Inktomi backs off caching

Network infrastructure software maker Inktomi Corp., which has been hit hard by the downturn in the economy along with the rest of the caching market, announced Wednesday that it is refocusing its efforts on its search business and is stepping away from its content networking efforts.

In a conference call with analysts, David Peterschmidt, president and CEO of Inktomi, said the company is changing its business strategy in an effort to return the firm to profitability. As part of the shift, Inktomi will slash 270 jobs. It currently employs about 750 people, a spokeswoman says.

"Our content networking business has been highly dependent on the telecommunications and service provider markets. Severe economic conditions in the last year coupled with the lack of demand from enterprises and the continued challenging environment going forward resulted in the decision to reduce our networking operations," Peterschmidt said in announcing the business shift.

He stressed that Inktomi would continue to service and support its current content networking customers and channel partners.

Inktomi also reported third-quarter revenues of US$23.8 million on a pro forma net loss of $13.4 million, or 9 cents per share.

Analysts say they aren't surprised to see Inktomi step away from caching, opting instead to focus on its search business, which has seen a stronger uptake. The market for caching has been a tough one for Inktomi, which initially focused on service providers as its targeted customer base. AOL was one of its first customers.

"It's a case of Inktomi deciding which business they wanted to be in. The two businesses -- search and enterprise [content delivery networking] -- weren't synergistic," says Lawrence Orans, an analyst at Gartner. "I know there is a lot of activity around search and Web content management. Inktomi saw that as a shorter path to profitability. Content networking was a longer path."

Inktomi's stock traded at a high of $241 in March 2000, but it has watched its stock tank since then. It dropped below $1 this year and was hovering at just over $1 on Wednesday. Much of the reason for the fallout has been blamed on the service provider market, which has reined in spending. As a result, caching firms were forced to refocus on the enterprise.

During the past 18 months or so, Inktomi has tried to make the move into the enterprise, partnering with companies such as Hewlett-Packard and Dell to resell its caching software on their boxes. The success of that effort hasn't been great, analysts say. Earlier this month, F5, which used Inktomi software on its Edge-FX caching boxes, announced that it would no longer sell the appliance. At the same time, however, Inktomi announced a deal with IBM in June to provide enterprise content delivery technology to businesses. The deal calls for Inktomi software to run on IBM's xSeries servers.

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