Posted by: Rob Hof on October 03
Google and Yahoo, which had been slated to start their controversial search advertising deal in the next couple of weeks, have agreed to a "brief delay" to continue talking with the Justice Dept. The delay comes despite Google CEO Eric Schmidt's vow just two weeks ago to go ahead with the deal on the early to mid-October schedule the two companies set three and a half months ago. Here's the statement from Yahoo, which follows reports from Bloomberg and Boomtown's Kara Swisher:
"The companies have agreed to a brief delay in implementing this agreement to continue our ongoing discussions with the Department of Justice. We have had discussions with regulators and look forward to responding to their questions about this agreement."
One undeniable takeaway from the delay is that there are issues with the deal that Justice feels the need to hash out. So clearly, the deal isn't going to sail through just as Google and Yahoo have laid it out so far. Justice's options range from filing suit to block it to seeking to impose conditions or restrictions on it. And Google's and Yahoo's options are to agree to some conditions (which seems likely if they don't fundamentally change the terms), forget about it (possible), or go ahead with the deal as-is and fight it in court (unlikely).
UPDATE: Kara now says that "according to several sources with knowledge of the situation, staffers at the Justice Department had recommended to their superiors that the deal be investigated further and even blocked in court." That doesn't necessarily mean Justice will do what the staffers recommend, but if true, it sure doesn't seem to bode well for an agreement that Google and Yahoo had hoped was crafted to avoid antitrust problems.
The delay isn't too surprising. Based on recent conversations I've had with outside antitrust attorneys about the deal, in which Yahoo would run Google search ads on some of its pages, the issues are far from clear. Since this isn't a merger and Yahoo retains control over which and how many Google ads run on Yahoo pages, the antitrust implications are murky. Yet clearly, there's concern on the part of advertisers about the potential for Google--which by various estimates has north of an 80% share of search advertising revenues--could capture even more and effectively raise prices for search ads. And Justice recently hired antitrust litigator Sandy Litvack, in a sign that its antitrust division is either planning to bring a case, or at least wants to provide deep cover in case it decides not to file.
So what does the delay mean? Hard to tell, but the ongoing discussions may hint that the deal won't necessarily be quashed entirely. Also, Sen. Herb Kohl of Wisconsin, chair of the antitrust subcommittee, on Thursday said that the deal warrants monitoring but stopped short of recommending it be stopped, which some observers took to mean he was assuming some form of the deal would go through. And a group of California legislators sent a letter on Sept. 26 to Justice arguing against an "unprecedented" preemptive action against the deal.
What's more, American Antitrust Institute, which generally opposes any deal that reduces competition, recently raised uncertainties about the potential impact. It said that it's unclear whether the deal would cede effective control of search advertising to Google or, conversely, provide enough money to Yahoo--up to $800 million annually, by Yahoo's reckoning--for it to remain independent. If it's the latter, the AAI mused, there could be a more competitive marketplace than if the deal were quashed and Microsoft swooped back in to buy Yahoo, as it tried to do earlier this year.
Indeed, one notable antitrust figure from the past, Microsoft antitrust hound dog Gary Reback, speculates that Google--whose monetary benefit from the deal is relative chicken feed--wants an independent Yahoo as a hedge against more regulatory scrutiny in the future. If Yahoo continues to exist independently, even as weak as it is in search ads, Google can point to a market with at least three competitors--a magic number for antitrust regulators. This worked well for AT&T despite its similar dominance over Sprint and MCI.
As a result, some observers believe the deal will pass muster after all, though with possible restrictions or ongoing oversight. But not all the experts I talked to agreed. Some think antitrust thinking is moving back toward taking a more proactive role in maintaining competition. Justice, which has come under criticism for greenlighting too many mergers and other deals, may be under pressure to take a more active role in the Google-Yahoo deal.
Google and Yahoo weren't required to seek antitrust approval, but did so in order to try to smooth the way on what they knew would be an eyebrow-raising deal. They're hoping to come to some mutual agreement on the terms of the deal to avoid an outright confrontation that could make the less worthwhile to both Google and Yahoo. But there's no guarantee they'll be able to do that. Otherwise, that's the announcement we would have heard today instead.
So for now, it's anybody's bet which way this will go. It's just not going right now. And, I should add, it's apparently not going Google's and Yahoo's way.
Posted by: Peter Burrows on October 03
NetApp Inc. CEO Daniel J. Warmenhoven tells BusinessWeek that he thinks the corporate data storage maker's sales for the year "won't be anywhere near our [projected] growth rate." The company, which has not previously disclosed news of the slowdown to investors or in government filings, told analysts last March that it expected to grow top-line sales 15% in the year that ends next May 31.
The news reflects a dramatic change in market conditions. During an interview at his office just nineteeen days ago, on Sept. 15, Warmenhoven was confident that the turmoil hitting Wall Street would not spread to the rest of the economy, as many financial analyst reports were suggesting. "My feeling is that the analysts on Wall Street are all woe-is-me, because their industry happens to be getting hammered. Well, go cry in your own beer. Don’t ruin mine.”
