Akamai Lays Off 400, Scales Back R&D Projects Amid Investor Pressure

Akamai Technologies has laid off about 400 people, or 5 percent of its global staff, as it pares research and development initiatives—primarily in its video content delivery division—that haven’t translated into commercial success.

The cuts were disclosed Tuesday in a press release and conference call with investor analysts about Cambridge, MA-based Akamai’s (NASDAQ: AKAM) 2017 financial results. The company’s stock price was up about 4 percent to $66.22 per share early Wednesday afternoon, as Wall Street was apparently happy with Akamai’s recent business performance.

Akamai’s bread and butter has long been its content delivery network (CDN) services, but its revenues from that business have been challenged in recent years as key customers like Apple and Facebook have begun moving their traffic to in-house networks. Akamai has shifted more of its focus to other parts of its business, such as security, in which it has made a series of large and small acquisitions over the past five years.

At the same time, it has invested in content delivery products and services. But some of those bets apparently haven’t panned out.

Akamai has decided to scale back some of its projects in the media division, resulting in laying off some engineers and writing off some investments in software, CFO Jim Benson said during the conference call, according to a transcript from Seeking Alpha. The company is also shuttering some small offices around the world, CEO Tom Leighton said, according to the transcript. Akamai recorded a $52 million restructuring charge in its fourth-quarter results, and it expects to record a $15 million restructuring charge in the first quarter of this year.

The company intends to keep investing in new products and services, but primarily in cybersecurity, Leighton said, according to the transcript.

Akamai’s annual revenues have increased from below $1.4 billion in 2012—the year before co-founder Leighton took the reins—to $2.5 billion in 2017. During the call with analysts, Leighton emphasized the company’s sales growth and transformation during his tenure, despite the challenges with the media division.

“The investments we made have diversified our business from a media-dominated CDN into a leading supplier of Web and security services for a broad range of customers, including many of the world’s major commerce companies, financial institutions, airlines, and auto manufacturers,” Leighton said, according to Seeking Alpha.

Still, there are serious questions about the company’s future. Akamai is said to be working with Morgan Stanley to explore options, including a potential sale, as Bloomberg reported last month, citing anonymous sources. Activist investor Elliott Management disclosed in mid-December it had acquired a 6.5 percent stake in Akamai and might propose a strategic review of the business and a possible sale. During the call with analysts, Leighton reportedly declined to comment on discussions with specific shareholders.

Akamai’s stock price has been steadily climbing since last August, when it was trading below $45 per share; it made a sizable jump after Elliott Management disclosed its stake. Akamai is currently valued at more than $11 billion.

It’s just speculation on our part, but if Akamai does opt to sell itself, Cisco could be a leading suitor. Both firms are focusing on security and cloud infrastructure, and both also have been investing in renewable energy projects. Oracle and Microsoft could also be in the mix.

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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