related to our $75,000,000 11 1/4%
Senior Notes offering, which occurred on June 22, 1999, enter into
additional equipment leases and loans, obtain additional borrowings and
long term debt and experience reduced interest income as a result of the
decline in our cash reserves to fund working capital and other uses.


EBITDA

Our loss before interest, taxes, depreciation, amortization and other
non-cash charges ("EBITDA") was $7.2 million and $18.0 million for the
three and six month periods ended June 30, 1999 compared to $10.4
million and $20.1 million for the same respective periods of the prior
year. The decrease in the magnitude of EBITDA losses between the
comparison periods was primarily due to the significant increases in
revenue over these periods along with economies of scale experienced as
a result of more substantial operations offset in part by increased
compensation costs associated with the hiring of additional employees
during those time periods. Although EBITDA should not be used as an
alternative to operating loss or net cash provided by (used for)
operating activities, investing activities or financing activities, each
as measured under generally accepted accounting principles, our
management believes that EBITDA is an additional meaningful measure of
performance and liquidity.


Liquidity and Capital Resources

From inception through June 30, 1999, we have financed our operations
primarily through private sales of preferred stock, our initial public
offering in March 1998, our Senior Notes offerings in July 1998 and June
1999, our Convertible Subordinated Notes offering in March 1999 and
through various types of equipment loans and lease lines and working
capital lines of credit. At June 30, 1999, our principal sources of
liquidity were approximately $331 million in cash and cash equivalents.
As of that date, we also had equipment loans and lease lines of credit
under which we could borrow up to an additional aggregate of $1.2 million
for purchases of equipment. As of June 30, 1999, our total bank
borrowings, equipment loans and lines of credit facilities, capital lease
obligations and Senior and Convertible Notes were $582.9 million. See
Note 6 of Notes to Condensed Consolidated Financial Statements.


Since we began to offer server-hosting services in 1995, we have had
significant negative cash flows from operating activities. Net cash used
for operating activities for the six months ended June 30, 1999 was
$21.8 million, primarily due to net losses and an increase in accounts
receivable, offset in part by increases in accounts payable, accrued
expenses, and depreciation and amortization. This compares to net cash
used for operating activities for the six months ended June 30, 1998 of
$16.4 million which was primarily due to net losses, offset in part by
increases in accounts payable, accrued expenses, and depreciation and
amortization.

Net cash used for investing activities for the six months ended June 30,
1999 was $106.1 million primarily due to capital expenditures for the
continued construction of Internet Data Centers, the acquisition of AIS,
and expenditures related to a telecommunication agreement in which we
entered. This compares to net cash used for investing activities for the
six months ended June 30, 1998 of $18.3 million which was primarily due to
capital expenditures for the construction of Internet Data Centers.

Net cash provided by financing activities for the six month period ended
June 30, 1999 was $307.6 million, primarily due to the proceeds from our
issuance of $250 million of Convertible Subordinated Notes and our
additional $75 million offering of Senior Notes which were issued under
the original $200 million Senior Notes Indenture dated July 1, 1998.
This compares to net cash provided by financing activities for the six
months ended June 30, 1998 of $85.1 million which was primarily due to
our initial public offering of common stock in March 1998.

As of June 30, 1999, we had commitments under capital leases and under
noncancellable operating leases of $39.6 million and $116.5 million,
respectively, through 2010. We intend to make significant expenditures
during the next 12 months primarily for property and equipment, in
particular equipment and construction needed for existing and future
Internet Data Centers, as well as office equipment, computers and
telephones. We expect to finance such capital expenditures primarily
through net proceeds from the Senior Notes and Convertible Subordinated
Notes and existing and future equipment loans and lease lines of credit.
We believe our working capital and capital expenditure requirements over
the next 12 months can be met with existing cash and cash equivalents
and short-term investments, cash from sales of services and proceeds
from existing and future equipment financing lines of credit. We may
enter into additional equipment loans and capital leases. We may also
seek to raise additional funds through public or private financing,
strategic relationships or other arrangements. There can be no assurance
that we will be successful generating sufficient cash flows from
operations or raising capital in sufficient amounts on terms acceptable
to us.  See "-Factors Affecting Future Results-Rapid Expansion Produces
a Significant Strain on Our Business."


Factors Affecting Future Results


Our Short Operating History and Heavy Losses Make Our Business Difficult
to Evaluate

Our limited operating history makes evaluating our business operations
and our prospects difficult. We began offering server hosting and
Internet connectivity services in 1995 and opened our first dedicated
Internet Data Center in August 1996. Due to our short operating history,
our business model is still in an emerging state. We have incurred
operating losses and negative cash flows each quarter and year since
1995. Our accumulated deficit was approximately $140.1 million at June
30, 1999. We anticipate making significant investments in new Internet
Data Centers and network infrastructure, product development, sales and
marketing programs and personnel. We believe that we will continue to
experience net losses on a quarterly and annual basis for the
foreseeable future. We may also use significant amounts of cash to
acquire complementary businesses, products, services or technologies.
Although we have experienced significant growth in revenues in recent
periods, we do not believe that this growth rate is necessarily
indicative of future operating results. It is possible that we may never
achieve profitability on a quarterly or an annual basis.


