Yahoo’s Jerry Yang, an icon in the search business and a focus of shareholder angst after refusing the Microsoft deal earlier this year, is stepping down as CEO. The move is not a surprise, given that it now appears that there is no way shareholders could hope to recover what they lost when Microsoft was turned away.
Since the decision, which resulted in a board change led by Icahn, Yang has failed to offer any constructive steps to building value as an independent company. The board is likely to at least consider Susan Decker, the president, as successor. We believe this would be a mistake; she might well prove simply a proxy for Yang’s views.
The Obama economic plan, and economic team, are both taking shape and the Street likes what it has seen. Obama is set to name NY Fed chairman Tim Geithner as Secretary of the Treasury and Lawrence Summers as chief economic advisor. The former set up a major gain in the Dow on Friday.
The Obama camp has announced it will pursue a broad infrastructure-modernization and works program stimulus that could involve more than $600 billion and take two years. Over the weekend, the government decided to rescue CitiBank, removing the risk of a major bank failure from the market and signaling the end of the apparent policy of non-intervention that allowed speculators to hammer stocks without fear of being trapped by good news. The deal will involve U.S. guarantee of certain mortgage-backed assets, totaling over $300 billion and including some commercial mortgage-backed securities that appeared to be the new problem with Citi. The government will also get $7B in new preferred stock.
Many believe that the move was generated by Obama administration intervention, and in particular Geithner’s relationship with Paulson, and this was the strongest signal that there might not be a period of inaction between administrations. The auto industry, reluctant to agree to sweeping changes that Congress was likely to demand in return for a loan, is now lobbying for a loan program to automakers’ finance arms to spur demand again. The Fed is reviewing measures that would pump up the money supply via direct lending, and also lower long-term rates; these would presumably supplement the traditional rate cuts that are now nearly at an end as rates hit 1%. All this has made the markets happy; U.S. futures were higher this morning, Europe was strong and Asia mixed with Japan higher.
Worldwide broadband subscribers have reportedly passed the 400 million mark, and some telco planners are now seriously looking at broadband as their “dialtone” service in both wireline and wireless—but beyond 2011.
The decision to move to a universal broadband delivery would increase capex, but it is apparently being driven by the cost of the dualistic voice/data structure that is now in place. The barrier is monetization of broadband, which has lagged expectations for both wireless and wireline. Operators believe that additional capital and operational savings are also likely to be necessary. We provide some insight into current operator views of the future in the next issue of Netwatcher which will be released this weekend.
Ericsson is fielding a line of packet optical gear designed to address the expected surge in metro networking. The new products will support a T-MPLS control plane, but Ericsson plans to upgrade to the more modern MPLS-TP and is also considering PBT (PBB-TE).
Metro capacity may be driven by a host of factors in 2009 and 2010 and the operators may be more interested than usual in the optical layer. This has implications on the Carrier Ethernet and IP MPLS wars since optical spending tends to encourage operators to deploy some control plane architecture, and that could then pull through either switches or routers.
Verizon will be launching its own CDN for its FiOS network and other network properties, building it based on equipment from Velocix. The move is the latest in a round of CDN and cloud computing announcements by Tier One carriers, and we believe that most Tier Ones will be launching both these services in 2009 or 2010. One reason is that the operators are likely to be major consumers of both types of services as their own offerings to customers evolve, and another is the fact that the massive data center deployments and storage farms associated with video provide significant economies of scale in IT that can be leveraged by both CDNs and cloud computing. Clearly this does not bode well for current players in the space.
November 17 2008 regarding Yahoo.
The Economist has said in print what most people probably have been thinking: Jerry Yang must go. Their criticism is very much our own. Yang and Decker have not developed any meaningful strategy to replace the Microsoft deal they opposed. In fact, you could argue that their approach was to say that if the deal were not done, things would simply go on as before. If true, that type of progress would be unacceptable to shareholders. If not true, then what will be done?
We believe that many Silicon Valley firms believe they are still the “owners” of their own companies, when in fact they’ve done an IPO and are now responsible to shareholders. The problem is that there are few options for Yahoo. One good one that remains is a tight partnership with the telcos.
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Analysts and venture capitalists (VCs) are joining forces to warn that the days of running a web business for years with no revenue are over. The latest round, generated by Gartner, is aimed at the social media players who are the latest in the net-company crowd to get funded and are still largely unprofitable. We believe that the whole venture process is tainted by hype-based promotions that border on pyramid swindles, so winding back in VC investment will likely have little real impact on the market. However, it will certainly have an impact on employment in Silicon Valley and elsewhere, and there may be a period when even good startup ideas have little access to capital, especially in the first half of 2009.
Cisco has announced a new edge router, the 9000, which is widely expected to be the replacement for its aging but important 7600 series. The new box features a card design that gives it a very high per-card capacity, making it capable of supporting the new 100 Mbps Ethernet standard when it is finalized. The box is most likely to be deployed in an edge-of-core or metro-core application, with the latter application focusing on replacing PBT with MPLS inside a metro network. We believe that Cisco will be going full out in 2009 on the metro applications, as well as on “glamour” plays like its deal with the Yankees for an immersive multimedia experience in the stadium.
October 24 2008 regarding metered Internet trends.
Metered Internet usage is stirring comment in the UK and the U.S. trials of the idea, put on hold by the hurricane season, are now expected to get underway shortly at TW Cable.
The notion of reducing capacity growth and slowing the decline in revenue per bit has become more and more popular globally as providers throw up their hands on the issues of monetizing their networks. We have already noted here and in other publications that operators are universally at risk to squeeze in margins because traffic increases are not compensated by revenue increases with classical Internet pricing models.
We believe that unless service-layer improvements add revenue to the pot, spending on transport capacity will begin to slump as early as 2010.