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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

February 24, 2010 at 7:29 AM

GSC: Day 2 kicks off with Dell, eBay, Yelp, F5, Expedia, Zillow

SAN FRANCISCO — I am again reporting from the Goldman Sachs Technology and Internet Conference, where companies continue to pitch themselves to institutional investors. Several hundred people atttended Tuesday. Organizers say 1,700 people have registered for the three-day event.

I will be blogging here and tweeting throughout the day. You can follow my 140-character reports at www.twitter.com/sharonpianchan/.

Today companies such as Dell, IAC, eBay, nVidia will hold question and answer sessions with Goldman Sachs analysts. Local companies include Expedia, Zillow and F5. Hewlett-Packard is scheduled but has closed their session to the press, even though the session is being webcast publicly.

And to sum up Tuesday’s events, here is my writeup that ran in the paper today.

SAN FRANCISCO — To say the buzz is back would be an exaggeration, but at least it isn’t depressing. At the Goldman Sachs technology conference Tuesday, companies large and small pitched themselves to several hundred institutional investors.

Microsoft pitched cloud-computing and server businesses, Yahoo tried to pump up the energy around its brand and Apple waxed hyperbolic about the iPad.

Chip-maker Intel, a bellwether for the technology industry, said the biggest challenges were no longer the economy but international and domestic regulatory issues.

Did it work? Over the day Tuesday, Microsoft stock fell 1 percent, Yahoo fell a little less and Apple dropped 3 percent. Overall, the Nasdaq fell about 1 percent.

Smaller local companies such as InfoSpace and Real Networks also talked up what’s to come in 2010. Most companies seemed relieved their business customers have closed out their books for 2009, a difficult year for IT spending given the economic downturn.

Here is some news from around the conference.

Microsoft: Bob Muglia, Microsoft Server and Tools division president, said he saw a new book on his aide’s desk as he was leaving Redmond on Monday: “Cloud Computing for Dummies.” He grabbed it for reading on the flight here for the technology-investors conference.

He said it wasn’t half bad.

“Once you see a ‘Cloud Computing for Dummies’ book you know it’s hit a certain vernacular,” Muglia said in a Q&A session with Goldman Sachs analyst Sarah Friar.

Cloud computing puts software and data on remote servers run by companies like Microsoft that users access through the Internet on their PC or smartphone.

It’s not expected to be material (meaning more than $1 billion in annual revenue) to Microsoft’s sales for the next three years. “If you go beyond there, it becomes very material,” Muglia said.

On whether running cloud applications will erode Microsoft’s high profit margins because of the added capital and operation costs, he said: “There’s no question there is capital cost involved in running these things. That is a fundamental shift in our financial structure. There’s opportunity for us to drive revenue up by doing value-added services.”

On when the server market will recover, Muglia pointed out Microsoft ended fiscal 2009 with server sales being roughly the same as they were in 2006. “We lost two years of growth.”

He said emerging markets like Brazil and India are recovering most quickly, and the “U.S. is recovering reasonably. Europe is far behind.”

Apple: Apple lobbed the equivalent of several “yo mama” jokes at Microsoft’s expense.

Chief Operating Officer Tim Cook got digs in during his session, both subtle and explicit. To wit:

On the operating system: “The traditional model — which is where a company does operating system, another does key core applications — quickly falls apart in mobile.”

On desktop computers: “The iMac is the best desktop computer in the world.” “Many would like to use a Mac. Who would not want to use a Mac over a Windows unit?” “This is what a lot of people are saying. At least the ones with a lot of vision are.”

On Apple’s retail strategy and its 300 stores: “We went into retail not as a test, not as a pilot.” (Microsoft opened its first two stores in 2009.)

On the enterprise market, where Apple is traditionally weak: “Seventy percent of Fortune 100 companies are either deploying iPhone or are currently testing for deployment.”

Cook said he likes some stuff about Microsoft.

“In Microsoft, we love the Mac Office division. They do a great product, and we partner with them and work with them very tightly. Most of the balance of Microsoft we compete vigorously against. In the operating system, mobile operating system.”

Intel: A big question facing many tech companies, including Microsoft, is when businesses are going to upgrade their PCs. Intel Chief Financial Officer Stacy J. Smith said he is hearing anecdotally that businesses are evaluating PC upgrades.

“That leads me to a conclusion that there is a refresh out there,” Smith said.

“The average age of the [business] PC is in excess of four years. As you get to that point, the cost to keep that computer in the environment is more expensive than to refresh it.”

Smith appeared positive about Intel’s financial performance this year. His biggest concerns were regulatory.

“I worry about government screwing us up,” Smith said. “I worry about China pulling back. … It’s more on the macro side then it is on our execution.”

Yahoo: Yahoo Executive Vice President Hilary Schneider said Microsoft will begin paying Yahoo license fees for its search technology during the first quarter. “We had originally thought that would happen in Q2,” Schneider said.

On the company’s expensive “It’s You” branding campaign that Yahoo began in the fall, Schneider said: “It was really about re-establishing the Yahoo brand. We had felt a decline in brand health,” she said.

One benefit of the Microsoft-Yahoo partnership is the “extreme focus” it brings on Yahoo. “By essentially doing this alliance with Microsoft and exiting the back-end business on algorithmic and search advertising, it frees up tremendous resources to double down on the areas we’re going to invest in, which is really the consumer experience,” Schneider said.

RealNetworks: The Seattle-based company made its pitch to investors that it is reinventing itself since former Chief Executive Rob Glaser left the company in January.

Acting CEO Robert Kimball explained the decision to spin off the company’s music-subscription business, Rhapsody, and its intentions for the games business.

“I think the business has suffered from a conglomerate discount, given that we’re in four different businesses,” Kimball said.

“We really needed to focus our attention on the core businesses.”

That would be selling media-management services to wireless carriers and building new services to offer the 80 carriers it already has partnerships with. Real wants to get out of the content businesses.

“One of the things I’m trying to instill is focus. Let’s try to do a few things and do them well,” Kimball said when an investor asked how many services Real would roll out this year.

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