Yahoo's 4Q progress brightens 2010 outlook

After a painful descent, things may finally be looking up for long-suffering Yahoo Inc.


Coming off its best quarterly performance since hiring Carol Bartz as its chief executive a year ago, Yahoo promised late Tuesday to deliver even more meaningful progress this year.

For starters, the Internet company expects its revenue for the three months ending in March to rise 3 percent to $1.63 billion. Modest as that sounds, it's a breakthrough for Yahoo after five consecutive quarters of declining revenue while Google Inc. vacuumed up even more Internet advertising.

Even if the company hits management's target, Yahoo's first-quarter revenue will still be nearly $200 million below where it stood two years ago.

Bartz has been vowing since her arrival to engineer a turnaround that eluded her two predecessors, but her efforts through most of 2009 were hampered by the worst U.S. recession since World War II.

Yahoo's fourth-quarter results released Tuesday provided the latest evidence the Internet ad market is regaining its legs as the economy stabilizes. Google, the Internet's dominant advertising vehicle, closed out 2009 with its most robust growth of the year.

"Things seem to be returning to a more normal state in the online advertising business," Bartz told analysts in a Tuesday conference call.

Yahoo earned $153 million, or 11 cents per share, during the final three months of 2009, rebounding from a loss of $303 million, or 22 cents per share, in the prior year.

If not for charges for internal reshuffling and a proposed search partnership with Microsoft Corp., Yahoo said it would have made 15 cents per share in the quarter. That topped the average estimate of 11 cents per share among analysts surveyed by Thomson Reuters.

Yahoo shares climbed 60 cents, or 3.8 percent, in Tuesday's extended trading. Before the results came out, the stock finished the regular session at $15.99, up 13 cents.

Revenue slipped 4 percent to $1.73 billion. In contrast, Google's fourth-quarter revenue surged 17 percent. Yahoo still did better than the first nine months of 2009, when the company's revenue dropped 12 percent.

In a sign of Yahoo's growing confidence, the company added 700 workers to its payroll in the fourth quarter to end December with 13,900 employees. That's still down from Yahoo's recent peak employment of 15,200 workers in September 2008.

Yahoo also intends to buy other companies this year, Bartz said, setting her sights mostly on small deals that improve the company's technology and bring in more compelling content to its Web site.


"We are done looking inward," Bartz told analysts. "We are looking outward at the incredible opportunities ahead."

For all of 2009, Yahoo earned $598 million, or 42 cents per share, on revenue of $6.46 billion. That compared with income of $419 million, or 29 cents per share, on revenue of $7.21 billion in 2008.

Yahoo, based in Sunnyvale, had been struggling even before the recession's onset in December 2007, as Google widened its lead in the Internet's lucrative search market and online hangouts such as Facebook emerged as new hot spots for socializing and advertising.

Bartz has been trying to spur more advertising by re-establishing Yahoo as the center of people's online lives. The makeover has included a redesigned front page that makes it easier to connect to Facebook and other Web sites. The front page sold all its available advertising in the fourth quarter, Bartz said.

Yahoo was especially pleased with renewed spending on its bread-and-butter — the online billboards known as display advertising. Sales in that category were flat from the same time last year, but climbed 26 percent from the third quarter. That was Yahoo's largest sequential gain in display advertising in three years.

Apple Inc. rocketed to its most profitable quarter

Apple Inc. rocketed to its most profitable quarter ever over the holidays, as huge sales of the iPhone and Macintosh computers led to a nearly 50 percent jump in net income.


The company offered no clues about what it plans to unveil Wednesday in San Francisco, although analysts expect the new product to be a tablet-style computer. CEO Steve Jobs indicated that investors should expect a significant event.

"The new products we are planning to release this year are very strong, starting this week with a major new product that we're really excited about," Jobs said in a statement.

Apple also offered a profit and revenue forecast above Wall Street forecasts.

The iPhone's rollout in several major new markets, including China and South Korea, helped Apple double sales of the hot phone.

