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Technology Round Up - December 4, 2012
There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
Facebook and Zynga Growing Apart
Facebook (FB) and Zynga (ZNGA) have revised their partnership. The two companies have amended an agreement originally formed in 2010. Zynga had previously benefited from Facebook’s strong brand recognition and large user base. The partnership is no marriage of equals, however. Zynga has been responsible for roughly 10% to 15% of Facebook’s total revenue in recent periods, but has depended on the social network for the vast majority of its own revenue. The two companies have been drifting apart in recent times, with both looking to branch out. Facebook has been courting other game developers, looking to reduce its exposure to Zynga, which has experienced problems this year. For its part, Zynga established its own Web platform in order to reduce its dependence on Facebook. The new agreement gives Zynga more flexibility to operate a standalone gaming Web site, but this no longer allows it to promote its site on Facebook or draw users from the social network. Visitors to Zynga’s site will no longer be able to interact with their network of Facebook friends. Zynga classic games will still be available on Facebook’s site, but cross promotions linking to Zynga’s site will be gone. Facebook has modified its terms with Zynga so that the game developer’s use of the social network is governed by the same rules that apply to other members of its ecosystem. In other words, no more preferential treatment for Zynga. On the bright side, this provides Zynga with greater flexibility to manage its own operations. Among other things, the company will no longer have to display Facebook’s advertisements on its site.
VeriSign’s Registry Renewal
The U.S. Department of Commerce has approved the renewal of a revised .com registry agreement for VeriSign (VRSN). This agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) allows VeriSign to continue to serve as the authoritative operator for the .com registry from December 1, 2012 through November 30, 2018. The company’s current pricing of $7.85 per domain name registration will continue for the six-year term of the Agreement. However, VeriSign will no longer have the right to four price increases of up to seven percent over the six-year term. Any price hikes during this time will have to be approved by the Commerce Department.
Investors were disappointed the company will not have much flexibility to increase prices for domain name registrations over the next six years, and, as a result, the shares sold off following the announcement of the deal. On the bright side, this agreement provides greater clarity on what had been an uncertain issue, and should allow the company to move forward.
Hewlett-Packard’s Disappointing Performance
Shares of Hewlett-Packard (HPQ - Free Hewlett-Packard Stock Report) sold off after the company’s October-quarter earnings release. It announced another significant loss for the period. This reflects a large write down of its Autonomy software business and competitive pricing in a number of its product groups. H-P had acquired Autonomy in a richly-valued deal in the fall of 2011. According to recent press releases, the company has uncovered serious accounting improprieties, misrepresentations, and disclosure failures at Autonomy that occurred before the acquisition. H-P is cooperating with authorities, and is hoping to recover some of the costs. Meanwhile, the company posted an unfavorable operating performance for the recent period. It reported lower sales (on a year-over-year basis) in most businesses, including the printing, personal systems, and enterprise products groups. The software business proved to be a bright spot, with top-line growth of 14%.
Nokia Siemens Divesting Optical Networks Business
Nokia Siemens Networks, a mobile telecom joint venture owned by Nokia (NOK) and Siemens (SI), is selling its optical fiber business to Marlin Equity Partners. Financial terms of the deal were not disclosed. The joint venture has divested several product lines since last year, and further sales may occur. In response to competitive pressures and industry weakness, Nokia Siemens has chosen to increase focus on its core operations.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.