All Things Digital

Dirk Meyer was six months out of college and working as an engineer for Intel when he ran into Bob Noyce, the company’s legendary co-founder and co-inventor of the integrated circuit, at the punch bowl at a shareholders meeting. “He talked to me for 30 minutes–some snot-nosed kid he’d never even heard of,” Meyer recalls. “He asked, ‘How do you like my company? What do you like? What are you confused about?’”

Noyce’s accessibility left a lasting impression–and today Meyer is making himself available for far tougher questions from the investment community in his new role as CEO of Intel arch rival Advanced Micro Devices (AMD).

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At Intel Corp.’s big developer conference this week, the chip giant was extolling the virtues of its newest little chip, called the Atom. The Atom has surprised both company executives and analysts with its popularity among hardware makers. The chip was introduced in March and is aimed at an emerging market of very low-cost mobile devices, especially in developing countries.

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To anyone who says that it’s inconsequential that Yahoo understated the level of shareholder dissatisfaction by more than half thanks to a “tabulation error” by its proxy counter, Broadridge Financial Solutions, I say: You couldn’t be more wrong.

This incident will have ramifications in the coming weeks for the composition of Yahoo’s board. But here’s the shocking thing: This latest batch of numbers might still underrepresent the level of disdain shareholders have for this board.

Any corporate election that doesn’t receive 95 to 98 percent support from shareholders for the incumbent management and board is an anomaly. Yahoo’s first press release from last Friday suggested that, despite all the hubbub of the failed merger talks with Microsoft and public criticism from Carl Icahn and others, Yahoo (YHOO) shareholders had let the incumbents off the hook.

Chairman Roy Bostock and CEO Jerry Yang were re-elected with 79.5 percent and 84 percent support respectively. These relatively benign results (compared to last year’s), combined with the fact that there were not more pointed questions at the meeting last week, led some observers to conclude that this board had “faced down” its critics.

Not quite. Gordon Crawford of Capital Research Global Investors did all Yahoo shareholders a favor by demanding a recount. Yahoo and Broadridge complied.

And results of that recount were alarmingly different from the first set of numbers. We’ve all heard of +/- 4 percent in polling, but when was the last time you heard of +/- 50 percent?

The recount might set a modern-day record among S&P 500 companies for the most “withhold” votes for a board in a corporate election. Only Vyomesh Joshi, head of Hewlett-Packard’s (HPQ) printer group, got off without a serious warning from shareholders (a 7.1 percent “withhold” vote).

The “withhold” vote for Bostock was 39.6 percent, not 20.5 percent as originally reported. And 33.7 percent of Yahoo shareholders withheld their support from Yang, not 14.6 percent.

Other Yahoo directors who fared poorly in the election were Gary Wilson (27.7 percent of votes withheld) and Compensation committee members Ronald Burkle (37.9 percent withheld) and Arthur Kern (31.7 percent withheld).

What would we all be doing today if Crawford had never called for a recount? If a “tabulation error” happens and no one is there to hear it, did it happen at all? We will never know.

And there will likely be more shoes to drop in this tragedy of errors. This “tabulation error” was only one of two major question marks surrounding last Friday’s initial voting results. Yahoo easily made Broadridge the fall guy for this first error.

The second error–how few eligible shares were counted in the final tally–isn’t so easily eluded. And for that, Yahoo will be the fall guy.

Only 75.8 percent of the eligible shares as of the June 3 record date were voted in this election. After such intense media scrutiny in the past few months, it seems odd that so few investors participated.

Last weekend, I dove into the numbers in detail and reviewed them against numbers from the last two Yahoo elections. On Sunday night I wrote about the most recent Yahoo shareholder vote and verified that there were 200 million fewer votes cast this year compared to the average over the last two years. I called on Yahoo to appoint an independent third party to review and certify the voting process.

Yesterday, as news of the voting irregularities circulated, I received a number of complaints from frustrated shareholders.