Our Operating Results Have Fluctuated Widely and We Expect This to
Continue

We have experienced significant fluctuations in our results of
operations on a quarterly and an annual basis. We expect to continue to
experience significant fluctuations due to a variety of factors, many of
which are outside of our control, including:

     o demand for and market acceptance of our services;

     o reliable continuity of service and network availability;

     o the ability to increase bandwidth as necessary, both on our
       network and at our interconnection points with other networks;

     o costs related to the acquisition of network capacity and
       arrangements for interconnections with third-party networks;

     o customer retention and satisfaction;

     o capacity utilization of our Internet Data Centers;

     o the timing, magnitude and integration of acquisitions of
       complementary businesses and assets;

     o the timing of customer installations;

     o the provision of customer discounts and credits;

     o the mix of services sold by us;

     o the timing and success of marketing efforts and service
       introductions by us and our competitors;

     o the timing and magnitude of capital expenditures, including
       construction costs relating to the expansion of operations;

     o the timely expansion of existing Internet Data Centers and
       completion of new Internet Data Centers;

     o the introduction by third parties of new Internet and networking
       technologies;

     o changes in our pricing policies and those of our competitors; and

     o fluctuations in bandwidth used by customers.

In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to telecommunications,
depreciation, substantial interest expenses, real estate and personnel.
Therefore, our results of operations are particularly sensitive to
fluctuations in revenues. Furthermore, if we were to become unable to
continue leveraging third-party products in our services offerings, our
product development costs could increase significantly. Finally, many of
our customers are in an emerging stage, and there is the possibility
that we will not be able to collect receivables on a timely basis.


Rapid Expansion Produces a Significant Strain on Our Business

The expansion of our network through the opening of additional Internet
Data Centers in geographically diverse locations is one of our key
strategies. We currently have twelve Internet Data Centers located in
seven metropolitan areas of the United States: Boston, Chicago, Los
Angeles, New York, San Francisco, Seattle, and Washington, D.C.  We also
opened our first Internet Data Center outside of the United States in
the London metropolitan area in June 1999.  We plan to open six
additional Internet Data Centers and three server hosting sites in the
second half of 1999. To expand successfully, we must be able to assess
markets, locate and secure new Internet Data Center sites, install
facilities and establish additional peering interconnections with
Internet service providers in a timely manner and at a reasonable cost.
To manage this expansion effectively, we must continue to improve our
operational and financial systems and expand, train and manage our
employee base. Our inability to establish additional Internet Data
Centers or effectively manage our expansion would have a material
adverse effect upon our business.

We expect to expend substantial resources for leases of real estate,
significant improvements of facilities, purchase of complementary
businesses, assets and equipment, implementation of multiple
telecommunications connections and hiring of network, administrative,
customer support and sales and marketing personnel with the
establishment of each new Internet Data Center. Moreover, we expect to
make significant investments in sales and marketing and the development
of new services as part of our expansion strategy. The failure to
generate sufficient cash flows or to raise sufficient funds may require
us to delay or abandon some or all of our development and expansion
plans or otherwise forego market opportunities, making it difficult for
us to respond to competitive pressures.

It usually takes us at least six months to select the appropriate
location for a new Internet Data Center, construct the necessary
facilities, install equipment and telecommunications infrastructure, and
hire operations and sales personnel. Expenditures commence well before
the Internet Data Center opens, and it takes an extended period for us
to approach break-even capacity utilization. As a result, we expect that
individual Internet Data Centers will experience losses for in excess of
one year from the time they are opened. We experience further losses
from sales personnel hired to test market our services in markets where
there is no Internet Data Center. Growth in the number of our Internet
Data Centers is likely to increase the amount and duration of losses. In
addition, if we do not attract customers to new Internet Data Centers in
a timely manner, or at all, our business would be materially adversely
affected.


We Must Manage Growth Effectively

We are experiencing, and expect to continue experiencing, rapid growth
with respect to the building of our Internet Data Centers and network
infrastructure, expansion of our service offerings, geographic
expansion, expansion of our customer base and increases in the number of
employees. This growth has placed, and if it continues, will place, a
significant strain on our financial, management, operational and other
resources, including our ability to ensure customer satisfaction. This
expansion also requires significant time commitment from our senior
management and places a significant strain on their ability to manage
the existing business. In addition, we may be required to manage
multiple relationships with a growing number of third parties as we seek
to complement our service offerings. Our ability to manage our growth
effectively will require us to continue to expand operating and
financial procedures and controls, to replace or upgrade our
operational, financial and management information systems and to
attract, train, motivate and retain key employees. We have recently
hired many key employees and officers, and as a result, our entire
management team has worked together for only a brief time. In addition,
we intend to hire additional senior management personnel to support our
growth and expansion of our business. If our executives are unable to
manage growth effectively, our business could be materially adversely
affected.