Apple's numbers also got a boost from an accounting change. Apple started putting iPhone revenue and profit on its books when the gadget is sold, rather than deferring those results over the presumed life of the device.

Apple said Monday it earned $3.4 billion, or $3.67 per share, in the latest quarter, which ended Dec. 26. In the same period of 2008, had the same accounting standards been in place, it would have had net income of $2.3 billion, or $2.50 per share.

Revenue was $15.7 billion, a 32 percent jump from $11.9 billion in the same period last year. Apple's chief financial officer, Peter Oppenheimer, said on a conference call that half of the company's revenue growth could be attributed to the accounting change, but Apple was silent on the change's effects on net income.

Apple's report reflected the company's ability to allure shoppers without deep cuts to its premium prices. Apple's reputation as a luxury brand hasn't dented its ability to put up better numbers even as many computer buyers gravitate toward cheaper options.

Apple sold 8.7 million iPhones in the quarter, double what it sold in the same period the year before. And its sales of Macintosh computers rose 33 percent.


But the 21 million iPods it sold marked an 8 percent decline. Although Apple refreshed its iPod Nano with new colors and a video camera last fall, sales of the iPod have suffered as the iPhone, which has iPod features built in, has grown in popularity.

Shaw Wu, an analyst for Kaufman Bros., was expecting Apple to sell about 200,000 more iPhones in the quarter. He attributed the lower number to possible component shortages.

Apple didn't tell Wall Street analysts in advance that it would make the accounting switch in the first quarter. That may have left some investors scratching their heads when the numbers landed. In extended trading, the shares edged up less than 1 percent, after gaining $5.32, 2.7 percent, to end the regular session at $203.07.

Wu said that until he goes back to re-crunch the numbers, he is basing his opinion on the number of iPhones, Macs and iPods Apple sold in the quarter, and on the nearly $6 billion increase in Apple's cash stockpile.

"That number looked pretty solid," Wu said.

Apple said it expects the current quarter, the second in its fiscal year, to yield earnings of $2.06 to $2.18 per share, with revenue of $11.0 billion to $11.4 billion.

Google co-founders to sell $5.5B combined in stock

Google co-founders Larry Page and Sergey Brin plan to sell 5 million shares apiece of their company stock, worth $5.5 billion combined at current prices.


The sales will occur periodically during the next five years and leave the two with 48 percent of the voting power among stockholders, down from roughly 59 percent now. But with Google Inc. CEO Eric Schmidt controlling nearly 10 percent voting power, the trio will still control the company.

According to regulatory documents filed Friday, Page and Brin will still own 47.7 million shares combined after the sales.

Shares fell $2.71, or 0.5 percent, to $547.30 in extended trading Friday.

IBM offers clues on tech recovery, boosts guidance

Going into IBM Corp.'s fourth-quarter earnings report, a key concern was whether the technology company could eke out higher revenue after a year and a half of declines. IBM has been pumping out higher profits for most of that time, but some analysts have worried it might be running out of moves to keep up its pace.



IBM answered those fears Tuesday with slightly better revenue than last year, a stunning amount of new services contract signings, and a better profit forecast for 2010.

The numbers suggest the beginnings of a broad recovery in corporations' technology spending, a trend illuminated by the latest numbers from chip maker Intel Corp., which is seeing brisker orders for the processors used in corporations' computer servers. However, idiosyncrasies in IBM's business mean that its results don't always track with the direction of the overall economy, or even the technology industry in general.

So while IBM's latest numbers offer some clues about the health of corporations' technology budgets in the last three months of 2009, they wind up saying more about IBM's ability to wring more out of its most profitable divisions even in tough times.

IBM, which is based in Armonk, N.Y., has leaned on its ability to cut its own costs and to sell its technology services as a way for other companies to save money. The stock has risen more than 50 percent in the past year.

