Tech Industry

Week in review: Yahoo snubs Microsoft--again

Microsoft and Carl Icahn tag-team on Yahoo, and it seems that just about everyone else got their day in court. Also: earnings season heats up.

Yahoo snubbed another takeover offer--this time from Microsoft and Carl Icahn. But that doesn't mean Yahoo is dead-set against a deal.

Yahoo announced over the weekend that it had rejected a joint-buyout proposal the software giant and investor activist offered the night before, which called for a "complex restructuring" and sale of Yahoo's search business to Microsoft.

The joint proposal called for Microsoft to buy the search business and Yahoo to swap out its board members for Icahn's dissident slate, who would then have control in running the remainder of Yahoo's businesses.

In rejecting the offer, Yahoo told Microsoft that it was willing to sell the entire company for at least $33 a share and that its board believed such a deal could be negotiated and executed before its annual shareholders meeting on August 1. Yahoo said it also informed the software giant that it remained willing to negotiate an "improved search-only transaction."

This sparked another round of letter writing.

Microsoft jumped into the brawl between Yahoo and Icahn on Monday, issuing a "set-the-record-straight" statement on its sweetened-yet-rejected offer for Yahoo's search business. The software giant said its search-only proposal "did not include changes to Yahoo's governance."

In other words, it was Icahn, the other partner in Microsoft's joint proposal, who was asking for all Yahoo board members and top management to resign immediately. But even Icahn, in his letter to shareholders Monday, noted that he was willing to discuss keeping some of the Yahoo directors around, and even founder Jerry Yang as "Chief Yahoo."

Microsoft also contends that its sweetened offer has been incorrectly portrayed as a "take-it-or-leave-it ultimatum" rather than a "timetable" to push negotiations forward. Yahoo, in its investor presentation, notes that Microsoft gave the company only 24 hours to consider its proposal.

In a yet another letter to shareholders, Yahoo CEO Jerry Yang and Chairman Roy Bostock claim that the latest proposal from Microsoft and Icahn "will destroy stockholder value at Yahoo."

The letter complains that Icahn invested in Yahoo only two months ago, and is just looking for a deal to "recover his investment and get back his money quickly--even a deal that does not provide full and fair value to you."

Despite those harsh words, Yahoo may finally be warming up to the idea of a takeover. The letter contained this interesting passage: "First, we will sell the entire company to Microsoft for $33 per share or more, if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing."

In the meantime, Icahn is turning his focus on the proxy battle in which he seeks control of the Yahoo board and will run a slate of nine dissident directors, according to his definitive proxy, filed with the Securities and Exchange Commission. Icahn's announcement finally answers the question that has left investors wondering whether he would try to replace Yahoo's entire board at its August 1 annual shareholders meeting, or go after only a few seats to serve as a cattle prod.

Yahoo's nine current board members are up for re-election to a one-year term. Icahn's goal is to ensure that the next time Microsoft, or any other suitor, comes a-calling that the path to a buyout will face far fewer potholes.

On tech's court docket
The courts were busy this week with tech issues, the most prominent of which led to a ruling that eBay cannot be forced to police its auction listings to identify counterfeit Tiffany & Co. products. In what could become a landmark case for auction Web sites, the court said trademark law cannot be used to force eBay to shoulder the burden of examining individual auction listings for possible counterfeits.

The debate centers on whether the product manufacturer or the auction site should bear the cost of policing eBay listings for fakes. For its part, eBay says it spends $5 million a year in maintaining its fraud search engine, which has 13,000 rules that are designed to identify counterfeit listings based on words such as "replica" or "knock-off." Listings flagged by the search engine are manually reviewed by customer service representatives.

Meanwhile, Europe's governing body is expanding the number of antitrust charges it is bringing against Intel. The European Commission filed court papers that bring three additional charges against Intel for abusing its dominant position in the chip market in Europe, including offering inducements to European retailers for not buying processors from the company's competitors, chiefly Advanced Micro Devices.

In addition, Intel is charged with paying a "leading original equipment manufacturer" to delay the launch of a product with an AMD central processing unit, and giving "substantial" rebates to the same OEM if it bought only CPUs from Intel.

Microsoft's latest legal headache is a suit from a little-known company called Gotuit Media, which charges that elements of Silverlight infringe on patented technology that belongs to the video metadata company. Gotuit seeks an injunction against the software maker, as well as damages and attorney fees.

Gotuit may be a relative unknown, but Microsoft is facing an opponent it knows quite well. Gotuit is represented by San Francisco-based lawyer Spencer Hosie, the same Hosie that successfully represented Burst.com in its suit against Microsoft.