There Are Risks Associated With Acquisitions

In October 1998 we acquired the assets of Arca Systems, Inc., in
February 1999 we acquired AIS, and in July 1999 we acquired Cohesive. We
continue to expend resources integrating Cohesive and the personnel
hired in connection with acquisitions. As we acquire additional
companies, we may incur expenses to remediate Year 2000 problems
relating to these acquired companies.

We believe that our future growth depends, in part, upon the acquisition
of complementary businesses, products, services or technologies. If we
buy a company, we could have difficulty in assimilating that company's
technology, personnel and operations. In addition, the key personnel of
the acquired company may decide not to work for us. These difficulties
could disrupt our ongoing business, distract our management and
employees and increase our expenses. In addition, future acquisitions by
us may result in the incurring of additional debt, large one-time write-
offs and the creation of goodwill or other intangible assets that could
result in amortization expenses.


Our Substantial Leverage and Debt Service Obligations Adversely Affect
Our Cash Flow

We have substantial amounts of outstanding indebtedness, primarily from
our Senior Notes and Convertible Notes. There is the possibility that we
may be unable to generate cash sufficient to pay the principal of,
interest on and other amounts due in respect of our indebtedness when
due. As of June 30, 1999, we had indebtedness of approximately $582.9
million and available borrowings of up to an additional $1.2 million. We
also expect to add additional equipment loans and lease lines to finance
capital expenditures for our Internet Data Centers and may obtain
additional long term debt, working capital lines of credit and lease
lines. There can be no assurance that any financing arrangements will be
available.

Our substantial leverage could have significant negative consequences,
including:

     o increasing our vulnerability to general adverse economic and
       industry conditions;

     o limiting our ability to obtain additional financing;

     o requiring the dedication of a substantial portion of our expected
       cash flow from operations to service our indebtedness, thereby
       reducing the amount of our expected cash flow available for other
       purposes, including capital expenditures;

     o limiting our flexibility in planning for, or reacting to, changes
       in our business and the industry in which we compete; and

     o placing us at a possible competitive disadvantage vis-a-vis less
       leveraged competitors and competitors that have better access to
       capital resources.


We Are Subject to Restrictive Covenants That Limit Our Flexibility

Our Senior Notes and Convertible Notes contain various restrictions on
our ability to incur debt, pay dividends or make other restricted
payments, sell assets, enter into affiliate transactions and take other
actions. Furthermore, our existing financing arrangements are, and
future financing arrangements are likely to be, secured by substantially
all of our assets. The existing financing arrangements require, and
future financing arrangements are likely to require, that we maintain
specific financial ratios and comply with covenants restricting our
ability to incur debt, pay dividends or make other restricted payments,
sell assets, enter into affiliate transactions or take other actions.

In addition, the Convertible Notes proceeds may be used only for limited
purposes. Proceeds in the amount of $48.5 million may be used for
general corporate purposes. The remaining $193.8 million may be used
only to finance the purchase of assets or other businesses to be used in
our business.


We Compete With Much Larger Companies and There Are Few Barriers to
Entry

Our market is intensely competitive. There are few substantial barriers
to entry, and we expect to face additional competition from existing
competitors and new market entrants in the future. The principal
competitive factors in this market include:

     o Internet system engineering and other expertise;

     o customer service;

     o network capability, reliability, quality of service and
       scalability;

     o the variety of services offered;

     o access to network resources, including circuits, equipment and
       interconnection capacity to other networks;

     o broad geographic presence;

     o price;

     o the ability to maintain and expand distribution channels;

     o brand name;

     o the timing of introductions of new services;

     o network security; and

     o financial resources.

There can be no assurance that we will have the resources or expertise
to compete successfully in the future. Our current and potential
competitors in the market include:

     o providers of server hosting services;

     o national and regional ISPs;

     o global, regional and local telecommunications companies and
       Regional Bell Operating Companies;

     o large IT outsourcing firms; and

     o other technology services and products companies.

Many of our competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition and more
established relationships in the industry. As a result, these
competitors may be able to develop and expand their network
infrastructures and service offerings more quickly, devote greater
resources to the marketing and sale of their products and adopt more
aggressive pricing policies. In addition, these competitors have entered
and will likely continue to enter into business relationships to provide
additional services competitive with those we provide.

Some of our competitors may be able to provide customers with additional
benefits in connection with their Internet system and network management
solutions, including reduced communications costs, which could reduce
the overall costs of their services relative to ours. We may not be able
to offset the effects of any price reductions. In addition, we believe
our market is likely to encounter consolidation in the near future,
which could result in increased competition.