Nevertheless, investors apparently expected even more in the latest quarter and the stock slipped $2.68, or 2 percent, to $132.00 in extended trading. IBM shares had risen 1.8 percent to close at $134.14 before the earnings report.

"I think IBM is really doing great. Having said that, it's difficult to get excited at this valuation of it — we're talking a single-digit revenue growth company," said Brian Marshall, an analyst with Broadpoint.AmTech. "When I look at the environment improving, there's going to be a lot more leverage at other companies."

IBM reported after the market closed Tuesday that it earned $4.8 billion, or $3.59 per share, which was better than the $3.47 per share that analysts surveyed by Thomson Reuters were expecting. It represented a 9 percent increase over last year, when IBM's net income was $4.4 billion, or $3.27 per share.

Revenue increased just under 1 percent to $27.2 billion, though at constant values for the dollar it would have dropped 5 percent. Analysts were expecting flat revenue of $27.0 billion. Services and software revenue were higher, while hardware fell, though not as much as in previous quarters.

IBM also said it signed $18.8 billion in new services contracts in the quarter, up 9 percent from a year earlier. Revenue from those contracts mostly will be booked in the coming years.

For all of 2009, IBM's net income rose 9 percent to $13.4 billion while revenue fell 8 percent to $95.8 billion.

IBM's higher guidance of at least $11 per share in profit in 2010 wasn't entirely a surprise. The company had been telegraphing to investors for months that it was going to sail past its previous forecast of $10 to $11 per share in profit.

Alibaba says Yahoo 'reckless' on Google stance

China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."


Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.

"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."

Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.

Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.

Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.

A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."

Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.

Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.

Google's decision on China traces back to founders

Google Inc. co-founders Sergey Brin and Larry Page have always said they put their principles before profit, even to the point of using their control of the company to take a stand.


The billionaires' idealism underlies a potentially expensive decision disclosed this week: Google's threat to leave China's rapidly growing Internet market in defense of free speech and its users' privacy rights.

It's a bold move unlikely to be made without the explicit support of Page and Brin, given the possible fallout. Departing the world's most populous country could slow Google's earnings growth and weigh on its stock.

Although Google has thousands of shareholders, it has two classes of stock, giving Page and Brin veto power over everyone else, including the company's chief executive, Eric Schmidt. Combined, Page and Brin hold 58 percent of the voting power among shareholders while Schmidt has less than 10 percent, according to the company's disclosures.

Google said this week's China bombshell was the result of an "incredibly hard" decision, but the company declined to elaborate on the internal debate. Google declined requests to interview Page, Brin and Schmidt.

Page and Brin, both 36, pledged to strive to do the right thing in a manifesto that they distributed just a few months before Google took its stock public in 2004.

"Don't be evil," they wrote, evoking the phrase that has become Google's motto. "We believe strongly that in the long term, we will be better served — as shareholders and in all other ways — by a company that does good things for the world."

Critics contended Brin and Page broke that promise in 2006 when Google created a Chinese version of its search engine, at Google.cn, to be in a better position to profit from China's booming economy. To gain the toehold, Google complied with the Chinese government's demands for censorship of Internet search results about political dissent and other hot-button issues.

Human rights groups and even some Google shareholders have been urging Google to pull out of China for the past four years, only to have Schmidt diplomatically reject the idea. He has maintained that Google needs to be in China to protect its franchise as Chinese becomes the Internet's predominant language — a transition that Schmidt thinks could occur within five years.

Brin, though, has never been completely comfortable with Google playing by the Chinese government's rules.

In each of the last two years, Brin abstained from voting on shareholder proposals demanding that Google defy China's censorship policies. The symbolic act was designed to show he shared some of the concerns outlined in the measures, according to Brin.

Some of Brin's misgivings can be traced to family's own experience under Communism. He was born in Moscow in 1973. He and his family fled the Soviet Union when he was 6 years old, but he has said the oppressive policies of the government and the anti-Semitism directed at his family and other Russian Jews have helped shape his thinking on political and social issues.