Some claimed they had received multiple proxies from Yahoo over the last month, with several arriving Aug. 4–the Monday after the election. Some said they had had trouble voting by phone. Others, who had initially voted for Icahn’s slate, said when they tried to re-vote against the Yahoo board, they weren’t able to do so.

How many other shareholders encountered similar difficulties? Without a full inquiry, we’ll never know.

These missing votes could have had an even more significant impact on the overall results. For example, Bostock received “for” votes from fewer than half of the total shares eligible to vote (only 45.8 percent of the 1.4 billion shares eligible to vote). He truly lacks the approval of the majority of the shareholders he is supposed to represent. With a 47 percent vote, Burkle also lacks majority support. And while Yang won majority support, he did so by the skin of his teeth, with just a 50.2 percent vote.

Governance Matters

At Friday’s meeting, I asked Yang, Yahoo President Sue Decker and Bostock about three issues that suggest to me that Yahoo’s governance oversight has been lax.

(1) Why did Yahoo sell Overture Japan (a $396 million-per-year business) to Yahoo Japan for $13 million last August? Did Yang, who sits on Yahoo Japan’s board, recuse himself from the negotiations? Who negotiated on behalf of Yahoo and why did they agree to such a low price when Yahoo has a habit of paying three to five times revenues for companies like Zimbra, BlueLithium and Right Media?

(2) Decker serves on three Fortune 500 boards: Intel (INTC), Costco (COST), and Berkshire Hathaway (BRK). Her duties to those companies required her to attend at least 22 meetings last year, according to proxy filings. And each meeting required significant preparation. As a Yahoo shareholder, I fail to see how outside commitments like these benefit Yahoo. Are they really necessary? Shouldn’t Decker drop a few of them until Yahoo finds solid footing again?

(3) About a third–31 to 36 percent–of Yahoo shareholders voted against the re-election of Roy Bostock and fellow Compensation Committee members Burkle and Kern last year. Yet all three continue to sit on this committee (or the board). Why? And why did they agree to pay outside directors average total compensation of $500,000 last year? Google’s (GOOG) outside directors were paid $250,000, on average, for their services last year. Decker received $2,700 for sitting on the Berkshire Hathaway board (and $110,000 per year for serving on the Intel and Costco boards). Why is Yahoo paying its directors so much?

I found the trio’s answers to these questions unconvincing. Particularly surprising were Bostock’s comments on Compensation Committee member tenure and compensation.

In the first place, Bostock said while 32 percent of shareholders voted against his reelection last year, 68 percent voted for him. And that’s not bad, he said. This glass-half-full logic explains why he has never bothered to explain to shareholders why he, Burkle and Kern have remained on the Compensation Committee and the Yahoo board.

Second, Bostock disputed my assertion that Yahoo’s outside directors were paid an average of $500,000 last year. When I asked him if he was definitively stating that he did not receive compensation of about $500,000 last year, he said “yes.” Yet, according to Yahoo’s own proxy statement, Bostock earned total compensation of $499,264 last year. 2007 compensation for Yahoo’s other board members was as follows:

• Ronald Burkle: $482,046
• Eric Hippeau: $496,674
• Vyomesh Joshi: $519,520
• Arthur Kern: $496,990
• Robert Kotick: $492,774
• Edward Kozel: $516,202
• Mary Agnes Wilderotter: $205,832 (for five months of service; annualized $493,997)
• Gary Wilson: $482,046

The average compensation for each Yahoo outside director in 2007: $497,531.

Third, Bostock also claimed that this year’s vote would be a far better indication of shareholder support for Yahoo’s Compensation Committee than last year. With 39.6 percent of shareholders withholding support from Bostock and 37.9 percent withholding it from Burkle, isn’t it time for them to step aside?

Fool Me Once, Shame on You; Fool Me Twice, Shame on Me

Given all this, I am deeply concerned that my interests and those of all Yahoo shareholders are not being protected by the company’s board.

We need to know why 200 million shares were missing from this year’s vote as compared to the last two years’.