Our Market Is New and Our Services May Not Be Generally Accepted

The market for Internet system and network management solutions has only
recently begun to develop, is evolving rapidly and is characterized by
an increasing number of market entrants. This market may not prove to be
viable or, if it becomes viable, may not continue to grow. Our future
growth depends on the willingness of enterprises to outsource the system
and network management of their mission-critical Internet operations and
our ability to market our services in a cost-effective manner to a
sufficiently large number of customers. If this market fails to develop,
or develops more slowly than expected, or if our services do not achieve
market acceptance, our business would be materially and adversely
affected. In addition, in order to be successful we must be able to
differentiate ourselves from our competition through our service
offerings.


System Failures Could Lead to Significant Costs

We must protect our network infrastructure and customers' equipment
against damage from human error, physical or electronic security
breaches, power loss and other facility failures, fire, earthquake,
flood, telecommunications failure, sabotage, vandalism and similar
events. Despite precautions we have taken, a natural disaster or other
unanticipated problems at one or more of our Internet Data Centers could
result in interruptions in our services or significant damage to
customer equipment. In addition, failure of any of our
telecommunications providers, such as MCI WorldCom, Qwest Communications
Corporation, or local exchange carriers, to provide consistent data
communications capacity could result in interruptions in our services.
Any damage to or failure of our systems or service providers could
result in reductions in, or terminations of, services supplied to our
customers, which could have a material adverse effect on our business.
In the past, we have experienced interruptions in specific circuits
within our network resulting from events outside our control, which led
to short-term degradation in the level of performance of our network.


Customer Satisfaction Is Critical to Our Success

Our customers demand a very high level of service. Our customer
contracts generally provide a limited service level warranty related to
the continuous availability of service on a 24 hours per day, seven days
per week basis. This warranty is generally limited to a credit
consisting of free service for a short period of time for disruptions in
Internet transmission services. To date, only a limited number of
customers have been entitled to this warranty. If we incur significant
warranty obligations in connection with system downtime, our liability
insurance may not be adequate to cover these expenses. As customers
outsource more mission-critical operations to us, we may be subject to
increased liability claims and customer dissatisfaction should our
systems fail or our customers otherwise become unsatisfied.


Our Ability to Expand Our Network Is Unproven

To satisfy customer requirements, we must continue to expand and adapt
our network infrastructure. We are dependent on MCI WorldCom and Qwest
and other telecommunications providers for our network capacity,
including our dedicated clear channel network. The expansion and
adaptation of our telecommunications infrastructure will require
substantial financial, operational and management resources as we
negotiate telecommunications capacity with network infrastructure
suppliers. Due to the limited deployment of our services to date, our
ability to connect and manage a substantially larger number of customers
at high transmission speeds is unknown. We have yet to prove our
network's ability to be scaled up to higher customer levels while
maintaining superior performance. Furthermore, it may be difficult for
us to increase quickly our network capacity in light of current
necessary lead times within the industry to purchase circuits and other
critical items. If we fail to achieve or maintain high capacity data
transmission circuits, consumer demand could shrink because of possible
degradation of service. In addition, as we upgrade our
telecommunications infrastructure to increase bandwidth available to our
customers, we expect to encounter equipment or software incompatibility
which may cause delays in implementation.


We Depend on Network Interconnections

We rely on a number of public and private network interconnections,
commonly referred to as peering relationships, to allow our customers to
connect to other networks. If our peering partners were to discontinue
their support for the peering relationships, our ability to exchange
traffic would be significantly constrained. Furthermore, our business
will be adversely affected if these peering partners do not add more
bandwidth to accommodate increased traffic. Many of the companies with
which we maintain private peering interconnections are our competitors.
There is nothing to prevent any peering partners, many of which are
significantly larger than we are, from charging high usage fees or
denying access. In the future, private peering partners could refuse to
continue to interconnect directly with us, might impose significant
costs on us or limit our customers access to their networks. If we were
unable on a cost-effective basis to access alternative networks to
exchange our customers' traffic or if we were unable to pass through to
our customers any additional costs of utilizing these networks, our
business could be materially adversely affected.


Risks Associated with International Operations

A component of our strategy is to expand into international markets,
including Europe and Japan.  We opened our first Internet Data Center
outside of the United States in the London metropolitan area in June
1999. Furthermore, we plan to open additional international server
hosting sites and / or Internet Data Centers in the second half of 1999.
In order to expand international operations, we may enter into joint
ventures or outsourcing agreements with third parties, acquire rights to
high-bandwidth transmission capability, acquire complementary businesses
or operations, or establish and maintain new operations outside of the
United States. Thus, we will depend on third parties to be successful in
our international operations. In addition, the rate of development and
adoption of the Internet has been slower outside of the United States,
and the cost of bandwidth has been higher, which may adversely affect
our ability to expand operations and may increase our cost of operations
internationally. The risks inherent in conducting business
internationally include:

     o unexpected changes in regulatory requirements, export
       restrictions, tariffs and other trade barriers;

     o challenges in staffing and managing foreign operations;

     o differences in technology standards;

     o employment laws and practices in foreign countries;

     o longer payment cycles and problems in collecting accounts
       receivable;

     o political instability;

     o fluctuations in currency exchange rates and imposition of currency
       exchange controls; and

     o potentially adverse tax consequences.