But on Sept. 29, as I reported out this story on the impact of the downturn on companies such as Sun Microsystems, Warmenhoven told me via e-mail that his optimism was waning. Then, in a conversation on Oct. 2, he said that sales were definitely being impacted. He says many customers from many different market segments--he signaled out automotive--have suddenly put spending on hold. "Everyone has just put a freeze on everything. It's like a nuclear chain reaction," he says.
Warmenhoven still thinks NetApp will grow and gain share, but is moving into a more "defensive" position from the aggressive plan announced last March to gain share. Exhibit A: yesterday he nixed plans to hire 550 new staffers to support the market share offensive. He thinks the company will ultimately make 150 of the hires--mostly for quota-carrying salespeople, rather than administrative or techie jobs that don't directly increase sales. As for lay-offs, he's hopeful it won't come to that. Warmenhoven says he's intent on not having to repeat that experience, as occurred in 2001 when the company laid off 200 people.
The fact that this is happening to NetApp is a scary indicator of how steep this slowdown might be. That's because storage was supposed to be relatively slow-down proof. While companies can put off buying more servers or starting new software projects, the world continues to create terabytes of new e-mails and photos and other such each day. It has to go somewhere.
And the psychological aspects to this slowdown are scary, as well. Back when NetApp and other tech firms got hammered in the Net Bust earlier this decade, the reasons were far simpler. Many of the customers, from dot-coms to telecoms, were simply going out of business. Now, Warmenhoven suggests that many customers are racing to the sidelines not because they can't buy, but because they want to see how the current crisis plays out. "If everybody is playing wait and see, that causes a downturn in itself."
In fact, back on Sept. 15, Warmenhoven said “The truth is that business is not that bad." While the problems at Lehman, AIG and other financial operations would certainly hurt, he felt the tech sector had already absorbed much of the slowdown in the finance sector. NetApp's sales to Wall Street, for example, had already fallen from 17% of total sales in July 2007 to 12%. He noted that Countrywide had planned on doing a $25 million project, but that had evaporated amid the mortgatge crisis.
Now, he says sales to finance have fallen even more, to a run rate below 10% of NetApp's sales. He even notes that Lehman owes NetApp money ("We'll see if Barclays makes good or not,” says Warmenhoven.)
And whether rightly or wrongly, Wall Street's woes are affecting other IT buyers. "The collapse of Lehman, the virtual collapse of AIG, the final failure of WAMU (after months of a death watch), and the buyout of Merrill Lynch have collectively had a pronounced impact on the mood of the business community." (Warmenhoven was hopeful that the $700 billion bail out, which had yet to be passed when we spoke, would inject some much-needed confidence.)
And here's more bad news. It comes from Michael Dell, who may be the tech sector's best-positioned early warning system. As the world's largest direct seller of tech gear (Dell.com does about $17 billion a year), he's in position to see changing buying patterns far more quickly than companies that sell through resellers, retailers and other channel partners. In a Sept. 30 e-mail, he told me that "I would not be surprised to see effects across many industries given the current situation in the financial sector. Now we see consumers being clearly impacted in the two areas where their money is concentrated most – their home and bank accounts. Given this, no business should consider itself immune to the current environment. Short-term focus for consumers is likely to shift to conserving and protecting capital."
Posted by: Cliff Edwards on October 02
Chipmaker Freescale Semiconductor has had its fill of the mobile-phone chip business.
The privately-held company says in a statement that it is doing the dreaded "sharpening of strategic focus" by looking for a buyer or joint partner in its handset business. The news probably shouldn't come as a surprise: one of the company's biggest customers has been its former parent, Motorola. That company's handset business has fallen on hard times after a series of missteps in product and marketing follow-ons to the hit Razr lineup.
Though a private equity group acquired Freescale in 2006, the company still must report earnings and major changes because of its rating and huge debt overhang. The company's long-term debt stands at $9.3 billion, while half its $14.6 billion asset base is listed as goodwill and intangibles. As of early July, the company had just $1.2 billion in cash and equivalents.
With the recent economic turmoil and virtual freezing of the credit markets, the company could be hard-pressed to come up with cash to satisfy short-term needs. Chip companies burn through cash at a steady rate; Freescale had just $65 million in free cash flow provided by operations as of July, down sharply from $474 million a quarter earlier.
A source close to the company denied the company is experiencing a cash squeeze and suggested it has an untapped revolving line of credit it could turn to in a dire situation. A company spokesman was not immediately available for comment.
Freescale CEO Rich Beyer has been working to hone the company's focus since taking the helm six months ago. In June, Freescale spun out a money-losing unit that is developing a new type of memory chip. Beyer has said he would look at all aspects of the operations to focus only on those with the best long-term profit and growth potential.
