Telecity, a pan-European Web-hosting group that established the first multimillion pound internet data centre in Dublin last summer, could run out of cash unless it is acquired by a rival.
The firm, which opened its 40,000 sq ft facility in Citywest in June 2000, has admitted it needs to raise additional funds if merger talks with London-based Redbus Interhouse are not successful.
A Telecity spokeswoman said yesterday that discussions with Redbus were ongoing and the firm was continuing to follow through on plans to raise additional funding.
But the company's share price has slumped on concerns that the merger talks are in trouble as sentiment in the Web-hosting sector hits an all-time low.
The stock is currently priced at 38 pence sterling on the London stock exchange, a fraction of its 52-week high of 665 pence.
Telecity was the first of the large Web-hosting firms to establish an internet data centre in the Republic as part of public/private partnership with the Government.
The centre connects Irish customers to Global Crossing's international cable network between Europe and the US, and offers firms a secure environment to manage websites.
Telecity is experiencing financial difficulties following a period of rapid growth, which saw it establish 11 functional Web-hosting sites in Europe over the past few years.
Telecity's cash pile dwindled to £31.5 million sterling (€49.7 million) from £47 million in the first quarter on the back of trading conditions.
The firm needs an additional £20 million to stay afloat, according to British media reports.
But continuing carnage in the Web-hosting and global telecommunications industry will make it difficult for Telecity to implement its funding plans, according to analysts.
Mr James Eibisch, research manager with IDC, said it was now a "do or die situation" for Telecity and several other colocation companies.
"The current lack of confidence in the company means a share issue is not viable, vendor financing is a possibility but doubtful. It could be bought by someone else," he said.
A combination of the economic downturn and the fact there were just too many co-location players means there was a need for consolidation, he added.
The cash crisis at Telecity is just the latest in a string of difficulties encountered by Web-hosting companies due to a slowdown in technology spending and oversupply in the sector.
Several companies, including telecoms firm GTS and British start-up MWB Konnect, have postponed plans to establish large data centres in Dublin this year.
And this week Metromedia Fiber Networks, a US firm with a $74 million (€81.2) internet data centre also in Citywest, said its net losses had doubled to $205.2 million in the second quarter. The company also conceded that it had failed to secure additional financing to support a commitment from US bank Citicorp for $62.5 million.
Metromedia said it was still in negotiations with Citicorp and other financing sources but could not provide any assurance that it would obtain the financing it needs.
Telecity will also be impacted directly by the recent failure of global carrier 360Networks, which had significant Irish assets. Telecity signed a Web-hosting deal with Canadian-based 360Networks worth £1.8 million sterling annually but 360Networks's European operations are all expected to be liquidated.