Rapid Technological Change and Evolving Industry Standards

Our future success will depend on our ability to offer services that
incorporate leading technology and address the increasingly
sophisticated and varied needs of our current and prospective customers.
Our market is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging
competition and frequent new service introductions. Future advances in
technology may not be beneficial to, or compatible with, our business,
and we may not be able to incorporate advances on a cost-effective and
timely basis. Moreover, technological advances may have the effect of
encouraging our current or future customers to rely on in-house
personnel and equipment to furnish the services we currently provide. In
addition, keeping pace with technological advances may require
substantial expenditures and lead time.

We believe that our ability to compete successfully is also dependent
upon the continued compatibility and interoperability of our services
with products, services and architectures offered by various vendors.
Although we work with various vendors in testing newly developed
products, these products may not be compatible with our infrastructure
or adequate to address changing customer needs. For instance, existing
networking hardware may not be immediately compatible with leading edge
telecommunications infrastructure services, and therefore may require us
to make significant investments to achieve compatibility. Although we
intend to support emerging standards, industry standards may not be
established or we may not be able to timely conform to new standards.
Our failure to conform to a prevailing standard, or the failure of a
common standard to emerge, could have a material adverse effect on our
business.


System Security Risks Could Disrupt Our Services

The ability to provide secure transmissions of confidential information
over networks accessible to the public is a significant barrier to
electronic commerce and communications. A portion of our services rely
on encryption and authentication technology licensed from third parties.
Despite a variety of network security measures taken by us, we cannot
assure that unauthorized access, computer viruses, accidental or
intentional actions and other disruptions will not occur. Our Internet
Data Centers have experienced and may in the future experience delays or
interruptions in service as a result of the accidental or intentional
actions of Internet users, current and former employees or others.
Furthermore, inappropriate use of the network by third parties could
also jeopardize the security of confidential information, such as
customer and Exodus passwords as well as credit card and bank account
numbers, stored in our computer systems or those of our customers. This
could result in liability to others and the loss of existing customers
or the deterrence of potential customers. The costs required to
eliminate computer viruses and alleviate other security problems could
be prohibitively expensive and the efforts to address these problems
could result in interruptions, delays or cessation of service to our
customers.


We Depend on Third-Party Equipment and Software Suppliers

We depend on vendors to supply key components of our telecommunications
infrastructure and system and network management solutions. Some of the
telecommunications services and networking equipment is available only
from sole or limited sources. For instance, the routers, switches and
modems we use are currently supplied primarily by Cisco Systems, Inc. We
typically purchase or lease all of our components under purchase orders
placed from time to time. We do not carry significant inventories of
components and have no guaranteed supply arrangements with vendors. Our
failure to obtain required products or services on a timely basis and at
an acceptable cost would have a material adverse effect on our business.
In addition, the failure of our sole or limited source suppliers to
provide products or components that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
components we use could have a material adverse effect on our business.
For example, we have experienced performance problems, including
previously unknown software and firmware bugs, with routers and switches
that have caused temporary disruptions in and impairment of network
performance. In addition, we expect to depend for a time on third
parties to deliver our services from and manage certain international
operations.


Government Regulation and Legal Uncertainties May Adversely Affect Our
Business

Laws and regulations directly applicable to communications and commerce
over the Internet are becoming more prevalent. The United States
Congress has recently considered Internet laws regarding children's
privacy, copyrights, taxation and the transmission of sexually explicit
material. The European Union also recently enacted its own privacy
regulations. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as
those governing intellectual property, privacy, libel and taxation apply
to the Internet. In addition, the growth and development of the market
for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption
or modification of laws or regulations relating to the Internet could
adversely affect our business. We provide services over the Internet in
all states in the United States and in many foreign countries, and we
facilitate the activities of our customers in these jurisdictions. As a
result we may be required to qualify to do business, or be subject to
taxation, or be subject to other laws and regulations, in these
jurisdictions even if we do not have a physical presence or employees or
property in these jurisdictions. The application of these multiple sets
of laws and regulations is uncertain, but we could find that Exodus is
subject to regulation, taxation, enforcement or other liability in
unexpected ways, which could materially adversely affect our business.


