Q4 Report Sends Digital Island Lower

Digital Island (Nasdaq: ISLD) slipped 1/2 to 10 13/16 in early trading Thursday, even after the company reported a smaller-than-expected loss for the fourth quarter ended September 30th.

The company, which provides networking and content delivery services, lost $113 million, or $1.60 per share, smaller than the $1.69 per share expected by analysts, but wider than the year-earlier loss of $22 million, or 62 cents per share. Revenue rose to $24.1 million from $4.9 million in the year-earlier quarter.

Following the report, Wedbush Morgan Securities reportedly lowered its rating on Digital Island to buy from strong buy.

Company executives, however, were upbeat. “Digital Island continued to execute on its plan, showing better-than-expected growth on both the top line and bottom line, and positive traction in our business model,” said chairman and chief executive officer Ruann F. Ernst.

Ernst said the company has almost 1,000 customers, with recent additions including Charles Schwab & Co., Microsoft, Reuters and BMG Entertainment.

Large and mid-sized companies account for 75 percent of Digital Island’s total revenue, said Ernst, “with particularly strong growth in financial services, media and entertainment enterprises.”

Also during the quarter, the San Francisco-based company expanded alliances with several key partners including Cisco Systems, Inktomi and America Online, and added more than 50 new partners including Scient, Blue Martini and Razorfish.

For the current quarter, which ends in December, the company expects to report a loss of $1.80 to $1.85 per share on revenue of about $31 million. Capital spending for the quarter will total $75 million to $85 million as the company continues its data-center and edge-server expansion.

Digital Island officials are sticking with their forecast of breakeven earnings before certain items by the quarter ending in December 2002. Operations are fully funded for the next six quarters, the company said.

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