Strong Google Earnings May Benefit Yahoo

NEW YORK (Reuters ) - An earnings windfall for Google Inc should benefit rival Yahoo Inc in buyout talks with Microsoft Corp, as investors view the results as proof of a robust online advertising market.

Yahoo is entering a critical week as it prepares to report quarterly results on Tuesday and faces a Microsoft-imposed deadline to accept the nearly $43 billion offer.

The software maker has cast doubt on whether Yahoo is even worth that much with a weakening U.S. economy and general slowness in the ad industry. Google's strong showing could help its rival Yahoo stand firm on a higher takeover price on hopes Web marketing is more durable in a downturn.

Industry analysts say Yahoo's first-quarter results are going to be a major swing factor in its talks with Microsoft.

"The one thing that can really change Microsoft's thought process on valuation is if they can come in with good results," said Ross Sandler, analyst at RBC Capital Markets. "We think there is a decent likelihood of upside from Yahoo this quarter."

Yahoo forecast first-quarter net revenue at $1.28 billion to $1.38 billion. Analysts, on average, are expecting profit of 9 cents per share, excluding special items, on revenue of $1.32 billion, according to Reuters Estimates.

Google on Thursday reported a better-than-expected profit and revenue growth of 42 percent. It said client spending had not been hurt by economic concerns, sending its shares up nearly 20 percent to $538.43 on Friday. Yahoo rose 1.7 percent to $28.51.

"In terms of today and next week, there's going to be a lot of upward momentum for all of the Internet companies" who rely on ad revenue, Sandler said.

For example, Internet conglomerate IAC/InterActiveCorp shares rose 2.8 percent, while online marketing firm ValueClick Inc gained more than 8 percent.

NO SLOWDOWN HERE

Google Chief Executive Eric Schmidt said his team had carefully reviewed scenarios regarding the economy, and concluded that even if conditions worsened, its search advertising would still attract companies as an efficient way to reach customers.

"This signals that the online advertising market is still healthy, which should help Yahoo get a better price for its company," said Peter Dunay, chief investment strategist at Meridian Equity Partners.

Internet advertising executives bolstered Schmidt's rosy view, saying their clients were actually spending more money online at both Google and Yahoo.

"We have had a handful of clients come to us knowing there is a downturn who are actually looking at it as an opportunity to increase (market) share," said Kelly Twohig, senior vice president at Starcom USA, who manages the agency's digital media buying. Starcom is part of Publicis.

Part of the rationale is that consumers who find their home budgets shrinking will be more zealous in seeking out information on products and comparison shopping online.

That makes the Web a more important place for companies to hawk their brands, even if they cut advertising elsewhere.

"You might see brand budgets pulled back, but I do think that search is really still set to grow," said Sarah Fay, CEO of the Aegis Group agencies Isobar and Carat USA.

"Search is still being adopted by many of the companies that haven't used it heavily, especially companies in the consumer packaged goods space," she said.

For its own part, Yahoo has pulled out all the stops in trying to convince Microsoft it is worth more, including dizzying rounds of talks with potential partners for a merger or new venture, from Google itself to Time Warner Inc's AOL and News Corp.

Some of the talks involve outsourcing Yahoo's search to Google, a move expected to draw regulatory scrutiny as it could nearly eliminate any alternatives to Google's search network.

But analysts say no alternate deal scheme could force Microsoft's hand more than a major Yahoo earnings beat.

"That's what we call the most powerful trump card they can play," Sandler said.

(Reporting by Michele Gershberg; Editing by Brian Moss)

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Hitachi to Go It Alone in Hard Drive Revamp

TOKYO (Reuters) - Japan's Hitachi Ltd has dropped plans to sell a stake in its troubled computer disk drive business and aims to turn the business around by going after market share and cutting costs, the head of the unit said on Thursday.

Hitachi's determination to go it alone comes two days after Seagate Technology 's outlook, hurt by price falls, missed expectations and sent its shares plummeting.

Hitachi, the world's No. 3 maker of hard drives, last month broke off talks with U.S. private equity firm Silver Lake on bringing in fresh capital after the unit swung to a profit in October-December even as credit markets soured for funds, sources earlier told Reuters.

"We've talked to Hitachi (head office) and made a final decision. We have concluded that we will rebuild the business on our own," Hiroaki Nakanishi, head of the unit, Hitachi Global Storage Technologies, told a news conference.

But Nakanishi added that he would not completely rule out the idea of outside capital a few years down the line.

"In this quickly changing market, you sometimes need to be able to spend a lot on research and equipment, to be able to grab market share," he said.

Capital expenditure at the unit, which Hitachi bought from IBM (IBM.N: Quote, Profile, Research) in 2002, was likely to be around 6 percent to 9 percent of sales this year while research and development would be about 10 percent of sales, he said.

Senior executives at parent Hitachi said this month that they would not be averse to resuming talks with private equity funds, once fears about the credit markets ease.

"It's not just about cash. These funds also have management know-how that we need when two differing business cultures like Hitachi and IBM come together," a senior executive said, asking that his name not be used as the issue was still being considered.