There Are Risks Involved with the Information Disseminated through Our
Network

The law relating to the liability of online services companies and
Internet access providers for information carried on or disseminated
through their networks is currently unsettled. The Child Online
Protection Act of 1998 imposes criminal penalties and civil liability on
anyone engaged in the business of selling or transferring material that
is harmful to minors, by means of the World Wide Web, without
restricting access to this type of material by underage persons.
Numerous states have adopted or are currently considering similar types
of legislation. The imposition upon us and other Internet network
providers of potential liability for information carried on or
disseminated through systems could require us to implement measures to
reduce exposure to liability, which may require the expenditure of
substantial resources, or to discontinue various service or product
offerings. Further, the costs of defending against any claims and
potential adverse outcomes of these claims could have a material adverse
effect on our business. While we carry professional liability insurance,
it may not be adequate to compensate or may not cover us in the event we
become liable for information carried on or disseminated through our
networks.

Some businesses, organizations and individuals have in the past sent
unsolicited commercial e-mail messages advertising sites hosted at our
facilities to a massive number of people. This practice, known as
"spamming," has led to some complaints against us. In addition, some
ISPs and other online services companies could deny network access to us
if we allow undesired content or spamming to be transmitted through our
networks. Although we prohibit customers by contract from spamming,
there can be no assurance that customers will not engage in this
practice, which could have a material adverse effect on our business.


We Depend on Our Key Personnel

Our success depends in significant part upon the continued services of
our key technical, sales and senior management personnel. Although some
of our executive officers participate in our executive employment
policy, none of our officers is a party to an employment agreement. Any
officer or employee can terminate his or her relationship at any time.
The loss of the services of one or more of our key employees or our
failure to attract additional qualified personnel could have a material
adverse effect on our business. We do not carry key-person life
insurance for any of our employees.


We Depend on the Internet and Internet Infrastructure Development

Our success will depend in large part on continued growth in the use of
the Internet. Critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of access, quality
of service and necessary increases in bandwidth availability, remain
unresolved and are likely to affect the development of the market for
our services. In addition, the rate of development and adoption of the
Internet has been slower outside of the United States and the cost of
bandwidth has been higher. The recent growth in the use of the Internet
has caused frequent periods of performance degradation, requiring the
upgrade of routers and switches, telecommunications links and other
components forming the infrastructure of the Internet by ISPs and other
organizations with links to the Internet. Any perceived degradation in
the performance of the Internet as a whole could undermine the benefits
of our services. Consequently, the emergence and growth of the market
for our services is dependent on improvements being made to the entire
Internet infrastructure to alleviate overloading and congestion.


Risks Associated with Protection and Enforcement of Intellectual
Property Rights

We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect
proprietary rights in our products and services. We have no patented
technology that would preclude or inhibit competitors from entering our
market. Although we have entered into confidentiality agreements with
our employees, contractors, suppliers, distributors and appropriate
customers to limit access to and disclosure of our proprietary
information, these may prove insufficient to prevent misappropriation of
our technology or to deter independent third-party development of
similar technologies. In addition, the laws of various foreign countries
may not protect our products, services or intellectual property rights
to the same extent as do the laws of the United States.

In addition to licensing technologies from third parties, we are
developing and acquiring additional proprietary intellectual property.
Third parties may try to claim that our products or services infringe
their intellectual property. We expect that participants in our markets
will be increasingly subject to infringement claims. Any claim, whether
meritorious or not, could be time consuming, result in costly
litigation, cause product installation delays or require us to enter
into royalty or licensing agreements. These royalty or licensing
agreements might not be available on terms acceptable to us or at all.


Volatility of Our Stock Price

The market price of our common stock has fluctuated in the past and is
likely to continue to fluctuate. In addition, the securities markets,
particularly with respect to Internet stocks, have experienced
significant price and volume fluctuations.


Risks Related to the Year 2000 Problem

The Year 2000 problem stems from the use of a two digit date to
represent the year (e.g., 85 = 1985) in computer software and firmware.
As a result, many currently installed computer systems are not capable
of distinguishing dates beginning with the Year 2000 from dates prior to
the Year 2000. As a result computer systems or applications used by many
companies in a wide variety of industries may experience operating
difficulties unless the systems or applications are modified to process
adequately information related to the date change. Significant
uncertainty exists in the software and other industries concerning the
scope and magnitude of problems associated with the century change. To
the extent Year 2000 issues cause significant delay in, or cancellation
of decisions to purchase products or product support, due to the
reallocation of resources to address Year 2000 issues or otherwise, our
business could be materially adversely affected.

We recognize the need to ensure our operations will not be adversely
impacted by Year 2000 issues. We have put into place a comprehensive
Year 2000 Risk Management initiative that is adequately funded, staffed
and managed. This initiative's scope covers both our information
technology (IT) systems and non-IT systems and addresses all areas of
the Year 2000 issues as defined by the Information Technology
Association of America (ITAA). Our internal inventory audit was
completed January 1999.  Due to our recent acquisition of Cohesive, we
have expanded the independent review of our Year 2000 assessment.  The
review will be completed in the third quarter of 1999, with final Year
2000 compliance expected in the third quarter of 1999.

