By Scott Moritz, writer

Ebay (EBAY) rolled out Skype’s unlimited calling plan in a bid to keep up with rivals and – let’s face it – to finally land some paying customers.

For $2.95 a month. U.S. Skype customers can make unlimited calls anywhere in the United States. Calling plans from the United States to Europe cost $9.95 a month.

The move comes amid speculation that eBay might be considering a carve-out option for the voice-over-Internet-protocol, or VOIP, service that counts 309 million registered users.

eBay’s $4 billion Skype bet hasn’t paid off as the company hoped when the deal was signed in 2005. Last year, the online auction shop took a $1.4 billion charge to write down some of the unrealized value of that deal. This year, some eBay investors are hoping for a different sort of transaction – a sale.

“This is something that belongs with another entity,” says Darren Chervitz with the Jacob Internet Fund, an eBay investor. “Skype makes more sense at a place like Google (GOOG).”

Skype software allows PC users with microphones and cameras to make free calls to other Skype users or cheap calls to conventional phones. The service was expected to enhance communication between buyers and sellers in eBay’s auction market.

Big tech companies that generate a lot of cash are justifiably wise to make bold bets on innovative acquisitions, says Chervitz. Sometimes it works, like eBay’s purchase of PayPal, and other times it doesn’t, like with Skype, he says.

Chervitz would like to see eBay get some value back from Skype while it still can. “They should sell it now, says Chervitz, “before the technology changes.”

By Scott Moritz, writer

The pinch on consumer spending continues to cause big hangups at phone companies where their core businesses — landline telephone service — is eroding faster than ever.

The latest round in the alarming decline in phone lines will come Tuesday morning, when AT&T (T) presents its first-quarter earnings. Analysts are expecting AT&T — No.10 on the Fortune 500 list — to report that the rate of line losses in Q1 exceeded the 8% hit it took last year. No. 2 telco Verizon (VZ) has an even higher cancellation rate, losing 8.1% of its lines last year compared with a 7.6% decline in 2006.

The news signals an acceleration of a troubling trend for the sector as consumers, already hit by higher gas and grocery prices, look to their phone bills as a place to trim expenses. AT&T was the first telco to ring the warning bell when it said in January that there was “softness” in some regions of the consumer market.

This sluggish economic backdrop has made a tough competitive market even tougher, as cable companies such as Comcast (CMCSA) and Time Warner Cable (TWC) grab market share with their triple play offerings — video, Net and phone services.

If there’s one area that may help offset the landline defections, it’s wireless. But even AT&T’s high-revving mobile unit — the Apple (AAPL) iPhone’s only U.S. carrier –  is feeling the slowdown as the market becomes saturated. AT&T is expected to have added about 2 million net new mobile phone customers in the first quarter, a number that is down seasonally from the 2.7 million user it picked up in the busy holiday quarter that ended in December. Verizon Wireless — a joint venture of Verizon and Vodafone (VOD) — is expected to post a retail post-paid net subscriber gain of 1.5 million, down from 1.9 million in the fourth quarter. Verizon is scheduled to post earnings next Monday.

No.3 wireless player Sprint (S) has already indicated that it may lose as many as 1.2 million subscribers in the first quarter as users continue to flee its ailing service in mass.

AT&T’s so-called landline business accounts for about 59% of total revenue and about 55% of its profits. With the number of lines falling, AT&T has had to trim costs to keep in pace. Last week AT&T said it was cutting about 4,650 employees, or 1.5% of its staff in a “streamlining” effort.

Analysts expect AT&T on Tuesday to post a pro forma profit of 74 cents a share, up from 65 cents in the year-ago quarter. Sales for the first quarter are expected to be $30.7 billion, an increase over the $29 billion a year ago.

By Scott Moritz, writer

Packeteer’s white knight arrived in a Blue Coat. Network security shop Blue Coat (BSCI) says it will pay $268 million in cash for Packeteer (PKTR).

The deal calls for Blue Coat to pay $7.10 a share for the Internet traffic management outfit — a 15% premium over the closing price Friday.

As part of the deal, Blue Coat will buy the 10%  Packeteer stake held by private-equity firm Elliot Associates. Packeteer had rejected a $200.8 million takeover offer from Elliott earlier this year. In the new deal, Blue Coat will issue $80 million in convertible notes to Francisco Partners, a unit of Elliot Associates.

Packeteer, known as a wide-area-network optimization shop, uses software and hardware to speed up transmission of data communications. Packeteer and rival Riverbed (RVBD) have seen a steady decline in sales growth in the last year as tech spending slows.

Riverbed is down 58% in the past year. And prior to the deal, shares of Packeteer were down 36% since last year. Packeteer rose 12%, to $6.96, in premarket trading Monday.

By Yi-Wyn Yen

Watching the latest saga between video game publishers Electronic Arts and Take-Two is like witnessing two rival tennis pros throw flowers at one another.

