Internap Admits CDN Value Is 'Impaired'

Written by Ryan Lawler

Friday, October 31. 2008 at 08:00 AM EDT Post a comment

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More bad news from Internap Network Services Corp. (Nasdaq: INAP): Just a few weeks ahead of its third-quarter earnings announcement, the company has written down the goodwill value of its content delivery business by nearly $100 million.

In an SEC filing last week, the company reported that the goodwill value of the content delivery network (CDN) unit was impaired, which has led Internap to take a $99.7 million charge against its third-quarter earnings. The write down brings the current goodwill value of the CDN assets to approximately $54.7 million.

The charge is related to CDN assets that Internap acquired from VitalStream in early 2007. The company paid $217 million for VitalStream, but it never saw much return on its investment.

Internap's CDN revenues have lagged since the acquisition. After hitting a peak of approximately $6.3 million in the fourth quarter of 2007, sales in the CDN unit had actually declined 14 percent to $5.4 million in the second quarter of 2008.

Earlier this year, Internap's earnings were hit after the company revealed it would credit customers with $1 million to $2 million due to service outages that occurred during its integration with VitalStream.

Despite all the bad news on the CDN front, one bright spot for the business is a recent deal that Internap announced with Reliance Globalcom . With that partnership, Reliance will help expand Internap's CDN presence in the Indian and Asia/Pacific market.