Stocks advance on Microsoft, Countrywide

NEW YORKWall Street closed an erratic week with strong gains on Friday as strong earnings from Microsoft Corp. and an optimistic outlook from Countrywide Financial Corp. outweighed investor concerns about the economy.

Housing market news over the week was glum; oil prices surged to record highs. And though corporate earnings have so far been mixed, investors have been heartened by good news for individual companies.

Friday’s report from Countrywide that it expects to return to profitability soon, despite a big third-quarter loss, gave investors hope that the problems in the housing market are contained and that U.S. consumers still have spending power. Thursday night’s strong report from Microsoft inspired strong buying throughout the technology sector.

“The market is higher for just two reasons — Countrywide and Microsoft,” said Peter Boockvar, equity strategist at Miller Tabak. “You take those two stocks out of the equation and there is no reason for the market to be higher. Microsoft single-handedly is driving the Nasdaq.”

Mixed profit reports and data showing economic weakness has made investors uncertain whether the market is overvalued. However, earnings will be pushed aside next week as the main focus of investor attention — and taking it place will be the Federal Reserve‘s rate-setting meeting on Tuesday and Wednesday.

The Dow Jones industrial average rose 134.78, or 0.99 percent, to 13,806.70.

Broader stock indicators also gained. The Standard & Poor’s 500 index rose 20.88, or 1.38 percent, to 1,535.28, and the technology-dominated Nasdaq composite index advanced 53.33, or 1.94 percent, to 2,804.19.

For the week, the Dow rose 2.11 percent, the Nasdaq was up 2.90 percent, and the S&P 500 jumped 2.31 percent. The gains were welcome after all three indexes posted losses in the previous week.

High oil prices didn’t dampen investors’ spirits either. After spiking above $92 a barrel in Asian trading overnight, December crude futures rose $1.40 to settle at $91.86 a barrel on the New York Mercantile Exchange.

“Because oil prices are so high, our nation’s oil bill has gone up. We’re exporting dollars to pay for oil and our counterparties are reinvesting those dollars back in our markets — the so-called petrodollars finding their way back,” said Tom McManus, investment strategist with Banc of America Securities.

Even as stocks advanced, investors poured money into commodities markets as a hedge against a falling dollar, which hit another record low against the euro. Gold futures rose $16.50 to close at $787.50 an ounce, the highest price since January 1980. Energy, metals and agriculture futures all moved higher.

Treasury bonds turned lower as stocks barreled higher. The yield on the 10-year Treasury note, which moves inversely to the price, rose to 4.39 percent from 4.38 percent late Thursday.

Friday’s stock gains were fueled by company-specific news, according to Robert Pavlik, portfolio manager at Oaktree Asset Management.

“Trading today is sort of choppy, but stocks are moving up based on strong earnings from Microsoft,” he said. “You’re also getting a pop from Countrywide’s strong guidance going forward. All this is bring some attention back to the stock market.

Countrywide posted a wide loss of more than $1 billion in the third quarter, but the beleaguered mortgage lender, whose stock has plummeted due to rising subprime mortgage defaults, said it will be profitable in the fourth quarter and next year. The shares jumped $4.23, or 32.36 percent, to $17.30.

Microsoft’s reported that its profit jumped 23 percent, thanks to brisk sales of the new Halo 3 video game, Windows and Office. Microsoft shares rose $3.04, or 9.50 percent, to end at $35.03.

Financial stocks were solidly higher Friday, but the sector continues to show signs of uneasiness following the summer’s credit market problems. The New York Times reported that after Merrill Lynch & Co. posted its sharp third-quarter loss Wednesday, the investment bank’s chairman and chief executive floated the idea of a merger with Wachovia Corp. Merrill shares rose $5.19, or 8.52 percent, to close at $66.09.

Advancing issues outnumbered decliners by nearly 3 to 1 on the New York Stock Exchange, with 1.41 billion shares traded, up from 1.38 billion on Thursday.

The Russell 2000 Index of smaller companies rose 15.28, or 1.90 percent, to 821.39.

