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

                                  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 March 31, 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 May 10, 1999 was 41,160,218 shares. This number reflects the effect of
a two-for-one stock split effected April 12, 1999.

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

                          EXODUS COMMUNICATIONS, INC.

                                     INDEX
                                     -----

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

         Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets - March 31, 1999 and
                  December 31, 1998

                  Condensed Consolidated Statements of Operations - Three
                  Month Periods Ended March 31, 1999 and 1998

                  Condensed Consolidated Statements of Cash Flows - Three 
                  Month Periods Ended March 31, 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>










I.  FINANCIAL  INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                          EXODUS COMMUNICATIONS, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                         March 31,  December 31,
                                                          1999         1998
                                                       -----------  -----------
<S>                                                    <C>          <C>
                            Assets
Current assets:
  Cash and cash equivalents...........................   $323,642     $150,891
  Accounts receivable, net............................     16,277       11,174
  Prepaid expenses and other current assets...........      6,727        4,677
                                                       -----------  -----------
    Total current assets..............................    346,646      166,742
Property and equipment, net...........................    101,793       68,306
Restricted cash equivalents and investments...........     36,292       45,614
Other assets..........................................     41,561       12,624
                                                       -----------  -----------
                                                         $526,292     $293,286
                                                       ===========  ===========
             Liabilities and Stockholders'(Deficit)Equity
Current liabilities:
  Current portion of equipment loans and line of
   credit facilities..................................     $6,804      $14,367
  Current portion of capital lease obligations........      5,950        5,140
  Accounts payable....................................     24,504        9,208
  Accrued expenses....................................      7,623        6,771
  Accrued interest payable............................      6,949       11,563
                                                       -----------  -----------
    Total current liabilities.........................     51,830       47,049
Equipment loans and line of credit facilities, less
 current portion......................................     12,864       15,695
Capital lease obligations, less current portion.......     12,111       11,401
Convertible Subordinated Notes........................    250,000        --
Senior Notes..........................................    200,000      200,000
                                                       -----------  -----------
    Total liabilities.................................    526,805      274,145
                                                       -----------  -----------
Stockholders' (deficit) equity:
  Common stock, $0.001 par value: 100,000,000
   authorized; 40,776,326 and 40,134,704 shares
   issued and outstanding as of March 31, 1999
   and December 31, 1998, respectively................         41           40
  Additional paid-in capital..........................    119,520      117,200
  Deferred stock compensation.........................       (891)      (1,080)
  Accumulated deficit.................................   (119,183)     (97,019)
                                                       -----------  -----------
    Total stockholders' (deficit) equity..............       (513)      19,141
                                                       -----------  -----------
                                                         $526,292     $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)
                                 (Unaudited)
<TABLE>
<CAPTION>
                                      Three Months Ended
                                          March 31,
                                     -------------------
                                       1999      1998
                                     --------- ---------
<S>                                  <C>       <C>
Revenues.........................     $30,087    $7,105
                                     --------- ---------

Costs and expenses:
    Cost of revenues.............      28,110     9,881
    Marketing and sales..........      10,264     6,417
    General and administrative...       7,055     2,657
    Product development..........       1,285       645
                                     --------- ---------
Total costs and expenses.........      46,714    19,600
                                     --------- ---------

Operating loss...................     (16,627)  (12,495)
Net interest expense.............       5,537       826
                                     --------- ---------
    Net loss.....................     (22,164)  (13,321)
Cumulative dividends and
  accretion on redeemable
  convertible preferred stock....         --     (2,014)
                                     --------- ---------
Net loss attributable to
  common stockholders............    ($22,164) ($15,335)
                                     ========= =========

Basic and diluted net loss
  per share.......................     ($0.55)   ($2.23)
                                     ========= =========

Shares used in computing basic
  and diluted net loss per share..     40,526     6,872
                                     ========= =========
</TABLE>
        See accompanying notes to condensed consolidated financial statements.
<PAGE>










