The acquisition will bring Entera's video and audio streaming software to CacheFlow's hardware, which "caches" information around the Internet so it's closer to the people requesting it. That proximity, while important to quick response times when dishing up Web pages, is critical for delivering streaming video or audio.
Specifically, the Entera buy adds the ability for CacheFlow to send out streams of information encoded in Microsoft's Windows Media format and Apple's QuickTime format, CacheFlow chief executive Brian NeSmith said in a conference call Tuesday. CacheFlow's current servers can handle only RealNetworks' format.
The deal is one of a series in an increasingly feisty market drawing the attention of companies all over the high-tech landscape. Among those signing partnership and acquisition deals are Internet infrastructure companies such as Inktomi; specialized server makers such as Network Appliance, SGI and Compaq Computer; network equipment makers such as Cisco Systems; and software companies such as Novell.
At stake is which company gets to sell the hardware, software and services of the Internet of the future, a network that analysts expect to carry increasing amounts of information currently handled by separate networks for television, telephones and radio.
Three major camps are emerging to try to gain the upper hand in distributing information across the Internet. In August, Inktomi launched its Content Bridge, which a few days later was followed by Cisco's announcement of its own Content Alliance. Both alliances take on Akamai Technologies' own network.
And Akamai's tentacles are extending further as well. Novell and Akamai announced a deal Monday to bring Akamai's content delivery acceleration software to Novell's caching operating system.
Akamai also announced a partnership with Scale Eight, a start-up that has two data centers that serve as the central repository of video and audio information. Under that deal, Akamai will use and resell Scale Eight's services, which can adjust automatically to speed up the streaming of the information that's most popular moment by moment.
CacheFlow is another Akamai partner.
CacheFlow recognized last year that speeding up Web page downloads wasn't sufficient and that it needed to work on streaming video and audio information as well, NeSmith said. "We realized about 15 months ago that from a CacheFlow perspective, we clearly needed to work on streaming."
The $440 million price tag is worth it, said Yankee Group analyst William Hurley. "You wouldn't want to lock yourself out of those potential distribution opportunities," he said, and developing the software would have cost CacheFlow time and money.
The deal, approved by the boards of directors of both companies, is expected to close in November. CacheFlow exchanged 3.7 million shares of common stock for all of Entera's outstanding stock, NeSmith said.
The deal will hurt CacheFlow's earnings by 4 cents to 5 cents a share in the next quarter, which begins Nov. 1, and 2 cents to 3 cents the quarter after, NeSmith said. Earnings should increase the quarter after that as a result of the deal, and CacheFlow is keeping the same schedule for its expected crossover into profitability in its fourth quarter of fiscal 2001, which ends April 30, 2001.
CacheFlow had revenue of $22.4 million in its last quarter, ended July 31. The company's net loss, including one-time charges, was $25.3 million.
CacheFlow is based in Sunnyvale, Calif. Entera is based in Fremont, Calif.