All Things Digital

Jerry Yang and Co. say Microsoft (MSFT) was never committed to a whole-company acquisition of Yahoo (YHOO). But if that’s the case, why is it that Microsoft seems entirely committed to a whole-company acquisition of another search company–Powerset?

This afternoon, Microsoft said it will acquire the search start-up for a sum believed to be more than $100 million.

Coming as it does in the aftermath of Microsoft’s failed effort to buy Yahoo, the acquisition is an interesting one. Powerset is no Yahoo. That said, it’s in some ways better.

Powerset specializes in so-called “natural language” search, which is meant to understand the intent and meaning behind the words in search queries–so that, for example, a search engine could understand the difference between a search for “yahoo” the exclamation, and “Yahoo” the search company Microsoft didn’t buy. Powerset searches the Web–well, at this point, just Wikipedia–semantically. And that’s a handy skill to have when your competing with Google (GOOG), which isn’t yet able to search the Web in that way.

Said Harvard Business School professor Andrei Hagiu, “Microsoft’s acquisition of Powerset makes perfect sense and is probably the best shot at a disruptive technology that might allow it to leapfrog Google.”

“What has become of the Sony known for its technology,” Japanese Economy, Trade and Industry Minister and former Sony employee Akira Amari asked in October of 2006. “I hope it will solve its problems soon to quickly recover its brand image reputed for technological prowess.”

If Amari can recall when that was Sony’s image, he has a good memory. Because Sony (SNE) lost its dominant position in consumer electronics to rivals in Japan, South Korea and the U.S. long ago and has yet to regain it.

But it will soon, according to company CEO Howard Stringer, who announced today a new growth strategy designed to re-establish its global supremacy. Stringer’s plan: to peddle software and video-downloading services, not just hardware. And to bind them together over the Internet. “Our mission is simply to be the leading global provider of networked consumer electronics and entertainment,” Stringer said at a news conference.

To that end, Sony will soon announce a movie download service for its PlayStation 3 game console. And this fall it will begin broadcasting films and television shows directly to its Bravia TVs via the Internet. And if all goes according to plan, 90% of Sony’s devices will wirelessly connect to the Net by March 2011. Perhaps even Rolly, Sony’s dancing iPod killer …

Said Stringer, “This is not your father’s Sony.”

Hope not. Because my father’s Sony is Apple (AAPL).

Hewlett-Packard (HPQ) CEO Mark Hurd seems to have managed to cut the fat from the company without hitting any of its internal organs. HP reported a 16% increase in its fiscal second-quarter earnings yesterday along with an operating profit margin of 9.2%, thanks to cost-cutting measures and a big 31% jump in laptop PC sales. Total revenue for the second quarter was $28.3 billion, up 11% from a year earlier. Net income was $2.06 billion, up from $1.78 billion in the same quarter a year ago.

Strong results, but ones that sadly don’t belie the sluggish economy in the states. During the second quarter, about 70% of HP’s revenues came from outside the U.S. “We benefited from robust demand in emerging economies,” Hurd said, noting that demand in more established economies was anything but robust. “The U.S., to be specific, was spotty. I wouldn’t describe it as all good, but I wouldn’t describe it as all bad either.”

And what of HP’s $13.9 billion acquisition of technology services giant Electronic Data Systems? How would Hurd describe that? All good … all good. “We expect this deal to immediately double our enterprise share of wallet and create a platform that gives us opportunities for new business growth,” Hurd said. “We believe the cost business synergies from this business combination are significant and make this transaction financially attractive even without the expected revenue benefits. The cost opportunities take many forms, but make no mistake, we will get the cost right and we will create value for our shareholders.”

Hewlett-Packard’s (HPQ) acquisition of technology services giant Electronic Data Systems Corp. (EDS) will be the company’s largest acquisition since the $20 billion merger former HP CEO Carly Fiorina orchestrated with Compaq Computers six years ago.

Hopefully, it won’t be nearly as rancorous.

Valued at $13.9 billion, or $25 per share, the deal will more than double the size of HP’s consulting and outsourcing business. It will likely do the same to the $16.6 billion in revenue from services the company made in 2007 as well.

When the dust has settled around the merger, HP will be the second-largest provider of consulting and outsourcing services, behind IBM (IBM). But it will take some doing to get there. “It’s a very significant combination,” said Ben Pring, a research vice president in the IT Practices Group at Gartner (IT). “[But] people who are skeptical of big integrations will have a field day around this. It’s putting together two large businesses with two different heritages. It’s going to be a big culture clash.”

But if HP manages to pull it off? Well, as Fiorina would likely tell you, bigger is better if you can do it right.

“It’s somewhat amusing because we’ve seen this play before. I think this is sort of further evidence that HP really does see value at scale basically, at size,” said Illuminata analyst Gordon Haff. “One of the things we’ve seen very clearly over the last couple years is that Carly really had the right idea, she just couldn’t execute on it. She wasn’t wrong for saying HP needed to be bigger, effectively,” said Haff. “If (the merger) does go through we’re going to end up with an HP that looks a lot like Carly wanted it to look.”

Those on-again, off-again talks between Sprint (S) and Clearwire (CLWR)? They’re on again. In fact, they’re so on that they’re already over. This morning the two companies announced a $14.5 billion multi-player joint venture backed by cable operators Comcast and Time Warner as well as Intel and Google.