                          EXODUS COMMUNICATIONS, INC.
                CONDENSED CONSOLIDATE STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)                         
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                               March 31,
                                                         --------------------
                                                           1999       1998
                                                         ---------  ---------
<S>                                                      <C>        <C>
Cash flows from operating activities:
  Net loss.............................................  ($22,164)  ($13,321)
  Adjustments to reconcile net loss to net cash used
  for operating activities:
    Depreciation and amortization......................     5,533      1,975
    Loss on disposal of property and equipment.........       --         --
    Noncash warrant expense............................       --         525
    Amortization of deferred stock compensation........       189        378
    Amortization of debt issuance costs................       332        122
    Interest accretion on restricted cash equivalents..    (1,088)       --
    Changes in operating assets and liabilities:
        Accounts receivable............................    (4,120)    (1,217)
        Prepaid expenses and other assets..............    (5,190)      (628)
        Accounts payable...............................    14,867      2,671
        Accrued expenses...............................       748      1,735
        Accrued interest payable.......................    (4,614)       --
                                                         ---------  ---------
            Net cash used for operating activities.....   (15,507)    (7,760)
                                                         ---------  ---------
Cash flows from investing activities:
  Purchases of property and equipment..................   (34,850)    (7,146)
  Business acquired, net of cash received..............   (19,990)       --
  Release (increase) of restricted cash
   equivalents and investments.........................    10,410       (185)
                                                         ---------  ---------
           Net cash used for investing activities......   (44,430)    (7,331)
                                                         ---------  ---------
Cash flows from financing  activities:
  Proceeds from issuance of redeemable
   convertible preferred stock and warrants............       --       2,176
  Proceeds from issuance of common stock...............     2,321     70,302
  Notes receivable from stockholders, net..............       --           8
  Repayment of bank borrowings.........................       --      (3,000)
  Proceeds from sale-leaseback transactions............       --       1,922
  Payment on capital lease obligations.................    (1,332)      (266)
  Proceeds from debt...................................       --       8,823
  Repayment of debt....................................   (10,551)      (991)
  Proceeds from 5% Convertible Subordinated
   Notes, net..........................................   242,250        --
                                                         ---------  ---------
            Net cash provided by financing activities..   232,688     78,974
                                                         ---------  ---------
Net increase in cash and cash equivalents..............   172,751     63,883
Cash and cash equivalents at beginning of year.........   150,891     10,270
                                                         ---------  ---------
Cash and cash equivalents at end of period.............  $323,642    $74,153
                                                         =========  =========
Supplemental disclosure of cash flow information:
  Cash paid-interest...................................   $13,405       $765
                                                         =========  =========
  Noncash investing and financing activities:
    Assets recorded under capital lease................    $2,852     $1,089
                                                         =========  =========
    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.................  $   --      $43,437
                                                         =========  =========
</TABLE>
     See accompanying notes to condensed consolidated financial statements.
<PAGE>





































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



NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed 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 financial statements 
include all adjustments, consisting only of normal recurring 
adjustments, necessary for the fair presentation of the Company's 
financial position as of March 31, 1999 and the results of its 
operations and cash flows for the three month periods ended March 31, 
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 
three month period ended March 31, 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 month periods ended March 31, 1999 and 1998 does 
not include the effect of (i) 10,268,000 and 6,384,000 shares issuable 
under stock  options outstanding as of March 31, 1999 and March 31, 
1998, respectively, (ii) 133,000 and 808,000 shares issuable pursuant 
to warrants to purchase common  stock, as of March 31, 1999 and March 
31, 1998, respectively, and (iii) no shares and 23,974,000 shares (up 
to the date of the initial public offering) of redeemable convertible 
preferred stock as of March 31, 1999 and 1998, respectively.


 NOTE 3 - REVENUE RECOGNITION

Our revenues consist of (i) monthly fees from customer use of Internet 
Data Center sites, network services and managed services, (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. One-time professional service fees are typically recognized 
when services are rendered. We sell third-party equipment to our 
customers as an accommodation to facilitate their purchase of services. 


NOTE 4 - PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                             March 31,  December 31,
                                              1999         1998
                                           -----------  -----------
<S>                                        <C>          <C>
  Data centers and related equipment.......   $47,586      $43,959
  Furniture, fixtures, computer equipment
    and other..............................    43,126       32,887
  Construction in progress.................    33,655        8,497
                                           -----------  -----------
                                              124,367       85,343
  Less accumulated depreciation and
    amortization...........................    22,574       17,037
                                           -----------  -----------
                                             $101,793      $68,306
                                           ===========  ===========
</TABLE>

Computer equipment and certain data center equipment are recorded under
capital leases that aggregated $23,088,000 and $20,236,000 as of March 
31, 1999 and December 31, 1998, respectively. Accumulated amortization 
on the assets recorded under capital leases aggregated $5,827,000 and 
$4,426,000 as of March 31, 1999 and December 31, 1998, respectively.