Stock markets overseas advanced.

In Asian trading, Japan’s Nikkei stock average rose 1.36 percent, and Hong Kong’s Hang Seng index rose 1.84 percent. In Europe, Britain’s FTSE 100 rose 1.29 percent, Germany’s DAX index rose 0.21 percent, and France‘s CAC-40 rose 0.60 percent.

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Microsoft beats Google to Facebook stake

SEATTLE (Reuters) – Microsoft Corp beat out Google Inc on Wednesday in a battle to invest in socializing Web site Facebook, agreeing to pay $240 million for a 1.6 percent stake in the Web phenomenon.

Microsoft also clinched exclusive rights to sell ads on Facebook outside of the United States as part of the investment that valued Facebook at $15 billion — on par with the market capitalizations of retailer Gap Inc and hotel chain Marriott International Inc.

Analysts said Microsoft paid a steep price on a bet that the three-year-old company would be able to transform itself into a hub for all sorts of Web activity.

“The only way this works is if Facebook becomes sort of the users’ operating system on the Internet — everyone logs into Facebook every day to get in contact with their friends and use a multitude of future applications that will be developed for it,” said Morningstar analyst Toan Tran.

Facebook, a social network that lets friends share information, allows outside developers to create games and other applications for its site.

The popularity and depth of knowledge Facebook has about its users makes it valuable to companies like Microsoft and Google which want to sell advertising targeted to individual preferences.

Founded in 2004 by Harvard student Mark Zuckerberg, Facebook said it registers 250,000 new users a day, 60 percent of whom come from outside the United States.

Kevin Johnson, president of Microsoft’s platform and services division, said the $15 billion price tag for Facebook is based on Microsoft’s belief that the site could eventually reach 300 million users, who can be targeted for advertising. It has nearly 50 million today.

You combine the number of users with the monetization opportunities and you can figure out a fairly modest average revenue per user per year and you can very quickly get to this level of valuation,” Johnson said in a conference call with analysts and reporters.

Microsoft has stepped up efforts to be a player in the $40 billion market for online advertising, which the company expects to double in size within three years. It paid $6 billion to acquire digital advertising firm aQuantive in August.

Under the Facebook deal, Microsoft would be the exclusive third-party advertising platform for Facebook extending a previous deal for Microsoft to sell banner advertising next to Facebook member profiles in the U.S. until 2011.

GOOGLE VS. MICROSOFT

Google and Microsoft, now rivals for Internet-based audiences and applications, have butted heads before for Internet properties. Google beat Microsoft with a $1.65 billion acquisition of online video sharing site YouTube last year.

Forrester Research analyst Charlene Li said that Microsoft was a better strategic fit for Facebook, since it knew how to work with software developers and build computing environments — such as its Windows operating system.

“Microsoft is a company that knows how to build platforms, knows how to develop relationships with developers. Microsoft developed the network that is the biggest, most vibrant one out there,” she said. “Google didn’t bring as much to the deal.”

Facebook opened its doors to users beyond an original base of college students a year ago. It also opened the doors to outside developers and there are tens of thousands of developers writing Facebook applications, the company said.

Microsoft was one of many suitors looking to participate in its latest round of financing, said Facebook Vice President Owen Van Natta. The funds will go toward doubling the company’s staff over the next year and other growth initiatives.

Google Co-founder Sergey Brin told a meeting with Wall Street analysts at the company’s Silicon Valley headquarters that his company could partner with important Web sites.

“We don’t feel, at a higher level, that we need to own every successful company on the Internet,” said Brin, who later told reporters that Microsoft may have overbid.

Google has a multiyear deal with MySpace, the largest social network, to provide search and advertising alongside MySpace’s 110 million user profiles.

Eric Schmidt, Google’s CEO, told reporters that its pact with MySpace is performing better than originally expected.

Shares of Microsoft rose slightly to $31.60 from a Nasdaq close of $31.25, while Google ticked down to $675.30 from a close of $675.82.