Page, born in Michigan, voted against the shareholder proposals that tried to get Google to change its ways in China.

But those votes occurred before Google became a target of computer attacks originating in China.

In a blog posting about the assault, Google said hackers broke into the e-mail accounts of human rights activists who challenge China. The chicanery led Google to conclude "we are no longer willing to continue censoring our results on Google.cn." That act of defiance might be the first step toward leaving the country completely.

China hasn't turned into a big moneymaker for Google yet, partly because it's a distant second to the homegrown Baidu.com in the country's Internet search market. Analysts estimate Google could get $250 million to $600 million in revenue from China this year, a small slice of Google's $22 billion in worldwide revenue.

Google's absence from China would likely loom larger as more of the country's people get Internet access and the economy continues to grow.

By 2013, about 840 million Chinese will be surfing the Web at least once a month, predicts research firm eMarketer Inc. That would open far more opportunities to show the online ads that account for most of Google's earnings. Analysts estimate somewhere between 330 million and 400 million Chinese regularly use the Web now.

Broadpoint.AmTech analyst Benjamin Schachter is worried Google's stock will suffer if the company leaves China. "The obvious concern is that China's growth has been solid and its market potential is enormous," he wrote in a Wednesday research report.

Google shares held up fairly well Wednesday, dipping just $3.39, or less than 1 percent, to close at $587.09. That's nearly seven times higher than Google's IPO price of $85 in 2004, a performance reflecting the company's evolution into one of the world's most powerful entities.

By taking a stand in China, Google could win more goodwill among Internet users opposed to the Chinese government's policies.

Google won widespread praise in 2006 when it took on the U.S. government in a privacy battle. Unlike several of its rivals, Google refused to comply with a subpoena seeking potentially sensitive information about its users' search requests. Google went to court instead, and a judge sided with the company.

"Being righteous is in their DNA," said Gartner analyst Whit Andrews.

Leading up to the IPO, Page and Brin advised people not to buy Google's stock unless they felt comfortable with the duo's unconventional approach to business.

Sex robot focuses on appealing to the mind

A New Jersey company says it has developed "the world's first sex robot," a life-size rubber doll that's designed to engage the owner with conversation rather than lifelike movement.

At a demonstration at the Adult Entertainment Expo in Las Vegas on Saturday, the dark-haired, negligee-clad robot said "I love holding hands with you" when it sensed that its creator touched its hand.

Another action, this one unprintable, elicited a different vocal response from Roxxxy the robot. The level of sophistication demonstrated was not beyond that of a child's talking toy, but Roxxxy has a lot more brains than that — there's a laptop connected to cables coming out of its back. It has touch sensors at strategic locations and can sense when it's being moved. But it can't move on its own, not even to turn its head or move its lips. The sound comes out of an internal loudspeaker.

Douglas Hines, founder of Lincoln Park, N.J.-based True Companion LLC, said Roxxxy can carry on simple conversations. The real aim, he said, is to make the doll someone the owner can talk to and relate to.

"Sex only goes so far — then you want to be able to talk to the person," Hines said.

The phrases that were demonstrated were prerecorded, but the robot will also be able to synthesize phrases out of prerecorded words and sounds, Hines said. The laptop will receive updates over the Internet to expand the robot's capabilities and vocabulary. Since Hines is a soccer fan, it can already discuss Manchester United, he said. It snores, too.


Owners will also be able to select different personalities for Roxxxy, from "Wild Wendy" to "Frigid Farrah," Hines said. He's charging somewhere from $7,000 to $9,000 for the robot, including the laptop, and expects to start shipping in a few months.

A Japanese company, Honey Dolls, makes life-size sex dolls that can play recorded sounds, but Roxxxy's sensors and speech capabilities appear to be more sophisticated. Hines' goals are certainly more far-reaching.

An engineer, Hines said he was inspired to create the robot after a friend died in the Sept. 11, 2001, terror attacks. That got him thinking about preserving his friend's personality, to give his children a chance to interact with him as they're growing up. Looking around for commercial applications for artificial personalities, he initially thought he might create a home health care aide for the elderly.

