Inktomi CEO: Microsoft Contract Was Not A Big Part Of Opers
WHAT DOES THIS REALLY MEAN? IS INKT A VICTIM OF MSFT STRATEGY?
NEW YORK (Dow Jones)--Even as Inktomi Corp. (INKT) shares slid after the company said Microsoft Corp. (MSFT) will no longer use its Internet search technology as the primary search service on the MSN Web network, Chief Executive David Peterschmidt stressed this contract accounts for only a small part of the company's total revenue.
Peterschmidt told Dow Jones that despite the loss of the MSN contact, Inktomi is telling Wall Street analysts not to change their revenue or earnings numbers for the rest of this year.
First Call Corp.'s consensus estimates for the company, which went public in June, are a loss of 24 cents a share for the fiscal second quarter ending in March and an 88-cent loss for fiscal 1999 ending in September.
Because MSN just went live about two months ago, Peterschmidt said, the Microsoft contract never became a large piece of Inktomi's business. Goldman Sachs & Co. analyst Rakesh Sood estimates the deal will account for roughly 5% of fiscal 1999 revenue.
Microsoft spent much of the latter half of 1998 rethinking its Internet strategy and ultimately unified its many well-known Web sites - including Sidewalk, Expedia and CarPoint - under the umbrella MSN brand. The MSN Network, located on the Internet at MSN.com, launched in stages late last year.
Earlier, Microsoft said it is replacing Inktomi's technology as the primary search service on the network with Compaq Computer Corp.'s (CPQ) AltaVista search service - which Compaq plans to spin off in an initial public offering.
Microsoft's decision to make the switch is a part of a broader agreement to license its Hotmail e-mail service, as well as future instant messaging technology, to AltaVista.
Sood stressed that investors should keep in mind that Microsoft's decision "is not a denunciation of Inktomi's technology or capabilities." Rather, he said, Inktomi is simply a casualty of Microsoft's decision to strike a more strategic "quid pro quo" relationship with AltaVista.
In fact, Sood said, Yahoo! Inc. (YHOO) last year dropped AltaVista as its default search engine in favor of Inktomi's technology.
Inktomi's shares were recently down 14 3/8, or 9.7%, at 133 7/8 on volume of 3.7 million, compared with a daily average of 939,900.
According to Inktomi's Peterschmidt, the company's search technology operations contributed 49% of its third-quarter revenue of $10.7 million.
Inktomi currently provides its search technology to 18 companies, including Microsoft. Other customers include Yahoo!; Lycos Inc.'s (LCOS) HotBot; America Online Inc.'s (AOL) ICQ service; Snap!, a joint venture of General Electric Co.'s (GE) NBC and CNET Inc. (CNET); Disney Co.'s (DIS) Disney Internet Guide; Geocities (GCTY); and Japan's Nippon Telegraph & Telephone Corp. (NTT).
Goldman's Sood noted that Inktomi will have a major advantage over AltaVista in trying to attract customers for its search technology in the future since Compaq plans to build AltaVista into a full-service Internet "portal" - a site that Web surfers use as a gateway to the Internet.
This will put AltaVista in direct competition with its customers - Web networks like Microsoft's MSN. Inktomi, on the other hand, doesn't face such a conflict since it provides back-end search technology, but is not a full-blown Internet portal itself.
Peterschmidt expects Inktomi's search operations to grow about 20% sequentially in the quarters ahead. He added that since the portal market has already been pretty well saturated with search technology, Inktomi is trying to market its search services to other types of Web sites - including sites run by media companies, specialized Web properties and foreign sites.
The remaining 51% of Inktomi's revenue last quarter came from its "network caching" operations.
Internet service providers like AOL, PSINet Inc. (PSIX), Cable & Wireless PLC (CWP) and At Home Corp. (ATHM) license Inktomi's Traffic Server technology to redistribute and store frequently-used Web content on computers at "the edge" of their networks - meaning closer to points where users connect.
By doing this, Peterschmidt explained, ISPs are able to cut down telecommunications line charges and deliver information to their users much more quickly.
Inktomi is also developing a third business that will provide online shopping technology that can be used to locate goods for sale and product information on the Internet. This technology, which is currently being previewed on Geocities, SNAP and LookSmart, will be rolled out in the first half of 1999, Peterschmidt said.
- Joelle Tessler; 201-938-5285
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