The alliance will see the four cable and tech companies investing $3.2 billion in the nationwide wireless network that Sprint and Clearwire have been struggling–with profound unsuccess–to roll out. Comcast (CMCSA) will contribute $1.05 billion, Time Warner Cable (TWX) $500 million. Intel (INTC) will invest $1 billion, Google (GOOG) about $500 million. The new venture will be majority owned by Sprint, but it will take the Clearwire name and be run largely by Clearwire execs, among them cellular industry pioneer Craig McCaw.

For the cablecos, which have yet to settle on a clear wireless strategy, the deal is a quick and dirty way to establish the high-speed wireless network they need to compete with telcos like AT&T (T) and Verizon (VZ). For Sprint and Clearwire, it’s a chance to make their non-starter of a WiMax network viable and something happy to talk about when conversation turns to Sprint’s stock price, which has fallen nearly 60% over the past 12 months.

That said, the deal is not without its problems–top among them WiMax itself. As Craig Moffett, an analyst with Bernstein Research, explained in a note to clients earlier this year, the 2.5 GHz spectrum upon which Sprint and Clearwire are building their network isn’t nearly as good as the spectrum Verizon and AT&T just purchased in the FCC’s 700 MHz auction. “Serious questions remain about penetration through walls and windows,” Moffett explained. “Elsewhere in the world, operators have also raised questions about WiMax’s real-world bandwidth, latency and non-line-of-site coverage. How competitive the offering would be versus Verizon’s or AT&T’s planned LTE broadband service therefore remains to be seen.”

That it does–though there have been some indications that it may not be quite up to par. Speaking at an international WiMax conference in Bangkok in March, Garth Freeman, CEO of Buzz Broadband, Australia’s first WiMax operator, described the technology variously as a “disaster,” “miserable failure,” and a standard “mired in opportunistic hype.”

So will that prove true for Clearwire as well? We won’t know for some time. Building out a massive network like this will take some doing. “We’ll likely to see early trials in 2010, but a full-fledged build-out will take longer,” Clearwire CEO Benjamin Wolff said during a conference call this morning. “Building faster is a matter of logistics. The build plan we’ve laid out will be one of the largest and fastest build-outs ever done. We have the capability to do it, but it’s a massive undertaking.”

Get this: A new report from the Standish Group claims that FOSS–free and open source software–is decimating the software market. To wit:

Open Source software is raising havoc throughout the software market. It is the ultimate in disruptive technology, and while to it is only 6% of estimated trillion dollars IT budgeted annually, it represents a real loss of $60 billion in annual revenues to software companies.”

Quite a claim. A contentious one too, since, according to research outfit IDC, Linux software actually contributed $10 billion to the market and is expected to contribute $31 billion by 2011. The 2011 forecast for spending on the entire Linux ecosystem? More than $49 billion.

Oh, and in case you were wondering, a Web search for “Standish Group”+Microsoft+”sponsored by” didn’t return any documents.

F-14 components are tough to find these days, now that the United States has retired its F-14 fleet. A tough break for the countries that still use the aircraft–countries like Iran. Lucky for them, finding those components is about as difficult as digging up a spare fender for your classic car. All that’s required is a quick search or three on eBay (EBAY) or Craigslist.

According to a new report from the Government Accountability Office, all manner of sensitive or stolen military gear is available for purchase online. GAO investigators apparently had no trouble at all picking up night-vision goggles, U.S.-issue body armor, nuclear-biological-chemical gear and the aforementioned F-14 fighter components at online marketplaces. Many of these items could easily be used against U.S. troops or reverse-engineered to develop countermeasures or equivalent technology, yet they were shipped to the GAO “no questions asked.”

“Given that the United States has retired its fleet of F-14s, these components could only be used by the Iranian military,” the GAO noted in its report. “By making these components available to the general public, the eBay sellers provided an opportunity for these components to be purchased by an individual who could then transfer them to Iran. The continued ability of Iran to use its F-14s could put U.S. troops and allies at risk.”

A sobering revelation. Funny that eBay and Craigslist policies and procedures prohibit the sale of things like bootlegs, animals and whatnot, but F-14 fighter components are perfectly acceptable.

Think Sino-American relations are lousy now, wait until Beijing gets word that a congressional advisory panel has identified Chinese espionage as the “single greatest risk” to the American technology sector.

In its annual report to Congress, the U.S.-China Economic and Security Review Commission accused China of enlisting engineers and scientists to acquire critical U.S. technology “by whatever means possible–including theft.” Said an official familiar with the report, “What the government cannot get through licit means, they are conducting an aggressive program of industrial espionage to acquire.”

To what end? Why, “cyber attacks” on American infrastructure, of course. Said Commission panelist USSTRATCOM Commander General James E. Cartwright, “I think that we should start to consider that [the sense of disruption and chaos] associated with a cyber attack could, in fact, be in the magnitude of a weapon of mass destruction.”

An unsettling hypothesis to say the least, although to be fair, not every panelist bought it. Said James Lewis from the Center for Strategic and International Studies: “The effect [of a cyber attack is] usually to solidify resistance, to encourage people to continue the fight, and if you haven’t actually badly damaged their abilities to continue to fight, all you’ve done is annoy them, and what many of us call cyber attacks [are] not weapons of mass destruction but weapons of mass annoyance.”