"But there was tremendous regulatory and bureaucratic paperwork to get through. We were stuck," Hines said. "So I looked at other markets."

The broader goal of the company is still to take artificial personalities into the mainstream, beyond sex toys, Hines said.

"The sex robot thing is marketing — it's really about making a companion," he said.

In a 2007 book, "Love and Sex with Robots," British chess player and artificial intelligence expert David Levy argues that robots will become significant sexual partners for humans, answering needs that other people are unable or unwilling to satisfy.

Software maker sues China on piracy accusation

U.S. software maker sued China's government and seven computer makers Tuesday alleging piracy of its Internet filtering software.

Cybersitter LLC, whose software is designed to help parents filter content seen by children, seeks $2.2 billion in damages in the federal lawsuit filed Tuesday in Los Angeles.

The company alleges that the Chinese copied its codes and incorporated them into software used to block Chinese citizens' access to sites deemed politically undesirable by the government. Manufacturers including Sony, Lenovo, and Toshiba also were sued for distributing the Chinese program with PCs sold in the country.

"I don't think I have ever seen such clear-cut stealing," said attorney Gregory Fayer, who represents Santa Barbara-based Cybersitter.

He said the alleged piracy was discovered by a university researcher who posted a report on Internet filtering programs online.

Fayer said Chinese software makers appeared to have downloaded the program from the Cybersitter server and copied more than 3,000 lines of code, then incorporated it into their program, Green Dam Youth Escort.

"They did a sloppy job of copying," said Fayer, noting that they included directions on how to get to the Cybersitter site.




Last year, the Chinese government issued an order requiring computer manufacturers to pre-install or supply "Green Dam Youth Escort" software with PCs made for sale in China.

China later backed down after a major outcry from Chinese citizens and computer companies. Although Chinese authorities had said the "Green Dam" system is needed to block access to violent and obscene material, analysts who reviewed the program say it also filters out material the government considers politically objectionable.

The lawsuit says that while the mandate was reversed, the computer makers continued to distribute Green Dam with its computers in China even after learning the software was pirated.

Those named in the lawsuit were Sony, Lenovo, Toshiba, Acer, AsusteK, BenQ and Haier.

The complaint alleges misappropriation of trade secrets, unfair competition, copyright infringement and conspiracy. It also claims the Chinese software makers broke U.S. criminal laws governing economic espionage.

The complaint alleges misappropriation of trade secrets, unfair competition, copyright infringement and conspiracy. It also claims the Chinese software makers broke U.S. criminal laws governing economic espionage.

Fayer said that none of the defendants had been served with the lawsuit yet.

China's foreign ministry referred questions to the Ministry of Industry and Information Technology, which did not immediately respond to a request for comment.




A Lenovo Group spokeswoman said by e-mail that the company was unable to comment on pending litigation. She said the company has not shipped Green Dam with PCs for several months.

Spokespeople for Sony Corp. and Taiwan's Benq Corp. said they had no details of the lawsuit and could not comment. Taiwan's Acer Inc. and China's Lenovo Group and Haier Group declined to comment. Toshiba Corp. and Taiwan's Asustek Computer Inc. did not respond to questions.

The chief executive of one of the Chinese software makers being sued, Zhengzhou Jinhui Computer System Engineering, did not answer phone calls. A representative of the other software maker named in the lawsuit, Beijing Dazheng Human Language Technology Academy, was not available.

Fayer said Cybersitter, a family-owned company, is seeking damages for royalties due on its product, which sells for $39.95 a copy. He said the case could be "a watershed for the protection of American intellectual property internationally."

"We don't make many widgets anymore," he said. "What we have to offer the world is our ingenuity and creativity, our ideas and what lawyers call intellectual property. From small companies like Cybersitter to Microsoft to motion pictures and the music industry, these are the products we have to offer the world. It is important that they be protected."