Under terms of the deal, EA (ERTS) will initially pay $300 million for the developer of such social games as Pet Society, Who Has the Biggest Brain and Restaurant City, including a $25 million retention agreement with Playfish employees. It will subsequently pay $100 million more if the company meets undisclosed profit targets.

By acquiring Playfish, EA is not only validating the social gaming market, but perhaps setting the valuation benchmark for Mafia Wars creators Zynga, which is expected to go public next year. It also tempers–to some extent, anyway–concerns that the lead-generation scam controversy that recently blew up around Zynga and Playfish might harm their perceived value in the market.

“This deal came about very quickly, but let me say that Playfish was never ‘up for sale’,” de Halleux told PaidContent. “We were focused on building our business, because we believed—and still do—that the game industry is changing. EA approached, and we realized that we could be in a better position to act as an agent of change, through them. We could build games and attract users on our own, but this deal accelerates that to a degree that wouldn’t have been possible.”

“Social gaming, with its emphasis on friends and community, is seeing tremendous growth and this is the right time to invest to strengthen our participation in this space,” said Barry Cottle, senior vice president and general manager of EA Interactive. “With the addition of proven expertise from Playfish, their broad consumer base and strong game brands, we’re moving ahead aggressively in our plans to lead in the category of cross-platform social entertainment.”

If there was ever a doubt that social networks might be a viable gaming platform, this acquisition pretty much obliterates it.

According to a 10-Q filing with the Securities and Exchange Commission, Sun (JAVA) lost $120 million, or 16 cents a share, on revenue of $2.24 billion in its first quarter. During the same period a year ago, Sun lost $1.68 billion, or $2.24 a share, on $2.99 billion in sales. Analysts had been expecting earnings of 25 cents a share on revenue of $2.31 billion.

Oracle (ORCL) CEO Larry Ellison recently said that Sun is losing about $100 million a month as it waits for European antitrust regulators to approve its acquisition by Oracle. Looks like he’s about right.

Below, excerpts from the 10-Q:

Server Products Revenue
The decrease in Server Products revenue during the first quarter of fiscal 2010, as compared to the corresponding period in fiscal 2009, was primarily due to the economic downturn and consolidation of our customer base, specifically in the financial services sector, as projects were scaled back, delayed or canceled, in addition to the uncertainty associated with the proposed acquisition by Oracle and increased competition.

Storage Products Revenue
The decrease in Storage Products revenue during the first quarter of fiscal 2010, as compared to the corresponding period in fiscal 2009, was primarily attributable to the economic downturn as projects were scaled back, delayed or canceled, in addition to the uncertainty associated with our proposed acquisition by Oracle and increased competition.

North America
The decrease in revenue during the first quarter of fiscal 2010, as compared to the corresponding period in fiscal 2009, was primarily due to decreased sales of our enterprise Server Products, storage disk products and Services. We are still seeing the results of IT budget cuts instituted last year by our largest customers due to the economic downturn, especially in the financial services sector, in addition to the consolidation of our customer base. Across all sectors, non-critical projects are on hold. Revenue was also negatively impacted by the uncertainty associated with our proposed acquisition by Oracle and increased competition.

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The deal gives Cisco (CSCO) a foothold in China’s massive cable market, whose 160 million subscribers make it the largest in the world. And with the Chinese government mandating full digitization by 2015, this figure could grow to 200 million in as little as three years.

“That presents for Cisco and other competitors in the market a very, very compelling market opportunity,” Hilton Romanski, VP of corporate development for Cisco, told Reuters. “What we’re trying to get access to is good local expertise that can help us think about how to make this transition, becoming an increasingly local company in China.”

Reporting third-quarter results after market close Thursday, Google (GOOG) topped estimates, posting net income that rose to $1.64 billion, or $5.13 a share, from $1.29 billion, or $4.06 a share in the same period last year. Net revenue for the period ended in September rose nearly one percent to $4.38 billion. Excluding items, earnings for the quarter were $5.89 a share. Consensus estimates had been calling for $5.42 a share and $4.24 billion in net revenue. The chart below shows revenue sources within Google (click to enlarge).

Impressive. Seems paid clicks grew 14 percent compared to the same period last year, and four percent compared to the prior period. Cost per click was down six percent year over year, but up five percent sequentially.

“Google had a strong quarter–we saw seven percent year-over-year revenue growth despite the tough economic conditions,” said CEO Eric Schmidt. “While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future.”

