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Rediff.com  » Business » Microsoft's cannibal sacrifice

Microsoft's cannibal sacrifice

By Brian Caulfield, Forbes.com
February 05, 2008 14:42 IST
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Microsoft Chief Executive Steve Ballmer put online services at the center of the software giant's strategy in a meeting with financial analysts Monday, making a forceful case for the $44.6 billion bid for Yahoo! that the software giant unveiled Friday.

Underscoring the importance of the deal, Chief Financial Officer Chris Liddell said that in addition to dipping into its deep pile of cash, Microsoft will borrow money for the first time to make the deal happen.

Ballmer said the shift to online software and services will mean changes for all of Microsoft's businesses, which range from desktop productivity tools to database and e-mail server software. "Each and every one of our businesses transition to have additional revenue and profit opportunities based on this transition," Ballmer said, speaking at a regularly scheduled strategic update for analysts following the company. "If someone is going to cannibalize us, better that we cannibalize ourselves."

The remarks came after online search and advertising giant Google took a shot at the Microsoft-Yahoo!  deal over the weekend "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" Google Chief Legal Counsel David Drummond wrote in a blog post on Sunday.

Ballmer, however, argued that combining Microsoft and Yahoo! will provide a much-needed counterweight to Google, which dominates the market for search and search advertising. "We think the combination of Microsoft and Yahoo! actually makes a more competitive marketplace by establishing a strong No. 2 competitor," Ballmer said.

Ballmer said snapping up Yahoo! will result in $1 billion in cost savings over what Microsoft plans to invest, on its own, in its online services businesses--which reported a loss of $245 million for the three months ending in December. As a result, Ballmer said the deal would be break-even for Microsoft's earnings-per-share results within the second full year. "We are investing for success, and we think we have a chance to get farther sooner through the acquisition of Yahoo!," Ballmer said.

Liddell, the Microsoft CFO, sounded an upbeat note about the company's prospects for the 2009 fiscal year, which starts in July. He noted that Microsoft gets just 38% of its sales from the weakening U.S. economy. He said Microsoft can grow revenues at a double-digit rate for the '09 fiscal year--outpacing the growth of the worldwide software industry.

Yahoo!, meanwhile, is playing it cool. In an e-mail sent to employees late Friday, Yahoo Chief Executive Jerry Yang and Chairman Roy Bostock wrote that no decisions have been made regarding Microsoft's bid.

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Brian Caulfield, Forbes.com
 

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