<PAGE>


NOTE 5 - ACQUISITIONS

On October 2, 1998, the Company purchased substantially all of the 
assets, including customer agreements, and assumed certain liabilities 
of, Arca, a wholly owned subsidiary of Cyberguard Corporation. Arca, which
has been in business for more than ten years, 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).

On February 1, 1999, the Company purchased all of the capital stock of 
American Information Systems, Inc ("AIS"). AIS provides colocation 
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).

The following summary, prepared on an unaudited pro forma basis, 
combines the Company's consolidated results of operations with Arca's and AIS'
results of operations, as if Arca and AIS had been acquired on January 1, 1998
(in thousands, except per share data):





<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                               March 31
                                                        ------------------------
                                                           1999         1998
                                                        -----------  -----------
<S>                                                     <C>          <C>
Revenues                                                   $30,735       $9,589
Net loss attributable to common stockholders              ($22,140)    ($15,154)
Basic and diluted net loss per share                        ($0.55)      ($2.21)
Shares used in pro forma per share computation              40,526        6,872
</TABLE>


The pro forma results are not necessarily indicative of what would have
occurred if the acquisition 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 synergyies 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 March 31, 1999, no amount was outstanding 
under the line of credit. The line of credit expires in May 1999. 


A summary of equipment loans and line of credit facilities follows (in
thousands):

<TABLE>
<CAPTION>
                                                          March 31,  December 31,
                                                           1999         1998
                                                        -----------  -----------
<S>                                                     <C>          <C>
$1,800,000 equipment line of credit facility;
 effective interest rate of 16.4%; principal and
 interest due April 2000 through September 2000;
 collateralized by equipment...........................       $789         $981

$3,000,000 equipment line of credit facility-April
 1997; effective interest rate of 12.9%; principal
 and interest due monthly through July 2001;
 collateralized by equipment...........................      1,772        2,080

$6,500,000 equipment line of credit facility;
 effective interest rate of 15.9%; principal and
 interest due monthly through July 2001;
 collateralized by equipment...........................      4,204        4,842

$3,000,000 equipment line of credit facility-August
 1997; effective interest rate of 16.2%; principal
 and interest due monthly through May 2001;
 collateralized by equipment...........................      1,914        2,192

$5,000,000 equipment line of credit facility;
 effective interest rate of 16.2%; principal and
 interest due monthly through September 2001;
 collateralized by equipment...........................      2,716        3,084

$10,000,000 equipment line of credit facility;
 effective interest rate of 13.8%; principal and
 interest due monthly through August 2002;
 collateralized by equipment...........................      8,127        8,883

$8,000,000 line of credit facility; interest rate
 of 12.8%; principal and interest due March 1999;
 collateralized by all of the Company's assets.........         --        8,000

Other                                                          146           --
                                                        -----------  -----------
                                                            19,668       30,062
Less current portion...................................      6,804       14,367
                                                        -----------  -----------
Equipment loans and line of credit facilities, less
 current portion.......................................    $12,864      $15,695
                                                        ===========  ===========
</TABLE>




On March 3, 1999 the Company issued $250 million of 5% Convertible 
Subordinated Notes due 2006 for aggregated net proceeds of 
approximately $243 million. Interest on the Convertible Subordinated 
Notes is payable on March 15 and September 15 of each year, commencing 
on September 15, 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. As of March 31, 1999 restricted cash 
equivalents and investments include approximately $32,800,000 deposited 
with an escrow agent that will be used to pay the first four semiannual 
interest payments when due. An interest payment of $11,250,000 was made 
in January 1999. 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 there from, pay 
dividends, make certain other restricted payments, incur certain liens 
to secure indebtedness or engage in merger transactions.


NOTE 7 - COMPREHENSIVE INCOME

There were no material differences between net loss and comprehensive 
loss during the three months ended March 31, 1999 and 1998.


