NEW YORK--While tech spending has not evaporated, Microsoft CEO Steve Ballmer said on Tuesday that most companies have mandated that their IT departments cut a significant percentage from their budgets.
Microsoft CEO Steve Ballmer
(Credit: Microsoft)"To save 5 (percent) to 10 percent, you have to save a little bit on a lot of things," Ballmer told CNET News on Tuesday, in a joint interview with EMC CEO Joe Tucci, "It's not like there's nothing new getting done. Some new projects are getting killed. There's pressure on vendors to reduce prices."
Tucci said he is seeing similar pressures due to the weakening economy. "Most of our customers are dealing with some element of their own restructuring," he said. "They are trying to cut costs. They want quicker (return on investment)."
Tucci and Ballmer sat down with CNET News at the Plaza Hotel in New York, where the two executives were meeting with several dozen CIOs and announcing a three-year extension of the companies' joint sales and engineering partnership. The two companies have been partners in some areas since 2003, although the efforts have expanded significantly in recent years.
The companies are working together in a number of areas, including security, virtualization, and document management as part of the extended deal, which will now run through 2011.
Ballmer, noted that partnerships often either break down or prove to be irrelevant. That, he said, hasn't been the case with EMC. Ballmer said that he was initially somewhat skeptical as to the amount of overlap the two companies would have, but said he was happy that Tucci's optimism proved right.
EMC CEO Joe Tucci
(Credit: EMC)Still, the partnership makes for strange bedfellows in a couple of areas, particularly virtualization. EMC, after all, bought virtualization leader VMware in 2004. Although EMC has spun VMware out as a separate public company, it still owns the bulk of the shares of VMware, Microsoft's biggest competitor in the virtualization market.
"We're not sitting here pretending we are partnering with VMware," Ballmer said. "There are things we try to cook up with those guys, but let's put that aside. That's more competition that needs to take into consideration what customers want."
But there is more to EMC and virtualization than its stake in VMware, Ballmer said.
The storage business is being transformed also by virtualization. "While Joe may own 80 percent of VMware, he still thinks it is a good idea to sell jointly in areas where perhaps, we'll win as opposed to VMware."
Tucci said that although it's a win-win when customers buy both EMC and VMware, he's also happy to sell storage gear that runs in conjunction with Microsoft's Hyper-V virtualization product.
"If you look for that alliance or partnership to be perfect where there's like zero areas of overlap," Tucci said. "I'm not sure that's physically possible with two powerful companies."
This is the first of several postings coming from CNET's interview with Tucci and Ballmer, which was conducted by Margurite Reardon, reporting from New York, and Ina Fried, reporting from San Francisco. Click here for the full interview.
During a whirlwind visit to Sydney, Australia, Microsoft Chief Executive Steve Ballmer this week said he has confidence in President-elect Barack Obama's leadership.
Microsoft CEO Steve Ballmer talks to developers in Sydney.
(Credit: Microsoft)Obama's decisive victory this week over Republican rival John McCain in the U.S. presidential elections has been broadly hailed by technology leaders as potentially beneficial to the country's technology and communications industries.
"I have a lot of faith in our system and our electoral process, and I think President-elect Obama understands that there's a deep set of economic issues, and I have confidence in his leadership," Ballmer said on the Australian Broadcasting Corporation's Lateline program, in response to a question on how he thought Obama's win would help Corporate America.
The full text of the Lateline interview, along with a video of the broadcast, can be found here.
Ballmer said the global economic crisis "definitely affected" the IT industry, with IT spending being 50 percent of overall capital spending, and PCs being one of the more expensive things that most people buy for their homes.
"The No. 1 thing we actually need now is to sort of restore a positive sense of optimism," he said.
"I actually think to some degree...negativity feeds on negativity. And I trust at least in my home country, the U.S., with the presidential election behind us, maybe we can get into a positive psychology loop," Ballmer added.
In the rest of the interview, Ballmer mainly appeared to reiterate comments he made in Sydney earlier this week regarding the need for Australia to adopt fast broadband, as well as about the future of computing and pending new Microsoft products such as Windows 7 and Azure.
The full video of Ballmer's speech to developers in Sydney yesterday is also online.
Renai LeMay of ZDNet Autralia reported from Sydney.
No doubt, it's been a doozy of a year for Jerry Yang & co.
Yahoo could have been sold for $33 per share to Microsoft back in the spring; now it's trading at less than $12. Internet advertising may be in for a rough patch, along with the rest of the economy. And morale at the Internet pioneer, well, just isn't what it used to be.