Hitachi's hard drive unit has set a target for an annual operating profit in 2008, swinging from a $381 million loss the previous year, by pursuing high volume sales in its hard drives for notebook PCs while strengthening distribution channels for its desktop hard drives and servers.

The business, helped late last year by tight supply that nearly tripled profit at Seagate and Western Digital Corp, posted a $95 million profit in October-December, compared with a loss of $93 million a year earlier. It was the unit's first quarterly profit in two years.

The unit aimed to cut costs by roughly 13 percent, Nakanishi said.

Hitachi Global Storage Technologies has not once posted an annual profit in the five years since Hitachi acquired it.

Shares of Hitachi fell 0.8 percent to 651 yen, while the benchmark Nikkei average .N225 was up 1.9 percent at 0525 GMT (1:25 a.m. EST).

(Editing by Hugh Lawson and Rodney Joyce)

Copyright Reuters 2007. All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks or trademarks of the Reuters group of companies around the world.

Microsoft Betas 'Albany' Office Subscription Service

On Friday, Microsoft acknowledged that it launched a private beta for a subscription service that includes Office Home and Student 2007, OneCare security software, and online services.

Codenamed "Albany ," the offering includes a single installation process for Word, Excel, PowerPoint and OneNote, also bundling Windows Live Mail, Messenger and Photo Gallery—currently free downloads. To tie users in to Microsoft's online service components, Microsoft Office Live Workspace toolbar will be installed by default in the Office applications.

Pricing has not yet been determined, but the subscription model means users will always have the latest versions of the software automatically updated. It also means that if they unsubscribe, they'll lose the Office applications and OneCare, while keeping the free components. One 'Albany" license will be good for three PCs.

After rumors of "Albany" first circulated on the web several weeks ago, analysts again jumped on the project possibly heralding in an online version of Office, in a Microsoft bid to counter the much publicized Google Docs service. But that was not the case, Microsoft instead keeping to its "software plus services" approach. While Google Docs is free of charge, paid for by targeted advertising, the Office suite in Albany offers far richer functionality, and Office Live Workspace adds the online collaboration that's also a major benefit of Google Docs.

"We asked consumers what they needed and wanted most on their PC, and the overwhelming response was that they primarily want productivity and security software. Consumers also expressed frustration at having to spend time and effort installing different types of software, keeping current on new versions and getting their computers set up," said Microsoft group product manager Bryson Gordon.

"We're breaking new ground by delivering Microsoft Office in combination with security and communication tools, plus ensuring our customers are on the cutting edge with the very latest versions," Gordon added, as part of a Microsoft "PressPass" document. "We found from our research that when you bring these categories together and keep them automatically updated, a subscription model makes a lot of sense. "At the same time, we are definitely not straying from our traditional software sales model," Gordon said. "There will always be a significant number of users for whom purchasing a perpetual license to the latest version of Office is still the best choice. 'Albany' just gives customers more choice and addresses the needs of those customers who value having the latest and greatest version of Microsoft Office."

Gordon declined to give specific details on dates of availability and pricing.

Update: AMD to Exit Non-Core Businesses

Although Advanced Micro Devices reported lower revenues in line with its previous warning, the company recorded yet another loss on flat to declining sale prices.


That prompted chief executive Hector Ruiz in a conference call Thursday to announce that the company would scrutinize each of its businesses, and either sell off or otherwise exit those that were not in line with the company's core operations. The decision is "an addition" to the restructuring plan the company announced in its earlier earnings warning, he said.

Essentially, everything that is not part of the company's X86 microprocessor and graphics business may be examined, Ruiz said, for "leadership and profitability". "Absent these, we will exit those businesses," he said.

AMD reported a loss of $358 million on revenue of $1.505 billion for the first quarter of 2008. That loss narrowed from the $1.772 billion loss AMD reported during the fourth quarter of 2007, when AMD reported revenue of $1.770 billion, a 15 percent sequential decline.

AMD has reported losses for six straight quarters, dating back to the third quarter of 2006. During that time, the company lost $4.311 billion on revenue of $9.288 billion.

The most likely target for AMD's ax will be its small consumer electronics business, which recorded just $81 million in revenuee for the first quarter. That proved to be a decline of 26 percent and 31 percent, respectively, from the fourth quarter and first quarter of 2007.

AMD's Computing Group recorded $1.194 billion in revenue, meanwhile, and the graphics business recorded $230 million in revenue. Both businesses showed double-digit revenue declines from the fourth quarter, but both showed sharp increases over the first quarter: 30 percent for the computing group, and 17 percent for the graphics business.

In a press release, AMD revealed that shipments of microprocessors decreased compared with the fourth quarter 2007, but increased versus the first quarter of 2007. Likewise, AMD's ATI graphics division recorded increased unit sales over both Q4'07 as well as Q1'07.

The problem is that in both the microprocessor and graphics businesses, the average unit selling price either fell or remained flat -- meaning that AMD's revenue per unit decreased. Specifically, microprocessor ASPs remained flat compared to both the fourth quarter and first quarter 2007, while the average selling price of ATI's graphics chips declined versus the fourth quarter, and remained flat versus the fourth quarter of 2007. Overall, however, gross margins dipped to 42 percent, down two points from the 44 percent recorded in the fourth quarte