Ballmer: IBM-Sun deal could help Microsoft

Microsoft's CEO said a deal would benefit Sun shareholders, but questioned how IBM would handle Sun's many product lines

A union between IBM and Sun Microsystems would give Microsoft a competitive advantage during the time IBM worked to incorporate Sun's copious assets into a combined company, Microsoft's Steve Ballmer said Thursday.

"We have a lot of competition with IBM and I don't think it will change strategically," he said during an appearance in New York. "I think it gives them a year or two where all they're doing is digesting it. I relish that year."

Ballmer commented on a possible IBM-Sun deal -- reported by The Wall Street Journal on Wednesday -- at the 2009 Media Summit during a keynote in which he responded to questions from BusinessWeek Editor in Chief Steve Adler.

Microsoft's CEO called a purchase by IBM a good "exit strategy" for Sun shareholders, but questioned why IBM might want to purchase Sun. The company has a complex product portfolio, which includes a range of hardware and software products, many of which overlap with IBM's existing portfolio.

"I think you pick up a lot of stuff when you buy Sun," he said. "I think you have to decide if you want everything."

Microsoft has long been a competitor of IBM and Sun, but less so with the latter as the company has floundered over the last several years. Microsoft and IBM compete on a range of business software products, including middleware, application-development infrastructure, database technology and collaboration and workgroup software.

Microsoft's most famous association with Sun is a bitter, seven-year antitrust lawsuit over the Java software-programming language. The two companies resolved the suit in April 2004, with Microsoft paying Sun US$2 billion to license Java.

As for the possibility of more acquisitions in Microsoft's future, Ballmer said the company will likely make "10, 15 or 20" small acquisitions -- which he characterized as sub-$500 million and which he said don't necessarily even need his approval -- in the foreseeable future. But Microsoft will probably continue its traditional strategy to keep acquisitions under $1 billion for the same reason that he thinks IBM will struggle with absorbing Sun -- big acquisitions are extremely complex, he said.

An exception to that rule -- Microsoft's $44.6 billion bid to purchase Yahoo last year, which so far has not been successful -- was also on the discussion table Thursday.

Ballmer reiterated his stance that Microsoft is open to some kind of search deal but not a full acquisition. Though they have spoken on the phone, Ballmer said he has not met face-to-face to discuss such a deal with new Yahoo CEO Carol Bartz since she took over in January.

"I'm sure when it's appropriate we'll have a chance to sit down and talk," he said. "I've known Carol for years. She's very straightforward, no question about it, she's very friendly, and when she makes up her mind, when she's ready, we'll have a real discussion [about a deal] because she is that kind of person."

Ballmer also stopped short on acknowledging that a new search engine Microsoft is testing internally, called Kumo, will indeed be the next iteration of Live Search, though he hinted that it's likely the case.

Microsoft confirmed earlier this month it was testing Kumo, long rumored to be the new brand for its Live Search engine and a major update based on technology Microsoft purchased from San Francisco startup Powerset last June. Powerset developed semantic search-engine technology that attempts to understand the full meanings of phrases people type in while searching, returning results based on that understanding.

"I think we could use a set change, as they say in organizational behavior classes," he said of Microsoft's Live Search product and search strategy in general. "When we're ready to announce one we will; whether it's called Kumo -- that's an interesting name."

Microsoft has lagged far behind leader Google in share of Internet searches despite significant investment in its online services business, which would better position the company for online advertising revenue.

In February, according to research by comScore, Microsoft's share of searches in the U.S. hit a 12-month low with 8.2 percent share; Google had 63.3 percent of U.S. search queries and Yahoo had 21 percent during that month.

Ballmer acknowledged that Google has an even larger market share outside of the U.S. "We still have a lot of work to do," he said. "It's a challenge, but also an opportunity."

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