We need to know why so many proxies were mailed late to shareholders (on our dime).

We need to know why so many shareholders are questioning whether their votes were counted.

Yahoo will try to sweep all these concerns under the rug, but we shouldn’t allow it. The company should immediately appoint an independent third party to address these questions and assure shareholders that their votes were properly counted.

Immediate Changes to the Board

Also, Yahoo needs to immediately make some changes to the composition of its board. Bostock and Burkle should do the honorable thing and step down from this board.

In truth, this should have happened a year ago. One wonders what might have happened in the last 12 months with Microsoft negotiations had Yahoo acted swiftly, following the 2007 annual meeting, to remove them.

Recent rumors of Intel employees signing up for Facebook accounts en masse might not have been totally unfounded: Facebook has chosen to use Intel’s Xeon 5400 processor-based servers to deal with its hardware and software demands. Additionally, the two companies have signed an agreement so that Intel can continue to assess how Facebook can stay stable and improve performance.

Facebook will have “thousands” of Xeon servers, a release said.

It’s not an earth-shattering announcement by any means, but Intel’s pretty psyched. “Intel is excited to engage with Facebook as they are a dynamic force in the evolution of the Internet,” Kirk Skaugen, vice president and general manager of Intel’s Server Platforms Group, said in Thursday’s release.

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Intel (INTC) may suffer the consequences of order push-outs from some Taiwan-based motherboard companies and notebook makers, according to Jefferies semiconductor analyst John Lau.

Lau today repeated his Buy rating on the stock, but cut his price target to $26 from $28. Lau trimmed his September quarter EPS estimate to 34 cents from 35 cents, cutting the December quarter to 40 cents from 41 cents. For the year, he now sees $1.24, down from $1.26. For 2009, his new forecast is $1.54, down from $1.56.

Lau says checks over the weekend found push-outs in desktop units from Dell (DELL) and HP (HPQ) with major motherboard makers like Asustek, while notebook makers like Quanta and Compal now see sequential growth of only 10 to -15 percent, lower than the previous forecasts of 15-20 percent.

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As companies like Intel Corp., IBM Corp. and Hewlett-Packard Co. have made moves in the solar power space, many have wondered if these high-tech heavyweights could use either their manufacturing or intellectual muscle to push down costs and thereby lower the price of solar power. Perhaps eventually, but not quite so fast.

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One of Intel’s top technologists revealed Monday that the chip giant will not win a spot on Apple’s iconic iPhone anytime soon, even as he outlined Intel’s plans to keep growing as it turns 40 on July 18.

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As the video game industry gears up for its annual E3 conference in July, the reality is setting in that the one-time entertainment extravaganza has become narrowly focused on console games, with very little room for PC games.

Even Microsoft and Intel, the champions of the PC, have conceded that point. Intel isn’t holding any press conferences or functions at the show. And Kevin Unangst, senior global director of Windows gaming at Microsoft, said his team decided to show off PC games at an event in San Francisco this week to avoid being overshadowed at E3.

“As it has morphed, E3 has fundamentally become a console show,” he said. “We didn’t want to just squeeze out some time at a console show.”

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Intel (INTC) has announced plans to spin-off some assets from its New Business Initiatives group into a new company to make and supply photovoltaic cells called SpectraWatt.

Intel Capital is leading a $50 million investment round in the new company, along with the Cogentrix Energy unit of Goldman Sachs, PCG Clean Energy and Technology Fund and Solon AG. The deal expected to close in the second quarter.

In addition to focusing on advanced solar cell technologies, the company said SpectraWatt will work on improving current manufacturing processes to cut the costs of generating solar power.

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Adobe (ADBE) shares are losing ground today after Cowen’s Walter Pritchard cut his rating on the stock to Neutral from Outperform.