On Friday, EA (ERTS) and Take-Two (TTWO) engaged in a press release battle that did not bring them any closer to reaching a deal.

EA extended its $2 billion tender offer to purchase the maker of the highly-anticipated Grand Theft Auto IV by 30 days. Though the all-cash bid remains the same, EA lowered its per-share price to $25.74 from $26 to reflect a dilution of additional shares that will go to Take-Two’s management. Take-Two closed at $25.98 on Friday.

EA’s deadline for Take-Two shareholders to accept the offer was originally set to expire at midnight Friday, but so far the gaming giant has won just 8% of the total shares it needs. In a statement, EA said it “continues to believe that the offer price is full and fair.”

Shortly after, Take-Two retaliated by firing off its own release. The company’s chairman, Strauss Zelnick, called the 6.4 million shares that were tendered “minuscule.” On Thursday evening at the annual shareholder meeting, Take-Two shareholders backed a proposal to give ZelnickMedia, the consulting firm that manages Take-Two, 1.5 million shares in restricted stock. Zelnick said that was “indisputable evidence” that its stockholders think its share value is “superior to the EA offer.”

EA has argued that the vote to back Take-Two’s management does not reflect the majority of Take-Two’s shareholders because they weren’t eligible to vote. Only those who held the stock prior to Feb. 19 were allowed to attend the meeting. Analysts estimate that between 50% to 70% of Take-Two’s stock has been sold since EA went public with its takeover bid on Feb. 24. An EA spokesman likened rewarding ZelnickMedia, which is expected to get a windfall if the company gets sold, to “having your last employer give you a million dollar bonus that your new boss is forced to pay.”

Take-Two refuses to talk with EA until after April 30, the day after GTA IV launches. Analysts expect the company will sell roughly 15 million to 20 million copies through 2009. Take-Two’s board unanimously rejected EA’s offer because it was “highly opportunistic and poorly timed” to get the most out of GTA, Strauss said at the shareholder meeting.

The alternative for EA is to simply walk away from the deal. But analysts say that is an unlikely scenario. They still anticipate the deal to go through, though at a slightly higher share price between $26 to 28. Take-Two shareholders have until May 16 to consider the tender offer.

By Scott Moritz, writer

Google’s (GOOG) blockbuster quarter squashed slowdown fears and help lead the entire market higher Friday.

Fans enjoyed the biggest one-day Google stock rise — up $89.72, or 20%, to $539.26 — in the past two years as the Net search giant blew past earnings targets by sidestepping a big drop in U.S. paid click traffic during the three months ended March 31.

Wall Street had been a little pessimistic going into the earnings report Thursday, after ComScore (SCOR) surveys showed a third straight month of miniscule advertising traffic growth related to domestic searches. The reports helped confirm suspicions that the drag of decreased consumer spending was starting to spread beyond retail and housing to the tech sector.

But the fears of a revenue slump at Google were overestimated as the company saw strong international paid click sales, and the effects of higher prices. ComScore felt a little investor scorn, perhaps undeservedly, for its role in the Google earnings anxiety.

Google reported 20% growth in overall paid click revenue over year-ago levels, which was down from the 30% pace in the prior quarter, but well above the 1.8% U.S. rate ComScore reported for March. ComScore’s snapshot flagged the U.S. slowdown but did not capture the bigger picture, namely Google’s expansion overseas, which accounted for 51% of total sales, up from 47% a year ago.

Analysts who had braced for a slowdown going into the earnings report quickly turned bullish after Google’s earnings were released.

Jefferies analyst Youssef Squali upgraded Google to Buy from Hold because the company demonstrated it was capable of “defying economic headwinds.” Squali however, kept his stock price target at $600.

Sandeep Aggarwal, an analyst with Collins Stewart, started coverage on Google Tuesday with a neutral rating with concerns about a slowing economy and declining ad budgets. On Friday Aggarwal upgraded Google to a buy for the company’s ability to penetrate international markets and make more profitable product improvments.

Aggarwal’s price target for Google is $615.

One notable downward adjustment came from Morgan Stanley analyst Mary Meeker. Meeker, who rates Google a buy, cut her 2008 sales estimate by about 3% to $22.4 billion from $22.9 billion. Meeker said the move was a “precaution to potentially continuing paid click volatility.”

Meeker does not set price targets.

One element of Google’s big performance may reflect well on rival Yahoo (YHOO). Though Google gained market share in the first quarter at Yahoo’s expense, the health of the sector seems to be intact. This should give Yahoo some added sway in its standoff with Microsoft (MSFT) over the $42 billion proposed merger.

Slumping consumer spending leads to more belt-tightening in techland as AT&T (T) says it will cut about 4,650 employees as part of a “streamlining” effort.

