April 9, 2004 12:01 PM PDT

Week in review: Yahoo resurgent

Strong earnings by Internet bellwether Yahoo and the company's resulting stock surge this week put some people in mind of the tech sector's boom days.

Bolstered by improved online advertising revenue and continued momentum in paid search, Yahoo on Wednesday reported first-quarter earnings that blew away Wall Street expectations. Yahoo's board of directors also approved a 2-for-1 stock split, payable beginning May 11. Yahoo hadn't split its stock since January 2000, during the height of the dot-com bubble.

Yahoo said profit for the three months ended March 31 reached $101 million, or 14 cents per diluted share, on $550 million in revenue, excluding traffic acquisition costs (TAC). That's up from a profit of $46.7 million, or 8 cents a share, and sales of $282.9 million reported over the same period last year. Wall Street analysts had expected the company to report a profit of 11 cents a share on $497.9 million in revenue excluding TAC.

CEO Terry Semel called it "the most successful quarter in the company's history."

The results sent the company's shares to a three-year high on Thursday, and the stock continued to soar on Friday. Yahoo's positive results also appeared to boost other online companies, including search players Ask Jeeves, LookSmart and Mamma.com. Broader online advertising companies also rose, including InfoSpace, DoubleClick and FindWhat.com.

For some, the Yahoo news was another sign that the tech world seemed to have boarded a time machine set for 1999, along with bidding wars on handhelds like PalmOne's Treo 600 and a rise in sales of luxury goods like the BMW 645. A resurgent economy and increased technology spending seem to have revived--on a small scale, at least--some of the gung-ho business tactics and giddy public behavior of the dot-com era. While no one expects the blind optimism of those days to return, many of the trappings are certainly back.

Once again, for instance, a favorite pastime for workers in Silicon Valley is checking their company's stock price and mentally counting up how much their stock options are worth. That's certainly the case, for example, at chipmaker National Semiconductor, whose shares are trading at around $47, up from the high teens a year ago.

"At National, people are well aware that our stock has grown 150 percent or more in the last year," said company spokesman Jeff Weir. "That's something that would catch your attention."

But there are other signs as well that the bubble is long gone. The Financial Accounting Standards Board recently recommended that companies expense stock options, one of the symbols of the dot-com boom. That requirement, which would sharply cut into profits, has tech companies and venture capitalists up in arms. Many jobs are long gone, too. Although the economy as a whole has been picking up, tech companies have been looking overseas for lower-cost labor.

Who's on first?
With another baseball season under way, Microsoft is playing ball with Windows users. But for Mac and Linux fans, a new MSN offering looks more like a shutout.

Savvy baseball fans now can watch hundreds of games live on the Web for the price of a single stadium ticket--if their PCs run Windows. Microsoft, which just signed an estimated $40 million deal with Major League Baseball for Webcasting rights, is making the bargain available to members of MSN Premium, a subscription-based product that doesn't work with the Mac or Linux operating systems.

The deal is this: Sign up for MSN Premium, and you get the first three months free, including access to all videocasts and audiocasts from MLB.com, according to MSN's Web site. After that, you pay $9.95 a month. For the full six-month baseball season, which runs from April to September, it comes to only about $30.

By contrast, Mac users, equipped with their high-resolution "cinema" displays, get stuck paying MLB.com's regular rate of about $100--three times as much. MLB.com's All Access offering, which includes live video and audio, goes for $19.95 a month, or $99.95 a season. MLB.com shuts out Linux customers altogether, at least for now.

On other fronts, there are signals that Microsoft may be learning to play the open-source way. The proprietary-software giant late Monday published the code for one of its products on an open-source software development Web site, departing from its hard-line stance against making the underlying components of its technology available to the general public.

Microsoft revealed the code for its Windows Installer XML (WiX) software, a set of tools used to build installation packages for its Windows products from XML source code. According to information posted on an online resource for open-source collaboration projects called SourceForge, the actual code Microsoft published supports an environment that software developers can use for creating Windows setup packages.

Jason Matusow, a Shared Source Initiative manager at Microsoft, said the code was posted in public, because the company felt that developers could build more effective applications for Windows products with the actual elements of the WiX package to work with, rather than using the shareware already available.

Into the open
Then there's the matter of open standards. Despite its new window into Microsoft's proprietary technology, Sun Microsystems won't stop its call for such standards, executives and analysts say.

Sun has been one of the most vocal advocates of open standards, arguing that customers should be able to choose technology from multiple suppliers and shouldn't have to fear getting locked into any one company's technology. The rhetoric has been designed to undermine Microsoft, whose software has long been derided by Sun CEO Scott McNealy as a "welded-shut hair ball."

Last week's legal settlement, though, gives Sun a way to use the Microsoft technology it needs to make its server and desktop software interoperate effectively with Microsoft's. The agreement basically provides a framework, whereby Sun can use royalty payments to pick its way into the Microsoft hair ball. But the deal rests squarely in the realm of intellectual-property exchange, not on open standards.

