Wednesday, October 11, 2006 - Page updated at 12:00 AM

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InfoSpace to lay off 250 people

Seattle Times technology reporter

Listed first among InfoSpace's risk factors: Its wireless-carrier customers, responsible for almost half of the company's revenue, might seek to cut out the middleman and do business directly with content providers.

When the Bellevue company announced last month that the largest of those carriers — widely believed to be Cingular Wireless — was doing exactly that, it was only a matter of time before the ax would fall.

InfoSpace said Tuesday it would lay off 250 people, more than a third of its roughly 670-person work force, between now and mid-2007.

The cuts are part of a restructuring plan, including closure of some of its locations, that the company expects "will align costs with expected future revenues," it said in a Securities and Exchange Commission filing.

"These decisions, while difficult, are critical to the long-term success of InfoSpace," Chairman and CEO Jim Voelker said in a statement. "Despite the setback in our mobile media business, our online and mobile infrastructure businesses generate solid cash flow. In addition, we have a strong balance sheet with over $400 million in cash."

An InfoSpace spokeswoman said the majority of the layoffs will come from outside the company's Bellevue headquarters. The company has offices in California, Massachusetts, the Netherlands and the United Kingdom. It previously disclosed the closure of its Hamburg, Germany, location. The 40 jobs lost there are included in the wider restructuring.

The spokeswoman said the company will provide more specific details, such as which lines of business were hit hardest, when it reports its third-quarter financial results Nov. 1. InfoSpace expects to take a cash restructuring charge of at least $12.5 million in the third quarter, with additional non-cash charges still being calculated.

Analysts said InfoSpace needs to make major adjustments to reflect changes in the mobile-content industry.

"I think it's a lot more than just losing Cingular as a customer," said Scott Sutherland, an analyst at Wedbush Morgan Securities. "Part of it may be that the business model that they're pursuing in mobile isn't the right business model and they need to change strategic direction."

Sutherland said InfoSpace needs to focus on providing services to mobile carriers, such as search, digital-rights management and other mobile content "infrastructure." He sees selling content such as ringtones and games as a dead end for the company.

On Sept. 20, the company said its largest customer was negotiating directly with record labels for ringtone licenses. Ringtone sales generated $55 million in revenue for the first six months of 2006.

InfoSpace hasn't confirmed that the customer was Cingular, nor has it said whether any other mobile carriers were going directly to content providers, but consolidation in the industry is just beginning, said Roger Entner, a wireless analyst and vice president with Ovum. "It's not just isolated to Cingular. It's a global trend," he said. Carriers are looking to save costs by eliminating vendors who provide duplicate services.

As part of the restructuring announcement, made after the stock market closed, InfoSpace said Chief Administrative Officer Edmund Belsheim Jr., with the company six years, is leaving Jan. 1. He will receive $1 million in severance and a year of health benefits. He was the last of the company's leadership from the Naveen Jain era. Jain and other executives were accused of deceiving investors at the height of the dot-com bubble, making InfoSpace look more successful than it actually was.

Belsheim resigned his position on the board of directors Monday. Rufus Lumry III resigned last week.

InfoSpace shares were down 13 cents Tuesday, closing at $20.51.

Benjamin J. Romano: 206-464-2149

Copyright © 2006 The Seattle Times Company


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