Pritchard is concerned about the company’s transition from the current version of its flagship software package–Creative Suite 3–to the coming update, Creative Suite 4. He says that with the May quarter, “the company will reach a peak in financial momentum.” But Pritchard contends that “many of the drivers of growth in CS3 are not in place and in some cases work against CS4 given the significant upgrade activity and price uplift that came with CS3.” He notes that in the case of CS3, there were 24 months between versions, rather than the usual 18. The current version, he adds, benefited from additional demand associated with Apple’s (AAPL) adoption of Intel processors for the Mac.

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Intel has developed a pair of technical issues, American Technology Research analyst Doug Freedman asserts today.

One, Freedman says the company had a “mis-step in the completion of FCC certification” for the next-generation Centrino processor with support for the 802.11n Wi-Fi standard. “Without the certification,” he contends, “the CPUs can only be sold outside the U.S.” He says the impact of the issue is likely to be a slower ramp of 802.11n, as the new Montevina chipset can ship with processors that support 802.11 a/b/g.

Meanwhile, he also says that issues have cropped up with the integrated graphics in the Montevina platform. He says failures are occurring at notebook OEMs.

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It’s been a long haul for phase change memory, but the goal is in sight. Numonyx, the memory joint venture between STMicroelectronics and Intel, is already shipping samples of phase change memory (PCM) chips to customers, and will start shipping PCM chips commercially later this year, CEO Brian Harrison said at a press conference Monday. … Hearing a CEO talk about existing samples and near-term commercial shipments is a big deal for PCM. The technology has been stuck in the proverbial “a few years away” phase for a long time.

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Having seen Apple’s MacBook Air notebook computer up close, I’m as dazzled as everyone else who’s had a chance to examine this delicious piece of industrial design.

Dazzled doesn’t translate to handing over a credit card, however–at least not yet, and not solely because it’s almost never a good idea to buy Apple’s (or anyone else’s) hardware immediately after its initial release.

Even if serious flaws didn’t frequently surface in the company’s first batch of new models, I’d hold off on buying one of these, despite my admiration for the genuine accomplishments in this one. Cost isn’t the issue; rather, there are just a few too many feature compromises for my work-style.

My friend and your co-host here, Walt Mossberg, explained them well in his recent review. They include a nonremovable battery; non-expandable RAM; a paucity of ports; lack of an on-board optical drive; and a relatively small 80GB hard disk. (I wouldn’t even consider the flash-memory model for the moment, due to its high price and lower 64GB capacity.)

The somewhat modest central-processing power is a non-issue. Intel’s new Merom-architecture chip, running at up to 1.8GHz, has plenty of muscle for the kinds of duties a machine like this would typically handle. Graphics and media professionals would disagree, no doubt, but this ultra-svelte device isn’t aimed at them in any case.

I certainly can imagine why some folks have already ordered one. A frequent traveler whose computing tasks include little more than email, document-handling, Web browsing and watching a video will have lots to love.

But if she’s one of the increasingly global members of the workforce, and (unlike Steve Jobs) flies coach internationally except when she’s lucky enough to get an upgrade, she’ll discover that the roughly 5-hour battery life is good enough for domestic travel. And if the battery gets flaky or fails on the road, as has happened to me in two laptops, one an Apple, she’ll be up a creek.

Laptop batteries wear down eventually. Apple says it’ll replace batteries for the same price as MacBook batteries, with no labor charge, but there’s a serious inconvenience factor in having to take or send the machine to a repair shop.

Our otherwise happy purchaser will encounter other problems. She’ll arrive at her hotel one day and discover that there’s no Wi-Fi in the room. Out will come a dongle that fits into the single USB port, which is contained in such a tiny space that lots of USB devices will need extender cables, allowing her to use the room’s wired Ethernet connection.

In fact, it’s already clear that anyone doing serious computing will be hauling around a slew of dongles for the MacBook Air. The adapter for video presentations is a fact of life already for Mac notebook users. You’ll need a small USB hub just for starters, plus various adapters for things like an EVDO or other high-speed cellular modems that many serious travelers now rely on for domestic connections.

