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Poor Earnings Show Microsoft Needs Yahoo

Microsoft CEO Steve Ballmer has said the company is prepared to walk away from its $44.6 billion bid for Yahoo, but BusinessWeek thinks Ballmer is bluffing. The business journal says Microsoft needs Yahoo, as first quarter results again exposed the persistent downward trend in the software giant's online services division.

As Brent Thill, Citigroup's director of software research says, "it wasn't a spectacular quarter by any means," especially in online services, where losses widened to $228 million. The division, which relies almost exclusively on online advertising, went a further $43 million into the red from a year ago, although revenues grew 43% to $843 million. Yahoo, meanwhile, reported first-quarter sales of $1.35 billion.

Ballmer said Yahoo's results, which slightly beat analysts' estimates, won't cause Microsoft to raise its offer. But Microsoft has to make this deal soon-if it's going to make it at all. As UBS analyst Heather Bellini wrote in a research note, "Microsoft must get this acquisition right to remain relevant in the Internet age," because as Thill says, "There's still a runaway train they're trying to catch (Google). And (Microsoft and Yahoo) are two little trains trying to hook up."

Read the whole story at BusinessWeek »

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