Good to hear. Google’s shares, which have already risen more than 50 percent in the past six months, are on another upward tear. They rose 1.82 percent to $539.27 on the news in after-hours trading.

Earnings call highlights via The Wall Street Journal’s Andrew LaVallee:

4:32: Call starts. The cast is the same as last quarter: Mr. Schmidt, CEO; Patrick Pichette, CFO; Jonathan Rosenberg, SVP of product management; and for the first time, Nikesh Arora, president of global sales operations and business development. But there’s a twist–they’ll be using Google’s moderator to vet questions with voters. They vote on “the most relevant questions,” which go to the Google execs, the operator says.

4:35: “While there’s obviously a lot of uncertainty about the pace of the economic recovery, we believe the worst of the recession is behind us,” Schmidt says.

He adds that Google now has the confidence to invest “heavily” in its future. “It’s all good news from our perspective, at least in looking at the quarter.”

4:37: Says “we want to really get to the perfect search engine” and that many advertisers would like to spend more with Google if the company’s product allow them to do that.

4:38: Schmidt says “we’re open for business in making strategic acquisitions, both large and small.”

4:39: It’s Pichette’s turn. “At a high level, we’re very pleased with our Q3 results,” he says. The quarter benefited from growth in AdSense for content and display initiatives.

4:41: U.S. revenue up 4% to $2.8 billion. U.K. revenue decline affected by foreign exchange as well as ongoing macroeconomic weakness, Pichette says.

4:42: Operating expenses rose from the prior quarter, mostly due to payroll, equipment and facilities-related expenses.

“We believe the worst of the recession is behind us,” he says.

4:44: Brazil was a standout in Latin America, Arora says. We’re beginning to see signs of recovery in Europe and Africa, particularly Spain. In Asia, China performed strongly as an emerging market.

4:46: Looking at the display-advertising business, those have also shown strong results, he says.

On YouTube, new advertisers and partners are helping with monetization efforts. Ninety percent of the top 50 advertisers have run YouTube campaigns with successful results–recent examples include McDonald’s and Hewlett-Packard.

4:47: YouTube has signed deals with all four major record labels and several independent labels. Earlier today, Google announced a partnership with Channel 4 in the U.K., which will bring full-length programming to the video-sharing site.

4:48: Arora adds a personal shout-out to the sales team.

4:50: Rosenberg calls the new AdWords front-end one of the company’s biggest investments of the year. Advertisers have new reports, can run more efficient campaigns and can get new features faster thanks to the platform, he says.

People familiar with the matter tell The Wall Street Journal and Bloomberg that Brocade (BRCD) is seeking a buyer and that both Hewlett-Packard (HPQ) and Oracle (ORCL) are among its potential suitors. No deal is imminent, but rumor that one might be coming was enough to spike Brocade’s shares some 15 percent.

It’s easy to see why Oracle and HP–and IBM (IBM) as well–might be interested in Brocade. The company’s portfolio of data-networking products and services would do much to help HP take on Cisco (CSCO). It would also give Oracle its own line of networking gear, fulfilling CEO Larry Ellison’s dream of offering customers complete systems as T.J. Watson’s IBM once did.

That said, there are issues with both scenarios. As Oppenheimer & Co. analyst Ittai Kidron explained in a research note this morning, an acquisition by Oracle would require the company to really commit to hardware as a long-term growth plan. “If the company truly plans to become a systems company (one-stop shop software/hardware), then Brocade would be a nice fit, especially including Sun Microsystems with no overlap,” Kidron said, adding, “we’re a bit in the dark on strategy here.”

And what of HP? That’s potentially far more problematic, what with equipment overlap and revenue implications. “Brocade would add the missing data center switch architecture as well as a strong presence in the SAN switch market,” Kidron explained. “That said, there would be massive overlap with HP’s ProCurve networking unit, which we believe would be disruptive. Also, IBM and EMC are 10% customers for Brocade and could be lost as customers (along with HP’s 10% business of Brocade).”

So will Brocade be tech’s next big buyout?

The company says revenue for the quarter will fall between $2.58 to $2.68 billion–down from $3.7 billion a year ago and well under the $3.03 billion for which analysts have been calling. And it expects a loss of six cents to 16 cents per share on a non-GAAP basis. That’s pretty ugly when First Call consensus has been predicting a loss of a penny per share.

What was it Oracle wants with Sun, again?

