Internap Network Services Corp. (Nasdaq: INAP) may be approaching a moment of truth for its content delivery network (CDN) business, which is struggling on a number of levels.

The company's share price has taken a 30 percent haircut after it announced weak sales in an earnings call last week. In addition, a significant number of the company's CDN sales and marketing team has been fleeing to competitors, according to industry sources.

Other complications include the company's struggle with outages that occurred during the integration of VitalStream's CDN into Internap's IP network.

After sales declined last quarter, one analyst says it might be time for Internap Network Services Corp. (Nasdaq: INAP) to "blow up" its CDN business.

Merriman Curhan Ford & Co. analyst Colby Synesael says, "Even if they do improve the solution to fix the scalability, in the hands of Internap no one's going to be willing to go to that [CDN] platform."

"They're probably going to blow up the CDN business," Synesael says. "It probably doesn't make much sense in their hands anymore, and they're probably going to write that down next quarter anyway."

Shares of IP services provider Internap fell more than 30 percent last week, after the company reported a wider loss and reduced estimates for the second quarter in a row due to weak sales in CDN.

Internap revised its full-year revenue growth forecast to between 9 percent and 13 percent, compared with its previous forecast of 13 to 18 percent growth. With 2007 revenues of $235.9 million, that would put the revenue forecast somewhere between $257.1 million and $266.6 million.

Internap blamed weakness in its CDN business for the lagging growth. Sales in CDN business grew only slightly year-over-year, from $5.2 million in the second quarter of 2007 to $5.4 million in this year's second quarter. And sales actually declined sequentially, from $5.7 million in the first quarter 2008.

"Our CDN segment has been challenging and is not at the levels that we expected," Internap CEO Jim DeBlasio said on the company's earnings call.

Company CFO George E. Kilguss cited a change in the company's collections policy and some deadbeat customers for the sales weakness and lower forecast.

"In light of the weaker economy we have changed some of our policies," Kilguss said. "Specifically, we have tightened our credit requirements and shortened our disconnection timelines for delinquent accounts. These changes were prompted by the continued aging of a group of customers primarily in our CDN unit that had become unwilling or unable to pay."

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