Payments between the two companies are set to flow both ways--but especially from Microsoft to Sun--to the tune of $1.95 billion, as part of the settlement. As it turns out, Sun could gain as much as $450 million more over the next 10 years through a patent provision in the agreement.

Sun disclosed the 10-year schedule in a Thursday filing with the U.S. Securities and Exchange Commission. The filing detailed the Sun-Microsoft pact, an alliance between bitter enemies that surprised the technology world. A patent provision in the agreement creates the potential for Sun to benefit from further Microsoft cash or from access to the software colossus' patent portfolio.

Microsoft CEO Steve Ballmer, meanwhile, describes his attitude these days as "super optimistic." That's in spite of a long list of serious concerns: the recent antitrust setback in Europe, including a proposed $613 million fine; ongoing security issues with Microsoft's software; a stagnant stock price; the steady encroachment of Linux; and a murky release date for the next version of Windows.

Undaunted, Ballmer prefers to maintain that the company's legal worries are abating and that Microsoft is poised to release exciting products for homes and businesses. In a wide-ranging interview with a group of CNET News.com editors and reporters--just after the European Union decision and just before announcing the deal with Sun--he talked about the state of the tech industry, the company's right to continue adding features to Windows and Microsoft's transition from adolescence into adulthood.

You can't always get what you want
A display parts shortage could slow production of the new Treo 600 smart phone, threatening to hurt sales momentum for the popular device and put the brakes on the company's latest rebound.

PalmOne--formerly Palm--has supplies to meet production estimates for the current quarter, according to PalmOne Chief Financial Officer Judy Bruner. After that, the picture gets cloudy, executives said, because the company can't accurately forecast availability of components for LCD (liquid crystal display) screens used in the devices.

"There is a possibility that we will be pleasantly surprised (by additional supply)...but we're guiding to the units that have been committed to us," Bruner told CNET News.com this week. "There are always supply issues we have to battle...We have to take this one quarter at a time."

Elsewhere, the future of home video recording could hinge on an obscure fight between movie studios and consumer electronics makers over the connections used to ferry digital TV signals to high-definition television sets and other devices.

Hollywood wants consumer electronics companies to limit how video files can be moved between devices that can pick up, record and transfer digital TV signals. The move aims to prevent piracy, but it might also hamper legitimate new media applications such as home networking--a prospect that is making waves in the consumer electronics industry.

Broadband bottlenecks
Net phone services that push aggressive expansion plans are discovering a harsh reality: Some residential Internet service providers in the United States currently can't guarantee the bandwidth required to handle calls effectively.

AT&T Vice President Kathy Martine said she learned that lesson the hard way, during recent trials of the company's CallVantage Net-phoning plan, which it hopes to introduce in 100 markets this year. Some customers' broadband connections just weren't good enough to provide "AT&T-like" quality, she said. So the company was forced to help the broadband providers fix their connections.

Analysts forecast that VoIP (voice over Internet Protocol) calls will eventually outstrip conventional calls, thanks to cost savings of up to 30 percent. Consumer demand has been encouraging, providers say, and VoIP plans have now been announced by all of the major carriers in the United States, as well as by their cable rivals. Still, industry insiders worry that ongoing quality problems could hold back growth.

Meanwhile, local phone companies advertising steep discounts for high-speed Internet access are beginning to assess new "regulatory" fees that would effectively increase monthly costs by 10 percent or more for some customers.

BellSouth will begin assessing a "regulatory cost recovery fee" of $2.97 a month for its DSL (digital subscriber line) services on April 15, a company representative said Monday. As a result, its least expensive service, advertised at $29.95 a month, will in fact cost $32.92, plus other taxes and fees.

The new fee will offset payments to the federal Universal Service Fund (USF), which underwrites the costs of telephone service for rural and low-income areas, as well as other regulatory costs the phone giant previously picked up. USF charges typically apply to all phone and DSL lines and are usually disclosed in a separate line on a phone bill.

Lordy, lordy, look who's 40
The S/360, the computer that spawned IBM's mainframe line, turned 40 on Wednesday--but it's not wallowing in a midlife crisis. Although some pundits regularly declare the death of the mainframe, the world has not yet seen the last of the industrial, freezer-size computers used to coordinate the work of brokerage firms and NASA alike. Amdahl and some competitors might be gone, but IBM and a few others are still around.

Amid the celebration, though, the company is finding that rivals haven't stopped trying to siphon money from that multibillion-dollar business. IBM's competitors hope to profit from a major mainframe transition that will pressure IBM's customers to purchase new software and possibly new hardware by the end of September.

Also of note
Verizon Wireless launched a new cell phone service in the United States that will enable subscribers to receive messages from the pope...The likely fate of the next Xbox got a new twist this week from a patent granted to Microsoft that covers methods for storing data about games in progress...Spymac, a Web hosting company for Macintosh aficionados, mimicked search leader Google by giving away e-mail accounts that come with a gigabyte of storage...The Netsky virus aimed denial-of-service attacks at file-sharing sites such as Kazaa and eDonkey.

 

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