Sun (JAVA) shareholders are set to vote on the Oracle (ORCL) acquisition this Thursday.

Almost, but not quite.

The 30-day review period for the $7.4 billion deal was set to expire midnight Friday. But instead of approving it, the DOJ extended its examination, issuing a second request for more information. Seems the government has some questions about Java and the way in which it is licensed.

In a statement released late Friday, Daniel Wall, a lawyer at Latham & Watkin, the firm representing Oracle, said that “we were almost able to resolve everything before the Second Request deadline. All that’s left is one narrow issue about the way rights to Java are licensed that is never going to get in the way of the deal.”

Never going to get in the way of the deal?

Well, it already has, hasn’t it? And while Oracle insists the extension of the investigation won’t delay the closing of the deal this summer, this additional 11th-hour scrutiny of Java isn’t exactly encouraging. After all, Oracle CEO Larry Ellison has said that Java is “the single most important software asset we have ever acquired.”

And this is certainly a good time to buy. “To be successful in the long run, Microsoft needs people to green-light the best acquisitions and teams of people with the right skill sets to integrate them,” Jackson writes. “Frankly, Microsoft hasn’t shown it has either of those abilities. Microsoft investors don’t need another expensive aQuantive deal or Facebook investment that smacks of desperation and has questionable long-term value for the company’s shareholders. It needs to take a page out of IBM’s and Oracle’s playbook, though, and start doing deals to grow its top and bottom lines. A big debt issuance, with a skilled acquisition team, and evidence of some exciting growth-related deals could suddenly show the market that this elephant can dance again.”

In advance of its shareholder meeting today, Google is holding a press event at its Mountain View, Calif., campus with CEO Eric Schmidt presiding. Also on hand: Dave Drummond, senior vice president of corporate development; Susan Wojcicki, vice president for product management, Kent Walker, general counsel, and Marissa Mayer, vice president, search products and user experience.

Hot topics of the day: Google’s and Apple’s interlocking boards, YouTube and the company’s thoughts on the econalypse, AOL and netbooks.

This liveblog paraphrases most questions and answers. It is not, in other words, a verbatim transcript of the event.

A theme of the meeting is the just-opened inquiry by the Federal Trade Commission into Apple’s and Google’s interlocking boards. Schmidt gets right into the topic with a joke: Looks like we’re at a legal deposition. He adds that he doesn’t believe Google (GOOG) views Apple (AAPL) as a primary competitor. If there are issues that are competitive during a board meeting, he will recuse himself, he says, just as he has regarding the iPhone.

Would Schmidt consider resigning from the Apple board?

Schmidt: “Hasn’t crossed my mind.” Ken Walker adds: “The law is clear that there is safe harbor for companies that don’t have overlapping revenues, and we’re comfortable with that position.”

Regarding the recession, are there any signs that we’re at the bottom?

Schmidt: “We don’t yet see a change.”

As Google gets bigger and faces more antitrust scrutiny, does this change how the company approaches partnerships?

Schmidt: Information is incredibly important, and we should expect governments around the world to pay attention to what we do and hold us to the principles we’ve articulated. Internally we tell our employees to pay attention, there are consequences to mistakes they make.

In the last few years, we’ve worked harder to anticipate the concerns of people affected by the power of the Internet. In my biased judgment, we’re getting better at anticipating those concerns.

We are more careful about when and how we do things that are raising the concerns of any party, but that care doesn’t stop us from doing those things.

Is there anything you haven’t done because of that?

Schmidt: I can’t think of a specific.

What do you think of the long-time monetization potential of social networks?

Susan Wojcicki: “We’ve been learning a lot about monetizing social inventory. And we believe there are ways to monetizie it over time, but those ways are different from search.”

Why did Google decide to sell its stake in AOL?

Schmidt: “We love AOL….We also like money… and look, we sent our best guy over there to run it,” he says referring to Tim Armstrong who recently left Google for AOL.

When will YouTube be profitable?

Schmidt: YouTube will eventually be a successful product and business. We don’t know how long that will take. But YouTube is a huge traffic phenomenon. (Wojicki jumps in to note that that traffic is attracting a lot of advertiser interest, so there is monetization going on. She adds that Google is adding new ad formats to the site, prerolls and click-to-buy ads on music videos.)

How does Google continue innovating given the cost-cutting measures it recently implemented?

Schmidt Innovation is a cultural value at Google, so this hasn’t really been an issue. Cutbacks were more efficiency-related, a move to stay lean but nimble in the midst of a recession.