At least two companies in the legal spotlight managed to broker a compromise. YouTube will be allowed to mask important user information from records it must turn over to Viacom.

"Viacom and the other litigants have backed off their demand for YouTube user-viewing histories," Google said in a statement. "We have reached agreement to anonymize the data."

The move comes after a federal court earlier this month ordered Google's YouTube to hand over usernames, IP addresses, and viewing histories to Viacom, parent company of Comedy Central and MTV Networks. This ignited a controversy over Internet privacy and put Viacom on the defensive.

Apple also squeezed in some court time, suing Psystar, the company that for months has been selling the Open Computer, a Mac clone. The suit alleges copyright infringement, induced copyright infringement, breach of contract, and trademark infringement, among other things. It seeks an injunction, damages, Psystar's profits, and a recall of the Open Computers already sold, as well as other remedies.

While it's not a surprise that Apple is suing Pystar, the big shocker is that it took the Mac pioneer so long to sue; Psystar has been selling a desktop computer running Apple's Mac OS since April.

Apple harvest
Things have certainly been looking up lately for Apple, which announces its earnings next week. While Windows still dominates the computer market, Apple's operating system continues to gain market share.

Just released second-quarter market share figures from Gartner show Apple shipments up 38 percent, to 8.5 percent of all units shipped, up from 6.4 percent a year ago. IDC had Apple's gains somewhat lower, at a 7.8 percent share, up from 6.2 percent a year earlier, but the trend is the same.

And then there's the iPhone. Despite the outages, shortages, and related hand-wringing associated with last Friday's iPhone 3G launch and Thursday's release of the iPhone 2.0 firmware, Apple says there were 1 million iPhone 3Gs sold and 10 million downloads from its new App Store in its first weekend of existence.

iPhones are selling so well, in fact, that most AT&T stores ran out of them on Friday, the first day the devices were for sale.

Since AT&T doesn't have any in stock, its individual stores are taking "direct fulfillment" orders, which means that customers can put in an order, pay for a phone, and be contacted when it arrives. Most of the 50 stores said that process is running between 10 and 21 days.

Earn or burn
Earnings season is upon us again, and the big news came from Advanced Micro Devices CEO Hector Ruiz, who announced that he was stepping down from the helm of the troubled chip company and that Dirk Meyer was taking over. Ruiz will remain as executive chairman, but Meyer immediately took over as the sole executive leader of AMD.

The leadership change was announced along with the release of AMD's second-quarter earnings and news that it is getting out of the handheld and digital-television businesses. As has been the case for the last several quarters, AMD is continuing to lose bucket loads of money: $1.2 billion this time around.

For Google, apparently, a 35 percent year-over-year increase wasn't good enough for shareholders. Google reported net income of $1.25 billion, but earnings per share, excluding various items, were $4.63 per share, short of the $4.74 expected by analysts.

In after-hours trading, the stock dropped as much as $60, or more than 11 percent. However, the stock recovered somewhat, down $46.31, or 9 percent.

Another victim of expectations was Microsoft, which saw stronger sales of Windows last quarter. But weaker-than-expected results from online advertising and the Office units led earnings to come in a penny per share below analysts' estimates. Microsoft also issued an outlook for the current quarter that fell short of what some analysts were projecting.

The situationlooked a lot better over at Intel and IBM. Intel's second-quarter earnings per share soared to 28 cents from 22 cents during the same period a year earlier. Intel posted $9.47 billion in revenue, up from $8.68 billion. In after-hours trading, Intel shares were jumping on the strength of the forecast of between $10 billion to $10.6 billion in sales.

Big Blue, meanwhile, reported that its revenue climbed 13 percent year over year, to $26.8 billion. CEO Sam Palmisano called the quarter "outstanding," demonstrating that IBM's diversified product portfolio can sell in both established and emerging markets.

Annex Research financial analyst and IBM tracker Bob Djurdjevic followed, noting that IBM's quarter allays concerns that the IT sector will follow the poor stock performance of financial stocks: "Big Blue is firing on all cylinders. Wall Street doomsayers and recession buzzards had better look for trouble outside the IT industry."

Also of note
Microsoft cut the price of its best-selling Xbox 360 Pro model game console with a 20GB hard drive from $349 to $299. A new Xbox 360 model has a 60GB hard drive...Microsoft also announced upcoming support for movie rental service Netflix as part of its system software update for the Xbox 360...Photobucket fixed a security hole that allowed people to view private photos of strangers, while Facebook fixed a hole that exposed the birth dates of members during a public beta of a new design for profile pages.