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Core of “Windows 7” taking shape: meet the “MinWin” kernel

Eric Traut, one of Microsoft’s chief operating system design engineers, gave a fascinating demo (WMV) recently at the University of Illinois, where he talked about where the Windows core is going and ended with a sneak peek at the kernel of the next version of Windows, known by the exciting codename of “Windows 7.” The demo showed what Windows would look like if it was literally stripped down to the core, showing the kind of work that is going on to optimize the aging NT kernel.

Traut runs a team of about 200 software engineers at Microsoft that is responsible for the core kernel scheduling, memory management, boot sequence, and virtualization technology such as Virtual PC and Virtual Server. The latter technologies are becoming more and more important as servers get more powerful and gain more and more CPU cores, and it was clear from the demonstration that Microsoft is placing significant effort into integrating virtual machine technology into everything that they do. The release of Virtual PC as a free download last year was just the beginning: Windows Server 2008 will ship with significant VM enhancements, and Windows 7 will only carry on from there.

Windows 7

Why “Windows 7”? The number is based on Microsoft’s internal operating system numbers: the first version of Windows NT, 3.1, was given the same number as the “Classic” Windows when it was released in 1992. Since then there has been NT 4, Windows 2000 (NT 5), Windows XP (NT 5.1), and Windows Vista (NT 6). You can check these numbers by typing “ver” at a command prompt on any of these operating systems.


Windows 7 core running in a VM. Note the snazzy ASCII startup screen.

Traut ran a stripped-down version of Windows 7 called “MinWin” that included only the core kernel: for the first time Windows NT has been seen running naked, without even a GUI to dress itself. It ran only a miniature web server that would display simple HTML pages, including some dynamically-generated pages that showed the task list and other properties of MinWin itself. Thirteen tasks were running, most of which would be familiar to anyone who has opened Task Manager: smss.exe, csrss.exe, and svchost.exe were all there, plus the mini web server httpsrv.exe. The OS ran under Virtual PC, and this allowed Traut to show the audience exactly how many resources it was consuming: about 25MB on disk (compare with 14GB for a full Vista install) and 40MB of RAM. The OS booted up in about 20 seconds inside Virtual PC. Still not quite as lightweight as, say, AmigaOS or QNX, but remarkably small for Windows. Traut admitted that he would “still like to see it get smaller.”

A virtual future

Traut, like most good engineers, is honest about the pros and cons of code that he works on. “I fully admit that there are some major problems in the Windows OS that are driving some of these [improvements in the core and virtual machine technology]” he said, in full self-deprecating mode. He reviewed some of the reasons one might want to run older operating systems in a VM, such as backwards compatibility and resource management. The idea, of course, has been around for a long time—Windows NT 3.1 ran older 16-bit programs in a VM called “Windows on Windows” or “WOW” for short. The technology has improved since then, however. Windows Server Virtualization, like VMWare ESX and Xen on Linux, will run in what is called “Hypervisor” mode, where a host OS is not needed. This greatly improves performance and can take full advantage of new on-chip VM hardware from companies like Intel. Parts of this technology will appear as “Viridian” as an add-on for Windows Server 2008.

Traut doesn’t believe virtual machines are a panacea, however; he said that sometimes they could be used as a “crutch” to solve a problem that could be better addressed by improving the core of the operating system itself. However, in server applications, VMs are clearly an idea whose time has come. Powerful servers that can run multiple OSes at once can blur the line between traditional PC hardware and big-iron mainframes and increase the power of an existing datacenter.

Compatibility is another big advantage of VMs. Traut showed, just for fun, Windows versions 1.03, 2.11, “Classic” 3.1, and NT 4.0, running under Virtual PC. Few people need to run applications that are designed for these ancient operating environments, but the point was to demonstrate how VMs can solve even the trickiest of compatibility problems by simply running the entire OS that the application was written for.

If you don’t want to sit through the entire one-hour presentation, istartedsomething.com has a handy nine-minute excerpt with the MinWin demo.

Source: Arstechinca

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