What’s your take on the balance between Android being an open platform and the trade-offs the company needs to make with handset makers?

Schmidt: “On the one hand, you benefit by having free access; on the other hand there is some sacrifice of stability. We are doing our best to achieve stability without exercising too much control.”

What about China?

Dave Drummond: It’s an “ongoing challenge” to operate there. YouTube is blocked. There is a government preference for local business that makes things very difficult. That said, “we think we’re doing well there.”

Schmidt: “We will continue to do business in China….We would like YouTube unblocked.”

How do you respond to critics who argue that Google is the new Microsoft (MSFT)?

Schmidt: “They obviously don’t remember the old Microsoft.”

In recent public forums you’ve been asked about acquisitions and you’ve said the price isn’t right right now. Has there been any change in that opinion?

Schmidt: No change. There’s simply just not a lot of activity out there now.

What are your thoughts on netbooks?

Schmidt: “The netbook phenomenon looks very real. It looks like it will be a significant element of growth in the PC industry over the next few years.” Schmidt further notes that Google is obviously interested in the market given its business. “Watch the space,” he concludes.

Shares in the company dropped more than 27 percent percent to $6.48 in premarket trading following reports that Sun’s board rejected a formal acquisition offer by IBM (IBM). After weeks of negotiations, the two companies were thought to be finalizing a deal for about $7 billion. But IBM lowered its offer over the weekend and then withdrew it after Sun balked at the price and terms of the sale. IBM is believed to have originally offered $10 and $11 a share for Sun, but subsequently reduced that bid to $9.40 a share, which was a bit too low for the fading company’s taste.

Seems Sun (JAVA) has quite a bit more in common with Yahoo (YHOO), which notoriously balked at a $44 billion buyout offer from Microsoft (MSFT) last year, than you’d think.

Whether the deal is dead is unclear, but things certainly aren’t looking good–for future negotiations and for Sun, as Sanford Bernstein & Co. analyst Toni Sacconaghi suggested in a research note to clients this morning. “While press reports suggest that the fall-out in discussions may be attributable to brinkmanship, we do think that a collapse in the talks has considerably weakened Sun’s hand, as we see no other likely suitors, and a considerably higher potential for weakened (fiscal year third quarter) results,” he wrote. “… Given the size of the premium and the fact that Sun’s board has presided over a decline in the company’s stock price over the last eight years from over $250/share to less than $5 prior to the acquisition talks being leaked, we believe that (Sun Microsystems) is likely to face significant shareholder unrest, similar to what occurred when Yahoo declined Microsoft’s offer.”

Which means things are about to get ugly–really ugly–for Sun, which doesn’t appear to have any other likely suitors and will almost certainly see its third-quarter results weakened by the doubt it has just instilled in potential customers.

And after the deal, then what? Massive layoffs, most likely. Analysts say redundancies between the two companies’ businesses could cause IBM to sack as much as a third of Sun’s employees in one of those “resource actions” it’s so fond of. “This deal is definitely going to lead to a lot of combined layoffs,” Forrester Research analyst James Staten told Forbes. “And it wouldn’t be a surprise if most of that bloodletting happened on the Sun side.”

Talks between the two companies continue. And, according to DealBook, which pegs the price at $9.50 a share, a deal could be announced as soon as Friday. If it is, it will likely prove the largest in IBM’s history, surpassing its $5 billion acquisition of software maker Cognos in November 2007.

“We’ll be focusing on early stage investments across a diverse range of industries, including consumer Internet, software, clean-tech, bio-tech, health care and, no doubt, other areas we haven’t thought of yet,” Managing Partners Rich Miner and Bill Maris explained in a blog post. “Central to our effort will be our fellow Googlers, whom we view as a critically important resource to help educate us about potential investments areas and evaluate specific companies.”

Presumably, then, the scope of the fund’s investments will be as diverse and, ahem, fascinating as the whims of Google’s leadership. Which isn’t always a good thing. That said, Google Ventures may do much to help the company innovate itself out of this downturn and perhaps even spot and engulf the next Google (GOOG) killer before it has a chance to live up to its namesake. As Google Ventures explains in its FAQ, it’s not above engulfing a company it’s incubated. “Acquisitions by Google of portfolio companies are possible, but this is not the goal or focus of our investment activities. Our focus is building great companies and generating long term financial return.”

Obviously. But for Google, right?

[Image Credit: Ignorance Is Futile!]