We have determined that our Internet Data Center equipment is either
currently Year 2000 compliant or that a funded replacement/upgrade plan
is in place to resolve known issues. Likewise, based on the on-going
assessment relative to our current software service offerings, we
believe that the current versions of these products are either Year 2000
compliant or will not require substantial effort or cost to make them
Year 2000 compliant by the end of the third quarter of 1999. We have
reviewed, and continue to review, internal management information and
other systems in order to identify and modify those products, services
or systems that may not be Year 2000 compliant. We have completed a
preliminary assessment of the Year 2000 compliance of Cohesive's
internal management information and other systems. Based on our
assessment to date, we believe that our internal management information
and other systems and Cohesive's internal management information and
other systems are either Year 2000 compliant or will not require
substantial effort or cost to make them Year 2000 compliant. We do not
foresee any issues with internal IT and internal non-IT systems being
Year 2000 compliant by the end of the third quarter of 1999. However, we
may discover Year 2000 problems during our on-going assessment of
Cohesive's internal management information and other systems which we
may be unable to remediate by the end of the third quarter of 1999.

Our Year 2000 initiative also addresses vendor relationships (both IT
and non-IT) and their readiness/preparedness relating to Year 2000
issues. IT vendors include software providers, hardware providers,
service providers, off the shelf software publishers and IT consultants.
Non-IT providers include electric power suppliers, vendors of
uninterruptable power supplies and generators, telecommunications
service providers, business partners, facilities maintainers and other
non-IT service contractors. In the event that third parties cannot
provide us with products, services or systems that are Year 2000
compliant on a timely basis, our business could be materially adversely
affected. To date, we have not discovered nor do we anticipate any
material issues with vendors and service providers. Evaluation of vendor
Year 2000 preparedness is an on-going process. As our Year 2000
evaluation does not evaluate our vendors' vendors nor our vendors'
customer base viability issues, we will be developing contingency plans
to address specific vendor/service provider concerns. Our contingency
plan shall be completed by September 30, 1999.

Many of our customers maintain their Internet operations on servers
which maybe impacted by Year 2000 complications. The failure of our
customers to ensure that their servers are Year 2000 compliant could
have a material adverse effect on our customers, which in turn could
have a material adverse effect on our business, if our customers are
forced to cease or interrupt Internet operations or experience
malfunctions related to their equipment.

We have established procedures for evaluating and managing the risks and
costs associated with this problem. Funding and execution for this
initiative is within our existing business units and operating budgets
and is not viewed as material. Based on our current assessment, we
believe the costs, excluding employee personnel time and effort, to
resolve Year 2000 issues, other than unanticipated liabilities, should
not exceed $900,000. We further estimate that the time and effort
required of our personnel to resolve Year 2000 issues will not be
material.

While we believe our Year 2000 initiative to be prudent, properly funded
and staffed and well-managed, there can be no assurance that we will
identify and remedy all Year 2000 problems in a timely fashion, that any
remedial efforts in this regard will not involve significant time and
expense, or that these problems will not have a material adverse effect
on our business.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We have limited exposure to financial market risks, including changes in
interest rates. The fair value of our investment portfolio or related
income would not be significantly impacted by a 100 basis point increase
or decrease in interest rates due mainly to the short-term nature of the
major portion of our investment portfolio.  Our investment portfolio
primarily consists of money market funds, United States Treasury Notes,
and certificates of deposit.  An increase or decrease in interest rates
would not significantly increase or decrease interest expense on debt
obligations due to the fixed nature of our debt obligations. We do not
currently have any significant foreign operations and thus are not
currently materially exposed to foreign currency fluctuations.


PART II.   OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

Use of Our Initial Public Offering Proceeds

Our initial public offering of Common Stock was effected through a
Registration Statement on Form S-1 (File No. 333-44469) that was
declared effective by the SEC on March 18, 1998 and pursuant to which we
sold an aggregate of 20,500,000 shares of our common stock.

As of June 30, 1999 we had used the estimated aggregate net proceeds of
$69.8 million from our initial public offering as follows:

Construction of plant, building and facilities.........  $1.0 million

Purchase and installation of machinery and equipment...  $1.7 million

Purchases of real estate...............................           --

Acquisition of other business..........................           --

Repayment of indebtedness..............................  $11.5 million

Working capital........................................  $55.6 million

Temporary investments (short-term, interest bearing,
treasury securities)...................................           --

Other purposes.........................................           --

These amounts represent our best estimate of our use of proceeds for the
period indicated.  No such payments were made to our directors or
officers or their associates, holders of 10% or more of any class of our
equity securities or to our affiliates.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our Annual Meeting of Stockholders June 2, 1999. Following are
descriptions of the matters voted on and the results of such meeting
(share numbers do not reflect the two-for-one stock split effected on
August 12, 1999):

