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Is Apple About to Cut Akamai Out?

Apple  (NASDAQ: AAPL  ) is reportedly interesting in building its own content delivery network, or CDN. Currently, companies such as Akamai  (NASDAQ: AKAM  ) and Level 3 deliver iTunes content, apps, and software updates for the Mac maker. Investors know how much Apple loves vertical integration, and the company supposedly is not pleased with iCloud performance. That could motivate it to develop some first-party network infrastructure to bolster its ability to deliver content to its user base.

Apple might not have any experience with CDN infrastructure, but it has been hiring talent in this department. Akamai got hurt last quarter after guidance implied that Apple was renegotiating its pricing. If at all, Apple likely wouldn't transition all of its CDN needs away from Akamai even if it built its own network. These types of networks take upwards of 18 months to deploy, which should give Akamai some warning if Apple were interested in cutting it out of the loop.

In this segment of Tech Teardown, Erin Kennedy discusses Apple's possible CDN ambitions with Evan Niu, CFA, our tech and telecom bureau chief.

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  • Report this Comment On February 05, 2014, at 2:59 AM, applefan1 wrote:

    Well, it would be smart from Apple's perspective to do it on their own. Could Apple BUY one of these companies if need be and would it make sense to do it, or is more cost effective to develop and deploy that technology without buying another company? I'm sure they have and are doing those cost analysis, I would if i were in their shoes.

    they get nailed for about 30% or so of the Gross Profits they generate from those sales. At least, that's my understanding. I could be wrong on the percentage, but I know it's pretty significant margin to make it worthwhile cutting that part out and doing it themselves.

    If I was Akamai or an Akamai shareholder, I wouldn't like it, but unfortunately, that's the risk of this business.

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Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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