NOTE 8 - SEGMENT INFORMATION

The Company currently operates eight Internet Data Centers throughout 
the United States. 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 relatively similar, depending on the size of each Internet Data 
Center. In particular, each data center provides the same Internet 
related services to a similar type of customer who may locate their 
servers in multiple data centers. As a result, the Company believes 
these 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.

<TABLE>
<CAPTION>
                                                               March 31
                                                        ------------------------
                                                           1999         1998
                                                        -----------  -----------
<S>                                                     <C>          <C>
Revenues............................................       $30,087       $7,105

Operating profit (loss): Internet Data Centers......         4,592       (1,402)
Operating loss: Corporate areas.....................       (21,219)     (11,093)
Total Operating loss................................       (16,627)     (12,495)


Total Assets: Internet Data Centers.................        77,184       25,376
Total Assets: Corporate assets......................       449,108       87,648
Total Assets........................................       526,292      113,024
</TABLE>


Note 9 - SUBSEQUENT EVENT

On April 12, 1999 the Company completed a two-for-one stock split 
accomplished in the form of a stock dividend. Share and per share 
amounts reflect the two-for-one stock split retroactively.

On April 21, 1999, Exodus entered into a definitive agreement to 
acquire Cohesive Technology Solutions, Inc. for approximately  $100 
million 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 this transaction, which is 
subject to regulatory review and approval, to close in the third 
quarter of 1999.

The Company expects to account for the purchase of Cohesive Technology 
Solutions, Inc under the purchase method of accounting and anticipates 
a significant portion of the purchase price will be allocated to 
goodwill.


<PAGE>
































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 the 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 the risk 
that completion of the acquisition of Cohesive Technology Solutions, 
Inc. ("Cohesive") will not be completed in a timely manner, 
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, 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 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 seven 
additional domestic Internet Data Centers in the metropolitan areas of 
New York (March 1997), San Francisco (second site-August 1997; third 
site-June 1998), Seattle (September 1997), Los Angeles (October 1997), 
Washington, D.C. (December 1997) and Boston (July 1998), and we have a 
server hosting facility in London. We plan to open additional data 
centers during the second quarter of 1999 in the following metropolitan 
areas: Chicago, Seattle, Washington, D.C. and London. 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 April 1999, we entered into a definitive 
agreement to acquire Cohesive Technology Solutions, Inc. We expect to 
complete the acquisition of Cohesive during the third quarter of 1999.


We intend to expand domestically and internationally. In addition to
the data centers described above, we expect to open additional Internet 
Data Centers in the United States and server hosting facilities in 
Europe and Japan in 1999. 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 
March 31, 1999, we had an accumulated deficit of approximately $119 
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 month periods ended
March 31, 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 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
                                              March 31,
                                         -------------------
                                           1999      1998
                                         --------- ---------
<S>                                      <C>       <C>
Revenues.........................           100.0%    100.0%

Costs and expenses:
    Cost of revenues.............            93.4%    139.1%
    Marketing and sales..........            34.1%     90.3%
    General and administrative...            23.4%     37.4%
    Product development..........             4.4%      9.1%
                                         --------- ---------
Total costs and expenses.........           155.3%    275.9%
                                         --------- ---------

Operating loss...................          (55.3%)  (175.9%)

Net interest expense.............          (18.4%)   (11.6%)
                                         --------- ---------
    Net loss.....................          (73.7%)  (187.5%)
                                         ========= =========
</TABLE> 

Revenues

Our revenues consist of (i) monthly fees from customer use of Internet 
Data Center sites, network services and managed services, (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. One-time professional service fees are typically recognized 
when services are rendered. We sell third-party equipment to our 
customers as an accommodation to facilitate their purchase of services. 

Our revenues increased 323% to $30.1 million in the quarter ended March 
31, 1999 from $7.1 million in the three-month period March 31, 1998. 
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 our 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 187% to $28.1 million for the three month 
period ended March 31, 1999 from $9.9 million in the same period of the 
prior year. These increases in cost of revenues in absolute dollars 
were primarily the result of costs associated with hiring additional 
employees, network costs, rent, 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 93% for the three 
months ended March 31, 1999 from 139% for the same period of the prior 
year. This decline was due 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 60% to $10.3 million for the 
three month period ended March 31, 1999 from $6.4 million in the same 
period of the prior year. The increase in absolute dollars was the 
result of hiring additional marketing and sales personnel, and expanding 
marketing programs in connection with our expansion of our operations, 
including the number and scope of our Internet system and network
management solutions. Our marketing and sales expense as a percentage 
of revenues decreased to 34% for the three months ended March 31, 1999 
from 90% for the same period of the prior year. This decline was 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 comprised of salaries and 
benefits for our administrative and management information systems 
personnel and fees paid for recruiting.

