"As we said recently to the board, unless there's progress by this weekend, we will reconsider our alternatives," said Chris Liddell, Microsoft's chief financial officer, in a conference call to discuss the company's financial results.
This weekend marks a self-imposed deadline that Microsoft had set for the acquisition, after which it has said it would take its US$44.6 billion offer to Yahoo's shareholders.
Microsoft could take the offer to Yahoo's shareholders or "withdraw the proposal and focus on inorganic and organic opportunities," Liddell said Thursday, meaning partnerships and growing Microsoft's online business internally.
Liddell's remarks echo those made by CEO Steve Ballmer in Milan on Wednesday. But until Ballmer's comments, it did not appear that Microsoft was considering pulling the offer.
In an open letter to Yahoo's board on April 5, Ballmer wrote: "If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board."
On Thursday Liddell discussed Microsoft's potential if the Yahoo deal doesn't happen.
"With or without a Yahoo combination, Microsoft is focused on the online ad market," he said. While Yahoo would help Microsoft accelerate its progress, Microsoft has a talented engineering team and key assets in its MSN and Live content businesses, he said. Microsoft is committed to competing in the online advertising market through organic investments, he said.
Analysts continue to differ about a Microsoft-Yahoo combination. "Forty-four billion dollars is a lot to throw at something that really isn't working and has its own set of issues," Sid Parakh, assistant vice president of equity research at McAdams Wright Ragen, said Thursday during a technology investment forum in Seattle. "Beyond that, the integration of the two companies is going to be a nightmare."
But another analyst said that a Yahoo purchase would be positive because it would be a departure from Microsoft's strategy of making only incremental changes to catch competitors.
"As long as you see these incremental changes, you'll see a core deterioration of their core business," said Steve Lidberg, director of research at Pacific Crest Securities. Without a significant move like buying Yahoo, Microsoft is unlikely to develop innovative enough products to compete with companies like Google, he said.