With that in mind, we thought it would be helpful to create a handy list for Yahoo watchers to keep in mind as Yahoo struggles to right its ship in the face of federal scrutiny, investor wrath, and impending earnings in the middle of scary economic conditions.
The amazing, shrinking stock price
Yahoo's shares closed in the $11-a-share range Wednesday, setting a new 52-week low and tagging a new psychological watermark for investors. No doubt, most tech companies are getting pummeled on Wall Street, but Yahoo's drop has to be particularly galling, given how much more Microsoft was willing to pay for the company.
Yahoo closed at $11.75 a share, down 7.1 percent, during regular trading. That gave the Internet search pioneer a market capitalization of roughly $16.3 billion. For those of you still keeping track, that's less than half of what
Never mind the earnings, worry about the forecast
Yahoo's third-quarter earnings are set to be released Tuesday, and Wall Street is bracing for rough times ahead. Several analysts on Wednesday cut their earnings estimates for Yahoo and other Internet players, who rely on advertising as their main source of revenue, a challenge in this struggling economy.
According to a research report by Sanford Bernstein & Co:
Yahoo reports 3Q:08 results on Tuesday. We expect a poor performance, with net revenues of $1.39B (9 percent year-over-year growth) vs. consensus of $1.37B (7 percent growth) and pro-forma EPS of $0.07 vs. consensus of $0.09, largely because of the weak advertising environment.
Yahoo's U.S. search share declined again in 3Q:08 to 14.5 percent of all searches, down from 15.5 percent in 2Q:08 and 18.3 percent in 3Q:07. Yahoo's annual growth of 1.5 percent is much lower than the 28.2 percent growth in U.S. searches overall, implying further share loss to Google.
Those pesky feds
Yahoo is slated to hear from the Department of Justice next Wednesday on whether it will get a thumbs-up or thumbs-down on their search-advertising partnership with Google.
A number of advertisers and trade groups, competitors like Microsoft, and politicians have weighed in on the controversial deal, which calls for Yahoo to use Google's ads on its own search pages.
The Justice Department has expressed concerns that it could raise prices for advertisers and potentially lead to Yahoo exiting the search-advertising business. According to published reports, Yahoo and Google are in settlement talks with the Justice Department to avoid a legal challenge to its deal, which Yahoo has previously said could generate as much as $800 million in revenues in its first year and an additional $250 million to $450 million to its operating cash flow in the same period.
It's hard to say which way the feds will go on this, but there's little question over whether Yahoo's executives have a lot of revenue potential--and credibility--riding on the Google deal going through.
AOL: Ties that don't make sense?
Former Sun Microsystems CEO Scott McNealy, back when he was still the chief executive and a Silicon Valley soothsayer of sorts, had a brutal description of the planned merger of Hewlett-Packard and Compaq: it's like two garbage trucks backing into each other in slow motion.
That brings us to the most recent reports (and we're not counting Henry Blodget's weird whipsaw reporting Monday) that Yahoo may be looking into acquiring long-troubled AOL. Yahoo's new board has reportedly given executives its blessing to sit down with Time Warner's AOL to strike a deal.
And in the past two weeks, more reports have surfaced that a deal may be had sometime this month, with Yahoo snapping up AOL's content business.
But Sanford C. Bernstein analysts panned the prospect of Yahoo and AOL synching up in a deal. The Wall Street firm said the potential size of an AOL acquisition would be dilutive to Yahoo shareholders, who have already suffered through a tremendous stock drop in the Internet search pioneer. And Bernstein analysts noted that combining AOL's Advertising.com with Yahoo's Right Media Exchange would not drive short-term incremental revenues.
Oh yeah: Wall Street typically gags when a company announces a big acquisition, and traders often end up dumping a lot of shares of the acquirer. Shareholders won't be happy if that does happen. But they should hope that McNealy's description of the HP-Compaq merger, which turned out to be inaccurate, also misses the mark if Yahoo and AOL do a deal.
Those interlopers in Redmond
With the prospect of Yahoo's shares dropping even further after its earnings announcement, and that of a walk-away from the Google deal due to regulatory pressures, Yahoo may find its market capitalization hovering near the levels that Microsoft offered to buy out just its search business, following the collapse in talks to buy out the entire company at $33 a share.
With its initial offer to acquire just Yahoo's search business for more than $9 billion at the time of its offer earlier this year, Microsoft could be looking at throwing a few more billion-dollar bones on the deal to snap the entire company.
That is, of course, if Microsoft CEO Steve Ballmer still cares.
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