Our general and administrative expenses increased to $7.1 million for 
the three-month period ended March 31, 1999 from $2.7 million in the 
same period of the prior year. The increase in absolute dollars was the 
result of increased hiring of general and administrative personnel and 
fees paid for recruiting. Salaries and benefits for general and 
administrative personnel increased by approximately $2.2 million for 
the three month period ended March 31, 1999 compared to the same period 
of the prior year.  Goodwill amortization increased by $613,000 for the 
three month period ended March 31, 1999 compared to the same period of 
the prior year. Recruiting fees increased by approximately $280,000 for 
the three-month period ended March 31, 1999 compared to the same period 
for the prior year. Our general and administrative expense as a 
percentage of revenues decreased to 23% for the three-month period 
ended March 31, 1999 from 37% for the same period of the prior year. 
This decline was 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 are comprised of salaries and 
benefits for our product development personnel and fees paid to 
consultants.

Our product development expenses increased 99% to $1.3 million for the 
three month period ended March 31, 1999 from $645,000 in the same 
period of the prior year. Our product development expenses grew 
primarily because of 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 the three months ended 
March 31, 1999 from 9% for the same period 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 $5.5 million from $826,000 for 
the three months ended March 31, 1999 compared to the same period of 
the prior year. The increase in net interest expense was primarily the 
result of interest expense associated with our senior notes which were 
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 
enter into additional equipment leases and loans, obtain additional 
borrowings and long term debt and as interest income is reduced as a
result of the decline in our cash reserves to fund working capital 
and other uses.

Stock Compensation Expense

During 1997, we recorded deferred stock compensation of 
approximately $3.5 million in connection with the grant of certain 
stock options from March through December 1997. This amount is 
generally amortized over the 50-month vesting period of such options. 
Of this amount, approximately $188,000 was amortized for the three 
months ended March 31, 1999 while $378,000 was amortized for the same 
period of the prior year. This amortization is being recorded in a 
manner consistent with FASB Interpretation No. 28. 

EBITDA

Our loss before interest, taxes, depreciation, amortization and 
other non-cash charges ("EBITDA") was $10.9 million for the three 
month period ended March 31, 1999 and $9.6 million for the same period of the 
prior year. The increase in the level of EBITDA losses between the 
comparison periods was due to increased expenditures needed 
to support our growth in operations, including salaries and benefits 
for additional employees, network costs, rent, utilities and other 
costs related to the increase in the number of our Internet Data 
Center sites as well as increased marketing and sales expenses, consulting 
fees and professional services. 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 March 31, 1999, we have financed our operations 
primarily through private sales of preferred stock, our initial public 
offering in March 1998, our senior notes offering in July 1998, 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 March 31, 1999, our principal sources of liquidity 
were $323.6 million of cash and cash equivalents. As of that date, we 
also had equipment loans and lease lines and working capital lines of 
credit under which we could borrow up to an additional aggregate of 
$4.6 million for purchases of equipment and for working capital. As of 
March 31, 1999, our total bank borrowings, equipment loans and lines of 
credit facilities, capital lease obligations and senior notes were 
$487.7 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 three months ended March 31, 1999 
was $16.4 million, primarily due to net losses, offset in part by 
increases in accounts payable, depreciation and amortization and 
accrued expenses. This compares to net cash used for operating 
activities for the three months ended March 31, 1998 of $7.8 million, 
primarily due to net losses, offset in part by increases in accounts
payable, depreciation and amortization and accrued expenses.

Net cash used for investing activities for the three months ended March 
31, 1999 was $44.4 million compared to $7.3 million as compared to the 
same period of the prior year. Net cash used for investing activities 
was due to capital expenditures for the continued construction of 
Internet Data Centers and in the quarter ended March 31, 1999, the 
acquisition of American Information Systems, Inc. Net cash provided by 
financing activities for the three month period ended March 31, 1999 
was $233.6 million, primarily due to the proceeds from our issuance of 
$250 million of convertible subordinated notes. This compares to net 
cash provided by financing activities for the three months ended March 
31, 1998 of $79 million primarily due to the initial public offering.