<TABLE>
<CAPTION>

                                             Votes       Votes      Votes     Votes      Broker
                                              For       Against   Abstained  Withheld  Non-votes
                                          ----------- ----------- --------- ---------- ----------
<S>                                       <C>         <C>         <C>       <C>        <C>
1.Election of Directors:

  Frederick W.W. Bolander..............   28,205,262       --        --     5,268,459      --
  K.B. Chandrasekhar...................   28,205,262       --        --     5,268,459      --
  John R. Dougery......................   28,205,062       --        --     5,268,659      --
  Mark Dubovoy.........................   28,201,362       --        --     5,272,359      --
  Ellen M. Hancock.....................   28,204,868       --        --     5,268,853      --
  Max D. Hopper........................   28,203,662       --        --     5,270,059      --
  Peter A. Howley......................   28,205,212       --        --     5,268,509      --
  Daniel C. Lynch......................   28,205,212       --        --     5,268,509      --
  Thadeus J. Mocarski..................   28,205,112       --        --     5,268,609      --
  Kanwal S. Rekhi......................   28,204,962       --        --     5,268,759      --

2.Amendment of Restated Certificate of
  Incorporation to increase the number
  of authorized shares of Common
  Stock from 100,000,000 to
  300,000,000..........................   26,181,505   7,284,833     7,383      --         --

3.Amendment of the Company's 1998
  Equity Incentive Plan to increase
  the number of shares of Common Stock
  reserved for issuance from
  3,000,000 to 5,000,000...............   21,420,662  11,720,353   217,420      --       115,286

4.Proposal to ratify the appointment
  of KPMG LLP as independent auditors
  of the Company for the fiscal year
  ending December 31, 1999.............   33,385,779      81,661     6,281      --         --

</TABLE>

ITEM 5.  OTHER INFORMATION

On July 21, 1999, the Company's Board of Directors approved a two-for-
one Common Stock split, which is to be effected in the form of a stock
dividend.  Shareholders of record on July 29, 1999 (the record date)
will receive one additional share for every share held on that date.
The shares were distributed on or about August 12, 1999.

On July 27, 1999, the Company completed its acquisition of Cohesive
Technology Solutions, Inc. ("Cohesive") for approximately $115,000,000
in cash and common stock of the Company and the assumption of Cohesive
options. Cohesive is a technology professional services organization
with expertise in networking, web applications and technology solutions.
The Company expects to account for the purchase of Cohesive under the
purchase method of accounting and anticipates a significant portion of
the purchase price will be allocated to goodwill.

Kanwal Rekhi resigned from the Company's Board of Directors on July 21,
1999.  The Board appointed Naomi O. Seligman as a director of the
Company to fill the vacancy created by Kanwal Rekhi's resignation,
effective July 21, 1999.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


a.  Exhibits

Exhibit
 No.                       Description of Exhibit
------  -------------------------------------------------------------
10.57   Agreement to lease dated June 18, 1999 and associated exhibits
        between Helios Limited, Lloyds Bank PLC, Exodus Internet Limited and
        Registrant.

10.58   Building lease dated June 8, 1999 between Talus and Registrant.

10.59   Building lease dated June 4, 1999 between G&I Walsh and Registrant.

10.60   Building lease dated June 30, 1999 between Cameron Road Corporate
        Park, Ltd. and Registrant.

10.61   Building lease dated June 7, 1999 between 100 TCD Associates Limited
        Partnership and TW Conroy 2 LLC and Registrant.

10.62   Building lease dated April 30, 1999 between Reynolds Metals
        Development Company and Registrant.

10.63   Loan modification agreement dated May 6, 1999 between Silicon Valley
        Bank and Registrant.

10.64   Purchase agreement dated June 17, 1999 between Goldman, Sachs & Co.
        and Registrant.

10.65   Exchange and registration rights agreement dated June 22, 1999 among
        Goldman, Sachs & Co. and Registrant.

10.66   First supplemental indenture dated June 22, 1999 between Registrant
        as issuer and Chase Manhatten Bank and Trust Company, National
        Association, as trustee.

10.67   Form of 11 1/4% Senior Note from 1999 Senior Note Offering.

 27.1   Financial Data Schedule

b.  Reports on Form 8-K

On June 18, 1999, we filed a report on Form 8-K announcing we entered
into an agreement to sell $75 million of 11 1/4% Senior Notes due 2008 in
a private offering.


                              SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                        EXODUS COMMUNICATIONS, INC.


      August 13, 1999                   /s/ Ellen M. Hancock
    ----------------------         -----------------------------------
           Date                             Ellen M. Hancock
                                    President, Chief Executive Officer
                                              and Director



      August 13, 1999                   /s/ Richard. S. Stoltz
    ---------------------          ------------------------------------
           Date                             Richard S. Stoltz
                                       Chief Financial Officer and
                                         Chief Operating Officer
                                    (Duly Authorized Officer and Chief
                                           Accounting Officer)



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