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Explore the Ultrium Edge

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Disk and Tape Square Off

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Wall Street Beat: Mixed earnings, M&A news hit IT

By Marc Ferranti , IDG News Service , 05/08/2008
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After a slow climb during the height of a generally positive earnings season, the IT-heavy Nasdaq hit turbulence this week, with a mixed earnings report from Cisco, and merger and acquisition news and rumors involving Microsoft, Yahoo, Deutsche Telekom and Sprint Nextel.

The Microsoft-Yahoo saga depressed the market at the start of the week. Big deals usually boost tech stocks on the market, since they call for vendor confidence that future sales will make up for any dilutive effect on earnings that acquisitions usually entail.

Despite Yahoo CEO Jerry Yang's insistence that he would have agreed to sell the company for the right price, he appeared to do everything possible to torpedo the deal, including striking an agreement with archrival Google to outsource search advertising. But Microsoft CEO Steve Ballmer, while noting in a statement Saturday that the Google deal was the straw that broke any hope of agreement on a price, appeared over the past week or so uncharacteristically ambivalent about the bid's potential success.

In an understatement, Citigroup Global Markets called Yahoo's future "uncertain" and lowered its rating on the company to "sell." Yahoo shares dropped to US$24.37 Monday, from $28.67 before the weekend, though they recovered somewhat during the week as Yang and other company executives insisted that they still would be willing to negotiate on price. If Yahoo's deal with Google does not help boost profit, and Yahoo's share price stays in the doldrums, look for Yang to be gone by the end of the year, and Microsoft and Yahoo to be in talks again.

Meanwhile, rumors that Deutsche Telekom is talking to Sprint about an acquisition helped boost Sprint shares this week. Sprint closed at $7.89 last week and by midweek was trading at $9.16. A deal, along with T-Mobile, would make the combined company the U.S. wireless leader ahead of AT&T and Verizon, but would be more complicated than a merger of two U.S. companies, observers noted. Rumors that Sprint is looking at selling or spinning off its Nextel unit further muddy the waters.

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