As of March 31, 1999, we had commitments under capital leases and under 
noncancellable operating leases of $18.1 million and $121.7 million, 
respectively, through 2010. We intend to make significant expenditures 
during the next 12 months primarily for property and equipment, in 
particular equipment 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 existing 
and future equipment loans and lease lines and net proceeds from the 
senior notes and convertible subordinated notes. 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 
working capital 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. With such a 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 $119 million 
at March 31, 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, certain 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 eight Internet Data Centers located 
in six metropolitan areas: Boston, San Francisco, New York, Los 
Angeles, Seattle and Washington, D.C., and we have a server hosting 
facility in the London metropolitan area. We expect to open additional 
Internet Data Centers in the Chicago, Seattle, Washington, D.C. and 
London metropolitan areas in the second quarter of 1999. We also expect 
to open other data centers in the United States and server hosting 
facilities in Europe and Japan in 1999. To successfully expand, 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 customer base and increase 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. If 
our executives are unable to manage growth effectively, our business 
could be materially adversely affected.


Risks Associated with Acquisitions

In October 1998 we acquired the assets of Arca and in February 1999 
we acquired American Information Systems, Inc. We continue to expend 
resources integrating these new businesses and the personnel hired in 
connection with such acquisitions. In April 1999 we announced that we 
had entered into a definitive agreement to acquire Cohesive Technology 
Solutions, Inc. 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 incurrence 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 March 31, 1999, we had indebtedness of approximately $487.7 
million and available borrowings of up to an additional $4.6 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 such 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 indebtedness, pay dividends or make other 
restricted payments, sell assets, enter into affiliate transactions and 
take other actions. Furthermore, certain of our existing financing 
arrangements are, and future financing arrangements may be, secured by 
substantially all of our assets. The existing financing arrangements 
require, and future financing arrangements are likely to require, that 
we maintain certain financial ratios and comply with covenants 
restricting our ability to incur indebtedness, 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 $194.5 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; and

     o       large IT outsourcing firms.

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 such price 
reductions. In addition, we believe our market is likely to encounter 
consolidation in the near future, which could result in increased price 
and other 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 or Qwest 
Communications Corporation, 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 such 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 certain other telecommunications providers for our backbone 
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 quickly increase 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 Certain 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 us, 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, and we currently have a server hosting site 
in the London metropolitan area. We expect to open an Internet Data 
Center in the London metropolitan area by the end of the second quarter 
of 1999 and server hosting facilities in Europe and Japan by the end 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 certain of 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. Certain 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, such 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 us 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 
such 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 certain 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 previous 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 our international operations, including 
our site in London.


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 such 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 certain service or product 
offerings. Further, the costs of defending against any such claims and 
potential adverse outcomes of such 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.

Certain businesses, organizations and individuals have in the past 
sent unsolicited commercial e-mails advertising sites hosted at our 
facilities to massive numbers of people. This practice, known as 
"spamming," has led to some complaints against us. In addition, certain 
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 
certain 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 
certain 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 certain 
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 such 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. Such 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.


Risk Related to the Year 2000 Problem

YEAR 2000 RISKS.  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 delays 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 in January 1999.  We plan to have an independent review of our 
Year 2000 assessment completed in the second 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.  Based on our 
assessment to date, we believe that 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.

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 and equipment 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 Year 2000 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 may be 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 $500,000.  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 such 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
100 basis point increase or decrease in interest rates due mainly to 
the short-term nature of the major portion of our investment portfolio. 
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.




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 10,250,000 shares of our common stock.


As of March 31, 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:                                $   0

   Acquisition of other businesses:                         $   0

   Repayment of indebtedness:                               $11.5  million

   Working capital:                                         $51.1 million

   Temporary investments (short term, interest bearing
   treasury securities):                                    $4.5 million

   Other purposes:                                          $   0


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.