Apple’s design choices were surely aimed at one goal: creating the thinnest, lightest and most beautiful notebook around. You can find lighter Windows machines, but they have even more compromises, often including dreadful keyboards. (Not that I’m a fan of the Chiclet-y keyboards Apple now includes with everything but the MacBook Pro; some folks love them but I’m distinctly underwhelmed.)

The best keyboards on any notebook computers are in the ThinkPads from Lenovo, which bought the line from IBM a while back and, so far, appears to have maintained high standards. The smaller ThinkPads, especially the X models, are sturdy, reliable, capable and smartly designed in their own right, though not remotely jaw-dropping like the new Macs. But the ThinkPads have been the absolute class of notebook computers for many years.

Which leads to the obvious point–something I and at least a few other people have been publicly advocating for a long time, not that Apple is paying any attention. We keep wishing that Apple would either make a deal with Lenovo to sell ThinkPads with Mac OS X as an option, or make a deal with whatever company actually manufactures the ThinkPads. Then we’d enjoy the best of both worlds. (An upcoming ultra-portable, ultra-capable ThinkPad model would be the perfect machine for the Mac OS.) I would pay a premium, and so would plenty of other folks.

Some day, I predict, Apple will make such a deal. While we wait for Steve Jobs or his successor to realize why it’s a good idea, we can expect a host of improvements to upcoming versions of the MacBook Air. Not incidentally, some of these will also make Apple even more money.

Keep in mind that the relentless pace of technological improvement means that the processing power, memory and storage capacity of the MacBook Air will get dramatically better in coming months and years in any case. So that 80GB drive will be 160GB next year, and the 64GB in the solid-state version will double, too, for the same cost. As always, customer patience solves some issues.

But if I were czar of the MacBook line, I’d do two things right away. First, I’d find a way to make the current model modular, with one additional port that would connect to a dock in the home or office or both; the dock would in turn connect to a monitor, keyboard, mouse, printer, Ethernet line, external storage and other typical gear. This would resurrect the still-classic mode of the old Mac Duo notebook systems, which even now are fondly remembered as the best hardware combination of Apple’s portable-machine history. (Of course, the PC-laptop world–and, yes, the ThinkPads–have been doing this for a long time.) The docks would, like other Apple-made peripherals, become a profit center in their own right.

Second, I’d launch another notebook model. Call it the MacBook Air Pro. It would weigh a half-pound more than this one, and it wouldn’t be quite as gorgeous. But it would add back ports such as Ethernet and Firewire, along with a more capacious hard disk, removable battery, MacBook Pro keyboard, built-in EVDO and expandable RAM, among other things.

Meanwhile I’ll count on all you early adopters to find the inevitable bugs in the first batch of MacBook Airs. And I’ll count on Apple, as always, to be a pace-setter in design.

But I suspect I’m in a large class of potential customers. I’d love a computer that’s high art, but I need one that’s right for hard work.

Mario Rivas is irritated. Rivas is executive VP of the computing solutions group of Advanced Micro Devices; he runs the company’s processor business. So you can imagine why he might be a little cranky: AMD shares have dropped by more than 50 percent since mid-November. There are a host of reasons for the huge slide. For one, several analysts have turned a bit more cautious on the outlook for PC unit demand in 2008 after a robust 2007. For another, investors have worries about the company’s capital structure–they think AMD is going to have sell more debt in the not-too-distance future. The company seems to be losing mind share, and maybe market share, to Intel. And not least, the company’s Barcelona server processor was buggy and late.

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It’s a pickle of a paradox: As our knowledge and expertise increase, our creativity and ability to innovate tend to taper off. Why? Because the walls of the proverbial box in which we think are thickening along with our experience. Andrew S. Grove, the co-founder of Intel, put it well in 2005 when he told an interviewer from Fortune, “When everybody knows that something is so, it means that nobody knows nothin’.” In other words, it becomes nearly impossible to look beyond what you know and think outside the box you’ve built around yourself.

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