shares vaulted 80% on Wednesday after the company announced it had formed an alliance to accelerate the reach and efficiency of the infrastructure for business conducted over the Internet.
By midafternoon, Digital Island's shares were up 55 5/8 at 125 1/16. (Digital Island closed up 45 3/4, or 66%, to 114 15/16.)
Digital Island, which moves content between Internet sites, has reached an agreement with
Digital Island will deploy 5,000 Sun servers equipped with Inktomi's Traffic Server and Content Delivery Suite, which are both caching software products that provide the infrastructure for the storage of content on large networks. The move allows Digital Island to build out its current end distribution network of 1,200 servers, and the servers will be deployed throughout the world to 350 metropolitan areas. The expansion is expected to cost Digital Island $150 million.
Almost as important as the quadrupling of servers deployed is the placement around the world. "This is a global play," said Jim Linnehan, an analyst at
Thomas Weisel Partners
. He rates Digital Island a buy and his firm participated in the underwriting of the company's initial public offering.
Also, Sun, based in Palo Alto, Calif., will make a minority $20 million equity investment in San Francisco-based Digital Island via its Sun equity investment portfolio. Inktomi, based in Foster City, Calif., will make another $6 million investment in Digital Island, adding to the stake it already holds in
. Digital Island and Sandpiper announced a merger agreement in October 1999.
Separately, Digital Island said it had acquired high-speed Internet technology from
in exchange for $6 million worth of Digital Island stock. The SRI technology reduces the download time of Web sites by using the best networks and interchanges to avoid congestion on the Internet. Over the next year, SRI will receive an additional $4 million worth of shares in Digital Island in return for signing over the rights to the technology.
The goal of the combined agreements is to create a reliable network infrastructure. "The combination of Digital Island's world-class network with Sun's carrier-grade servers and software create a formidable platform for deploying e-business services," said Ed Zander, president and chief operating officer of Sun, in a statement, "a platform that is reliable, with the flexibility to handle all data types and performance to match the brick-and-mortar world, if not surpass it, for conducting transactions."
As an example, if a Web site is stored far away from a user, an Internet service provider will cache, or store, the Web site in a local office closer to the user. "The response time will be much faster and a user's willingness to do the transaction will be much greater," said Linnehan of Thomas Weisel.
"The Internet is fraught with a lot of logjams. These are the tricks and shortcuts that will get you where you want to go," said Jeff Sadler, an analyst with
. "Digital Island is offering a very high reliability of business communication networks." Sadler rates Digital Island a strong buy and his firm has done no underwriting for the company.
He attributed the stock's rise to the strength of Digital Island's partners. Sun was up 5 3/4, or 8%, to 78, while Inktomi was up 7 1/16, or 4%, to 170 3/4. (Sun settled up 6 1/4, or 9%, at 78 7/16, while Inktomi ended up 4 1/2, or 3%, to 168.) Sadler also cited the success of
, a rival to Digital Island. It now boasts a market capitalization of $20 billion, which encourages investors who want a way to enjoy the benefits of the demand for ever-faster Internet access and content.