        Sale of Unregistered Note Proceeds

On March 3, 1999, we sold $250,000,000 principal amount of our 
convertible subordinated notes due March 15, 2006 for approximately 
$243 million (after underwriting discount) through a private offering 
within the United States to qualified institutional buyers. Goldman, 
Sachs & Co., BancBoston Robertson Stephens, BT Alex. Brown Incorporated,
Donaldson Lufkin & Jenrette Securities Corporation, and Hambrecht 
and Quist LLC were the initial purchasers of the notes. The sale and 
issuance of the notes were deemed exempt from registration under 
Section 4(2) of the Securities Act of 1933. The notes are convertible 
into our common stock at any time at a conversion rate of 21.8926 shares
(taking into account the two-for-one stock split on April 12, 1999) per 
$1,000 principal amount of notes.



ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

   Not applicable.


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

On March 18, 1999 we held a special meeting of stockholders. The 
stockholders approved an amendment to our certificate of incorporation 
to increase the authorized number of our shares of common stock from 
50,000,000 to 100,000,000 by the vote indicated:

    Votes For  Votes Against  Votes Abstained  Broker Non-Votes
   ----------- ------------- ----------------- -----------------
   31,790,372       219,316             4,994              -- 


ITEM 5.  OTHER INFORMATION

On April 12, 1999 we completed a two-for-one stock split 
accomplished in the form of a stock dividend. Share and per share 
amounts in this document reflect the two-for-one stock split.

On April 21, 1999, we entered into a definitive agreement to 
acquire Cohesive Technology Solutions, Inc. for $100 million. Cohesive 
is a technology professional services organization with expertise in 
networking, web applications and technology solutions. We expect to 
close this transaction, which is subject to regulatory review and 
approval, in the third quarter of 1999.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a.  Exhibits

Exhibit
 No.                           Description of Exhibit
------  --------------------------------------------------------------------
 3.04   Amendment to Certificate of Incorporation

 4.05   Form of Note for Registrant's 5% Convertible Subordinated Notes.

 4.06   Indenture between Exodus Communications, Inc. as Issuer and Chase
        Manhattan Bank and Trust Company, National Association, as Trustee
        dated March 1, 1999.

10.48 * WorldCom Data Services Revenue Plan effective February 1, 1999 between 
        WorldCom, Inc. and Registrant.

10.49   Building Lease dated January 29, 1999 between G&I Walsh
        and Registrant.

10.50   Building Lease dated January 29, 1999 between Talus Corporation
        and Registrant.

10.51 * Capacity Sales Agreement dated February 17, 1999 between Registrant
        and MFS Cableco (Bermuda) Limited.

10.52   Building Lease dated March 26, 1999 between Lincoln-RECP CM-ES OPCO, LLC
        and Registrant.

10.53   First Amendment to Lease Agreement dated April 4, 1999 between
        Amdahl Corporation and Exodus Communications, Inc.

10.54   Purchase Agreement dated February 25, 1999 among Registrant,
        Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., BT Alex Brown
        Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and
        Hambrecht & Quist LLC.

10.55   Registration Rights Agreement dated March 1, 1999 among Registrant,
        Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., BT Alex Brown
        Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and
        Hambrecht & Quist LLC.

10.56 * WorldCom Capacity Access Service Agreement dated February 17, 1999
        between Registrant and Worldcom Technologies, Inc.

 27.1   Financial Data Schedule

* Confidential treatment has been requested for certain portions of 
this document pursuant to an application for confidential treatment 
sent to the Securities and Exchange Commission. Such portions have been 
redacted and marked with a triple asterisk. The non-redacted version of 
this document has been sent to the Securities and Exchange Commission.

b.  Reports on Form 8-K

On January 29, 1999, we filed a Form 8-K to report the adoption of 
our stockholder rights plan. On February 22, 1999, we filed a Form 8-K 
to report our intent to sell our 5% convertible subordinated notes, and 
on March 2, 1999 we filed a Form 8-K to report the sale of our 5% 
convertible subordinated notes.


<PAGE>



                                  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.


      May 14, 1999                              /s/ Ellen M. Hancock
----------------------------             --------------------------------------
           Date                                     Ellen M. Hancock
                                            President, Chief Executive Officer
                                                       and Director



      May 14, 1999                              /s/ Richard S. Stoltz
----------------------------             --------------------------------------
           Date                                     Richard S. Stoltz
                                                Chief Financial Officer and 
                                                  Chief Operating Officer
                                            (Duly Authorized Officer and Chief
                                                    Accounting Officer)


<PAGE>