In seeking to jettison the cellular chip operation, the company is giving up one of its most-known businesses. Despite analyst projections that long-term growth in the cellular industry will be phenomenal as more people in developing company use only mobile devices to communicate, Beyer says now is the time to get out as teh chipmaker focuses on areas where it has leading market share.
“In the cellular handset chipset market, it has become evident that this business needs considerably greater scale in order to achieve a position of market leadership and long-term success," he said in a statement. "We feel the investment required to achieve that scale by Freescale will be better served extending our product portfolios where we are the leader and expanding our application expertise in sensors, analog, power and multimedia processing.”
The company says it will increase its investments in sensors and other chip technologies used in the automotive sector and consumer networking. Freescale has a leading position in the microcontroller market that has helped improve fuel efficiency and exhaust emissions. Supplying chips into the automotive market could be trying short-term, however, given an increasing drop-off in new car sales.
Posted by: Cliff Edwards on October 02
As many a failed technology company has found, the fledgling digital download-on-demand market is a tough nut to crack. Consumers have balked at paying for a dedicated box in the home, plus additional rental or purchase charges for the downloads.
What's more, onerous restrictions on when and where you can watch the movies have slowed uptake despite widespread consumer interest in the market.
Startup Vudu now hopes it has found the right recipe with new technology and expanded distribution deals going into the holiday shopping period.
The first big news is that it will be the first to offer consumers full high-definition, or 1080p, downloads of certain Hollywood movies, including The Chronicles of Riddick, Speed Racer and The Spiderwick Chronicles. The company announced Oct. 2 plans to sell the movies under the category "Vudu HDX."
With 65 titles available to start, it's an impressive feat of software engineering; download companies must compress the images enough to transmit a full HD movie to the home in a reasonable period, but not so much that users start to see imperfections in the picture and sound. In a demonstration I saw of the technology a few days ago, it appears Vudu has done just that. Both the picture and sound in two movie demos was stunning, and looked very similar to what you'd see on a Blu-ray disc (though of course, you don't get all the extra goodies you might in purchasing a physical disc).
The catch? To get the quality right, it still takes nearly four hours to download an entire movie. That means you've got to plan well ahead if you want to watch a movie and takes the joy out of spontaneity. Those who like to plan ahead, though, might be overjoyed by an update to Vudu's website that lets you log in from the office to begin a download to the box remotely.
Will consumers care enough to turn to Vudu? That's the big question. Sources say the company has a very small base of customers after more than a year on the market, while Apple, Microsoft and even Sony are attracting many more consumers with Apple TV, the Xbox 360 and PlayStation 3, respectively. Meantime, Netflix and Roku sold out initial shipments of boxes that let consumers stream about 10,000 Netflix movies to the TV through a dedicated $199 box. And Amazon has been trying to expand its on video-on-demand service beyond TiVo digital media recorders into other equipment.
Vudu appears to be moving more aggressively to turn the tide. The company also announced it is expanding nationwide into Best Buy stores (and online). Customers who buy the $300 box through the end of the year receive a $200 credit to purchase movies (no adult titles). The credit is good for four months after purchase. It might be incentive enough to get people off the fence during what could be a big economic downturn.
Posted by: Cliff Edwards on October 02
The timing of Amazon's update to its Kindle e-Book may be uncertain, but for Sony it's full speed ahead with its Sony Reader.
The company on Oct. 2 unveiled its new PRS-700, a step-up model to its current PRS-505. It's the third new model in two years for the consumer electronics giant--and its best so far. The highlight is a six-inch touchscreen display that lets you swipe your finger back and forth to turn pages. It's a much more natural motion that reaching for buttons and far more intuitive than Amazon's somewhat awkward Kindle design.
It's a nice-looking device, too, with an all-black finish and nifty textured accents that feel nice in the hand.
Executives also took past complaints to heart about the inability to read the screen in darkened rooms; the new $399 gadget incorporates a light that rings the screen. The Sony Reader uses the same digital ink technology as the Kindle. It is energy-efficient, sustaining up to 7,500 pages of reading on one charge, but the downside is that manufacturers cannot build a backlight into the grayscale screen.
Sony also adds new search and bookmark features, and additional support for e-book formats and digital documents.
The upshot? It seems clear that Sony is committed to making money off the digital book market. Steve Haber, who formerly headed up the U.S. digital camera business, now heads the newly formed Sony Digital Reading Business Division. Haber told me in an interview that the company has transferred all hardware and software development to the United States and plan to make a full press in the coming year to take electronic readers mainstream.
To do that, Haber says the company plans to significantly revamp is much-maligned e-Book online store this month, making it easier to search and find titles and offering better suggestions about what a reader might like.
While some fans will be disappointed the PRS-700 does not offer the ability to wirelessly download copy the way the Kindle can (using Sprint's domestic cellular network), Haber says there also are plans afoot for devices that do offer the feature--not just in the U.S., but worldwide. The PRS-700 is expected to go on sale in November.
