Wall Street Beat: Yahoo Slumps, Strategic M&A Continues

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As economic worries battered tech stocks in a brief post-Labor Day week, Yahoo hit a 52-week low, Oracle continued its buying spree to strengthen its SOA (service-oriented architecture) offerings, and Red Hat snapped up an open-source company to get a better hold on virtualization technology.

Decelerating chip sales, meanwhile, stoked concerns about how the general economy is affecting wide swaths of the tech sector.

U.S. stocks plunged Thursday as retailers and the Labor Department issued worrying reports about the economy. The Labor Department, for example, said applications for unemployment increased by 15,000 from the prior week. Tech companies were not immune to concerns about the macroeconomy. The tech-heavy Nasdaq declined by 74 points to close at 2259.

Yahoo closed at US$17.75, down by $1.01, hitting a 52-week low. Yahoo shares have declined after spiking from $19 to close to $30 in February after Microsoft made a hostile bid for the company, which was rebuffed. There has been a trickle of positive news from the company recently. For example, Yahoo and Verizon announced Wednesday that they reached a new pact to offer a co-branded portal site for new broadband users. Also, hopes run high for government approval of an online advertising deal between Yahoo and Google.

But such news has not been enough to counter disappointment among investors about the failure to reach a deal with Microsoft, which at one point was prepared to offer as much as $35 per share for the company. Even if the deal with Google goes through, Yahoo will end up relying to some extent on its fierce competitor for growth in the hot online ad arena. Yahoo CEO Jerry Yang, a staunch opponent of the Microsoft bid, may yet be forced out -- and a deal with Microsoft may become inevitable.

Though the total value of mergers and acquisitions this year is declining from last year, the drop is mostly due to a falloff in deals with private equity companies, which have been victims of a collapse of the U.S. financial sector. However, strategic deals among IT vendors themselves continue to roll along. Tuesday, Oracle said it plans to buy ClearApp, a vendor of applications that manage mixed applications in SOA environments, for an undisclosed amount. Though it remains to be seen how Oracle will integrate its acquisitions, including those revolving around SOA, the company clearly feels it needs to bolster its offerings as competitors jump on the software-as-a-service bandwagon.

The virtualization market also saw an acquisition this week: Red Hat's $107 million buy of Israel-based Qumranet, which runs the KVM (kernel-based virtual machine) project. KVM lets the Linux kernel act as a hypervisor, running several operating systems independently. Red Hat officials acknowledged that the acquisition was a way of keeping up with VMware, the top virtualization vendor with 76.4 percent market share last year.

Meanwhile, the Semiconductor Industry Association said Tuesday that global semiconductor sales rose 7.6 percent in July from a year earlier due to strong personal computer and mobile phone sales. In a research note, however, CitiGroup found something dour to say, contributing to the mood of concern at the end of the week. "After five months of year-on-year revenue growth, semiconductor sales decelerated in July (7.65 percent vs. 8.01 percent in June)."

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