The San Antonio, Texas-based phone giant says the cuts will amount to about 1.5% of its 310,000 staff and largely involve regional managers. The move comes amid a steep decline in local phone lines as customers cancel service. The shrinking trend in Ma Bell’s core business also comes during an economic slowdown and signs that consumers are becoming more tight-fisted.

Competition has also intensified in the past year as cable companies like Comcast (CMCSA) and Time Warner Cable (TWC) sell more phone services as part of a video and Internet bundle. AT&T has been slow and somewhat stymied in its efforts to roll out a competing video service to more markets.

AT&T says it will take a $374 million charge in the first quarter. The company is on deck to report its first-quarter results Tuesday.

By Yi-Wyn Yen

With its strong first-quarter earnings report, Google on Thursday finally settled the score with comScore, which had sent Wall Street reaching for the antacid for the past two months.

Google’s paid clicks, which measures how often Internet users click on its text ads, were up 20% from a year ago. That was a far cry from the 1.8% growth rate for the first quarter that research firm comScore had reported.

Google CEO Eric Schmidt, wasted no time pointing out that fact at the beginning of the earnings conference call with analysts on Thursday. “It’s clear to us that we’re well-positioned in 2008 regardless of the business environment,” Schmidt said. “Paid click growth has been higher than speculated by third parties.”

For the past two months, Wall Street has hung its fears that Google (GOOG) might get hit hard during a recession on the comScore metrics. Instead, the search giant said it would manage just fine. It explained that it was intentionally cutting back on some ads so it can improve the overall quality and ultimately charge higher rates. Not everyone was sold on the idea when Google discussed its quality control initiative in late January.

But Google regained investors’ confidence after it reported profits that rose 30% to $1.31 billion, or $4.12 per share. Its total revenues of $5.2 billion, which includes ad sales it shares with partners, grew 42% from the same period a year ago. The stock shot up 17% in after-hours trading Thursday and rose above $500 mark for the first time since Feb. 22.

“It looks like comScore’s paid click metrics were highly misleading,” said Jeffrey Lindsay, an analyst with Sanford Bernstein.

Jonathan Rosenberg, Google’s top product management executive, explained that while sectors like travel, automotive, and finance are more exposed during a downturn, it was still seeing “healthy growth” in those areas. He said Internet users were still searching for keyword terms like “mortgage rates” in the U.K. where the housing market has been in a downturn for a longer period than the United States. “Every foreclosure becomes a home sale to somebody,” Rosenberg said during the call. “We are seeing absolute growths even in those areas.”

Some analysts say Google’s numbers are an indication that more ad dollars will shift online. “Google’s proven that online advertising holds up very well. It’s more accountable, measurable and cheaper,” Lindsay said. “They’ve demonstrated that they’re highly recession resistant.”

Google’s strength abroad also makes the company more immune to a slumping U.S. economy. Google’s international revenue of $2.65 billion represented 51% of the company’s total sales, making this the first quarter where the company earned more overseas.

Company executives said Google made more than 100 search-quality improvements in the first quarter. The bulk of changes were made internationally to improve local search results and to tailor Google’s homepages for the Asian market.

Schmidt ended the hour-long call by giving a shout-out to Google’s global sales teams and its top executive, Omid Kordestani. “I told Omid to get on an airplane and build an international operation,” Schmidt said. “Congratulations on making Google a truly global company.”

By Yi-Wyn Yen

When it comes to this spring’s crop of hostile takeovers, none has become more strange and complicated than Electronic Arts’s attempt to buy smaller, rival game publisher Take-Two for $2 billion.

On Thursday evening, Take-Two (TTWO), which makes the popular Grand Theft Auto series, will hold its annual shareholder meeting at the W Hotel in New York City. One proposal on the table: giving management 1.5 million shares of restricted stock, which would be worth tens of millions of dollars in the event of a buyout. If ZelnickMedia, the firm that has been managing Take-Two since shareholders voted out the previous executives at the last annual meeting, wins approval of that management incentive, the value of Take-Two shares will be diluted by 26 cents, putting in jeopardy EA’s (ERTS) offer of $26 a share.

In a bizarre twist, EA says that the majority of Take-Two’s current shareholders will be excluded from the meeting. Take-Two will only allows those who held the stock prior to Feb. 19 to attend the meeting, which means even those who no longer own shares in the stock can determine the fate of those who do. Analysts estimate that between 50% to 70% of Take-Two’s stock has been sold since EA went public to buy the company in an all-cash deal on Feb. 24.

“The sell-off has created a situation where former shareholders will vote on a management compensation amendment which could significantly impact new shareholders – and the new shareholders are not eligible to vote,” an EA spokesman said in a statement. “It’s like having your last employer give you a million dollar bonus that your new boss is forced to pay.”

Whatever the outcome of the shareholder meeting, EA’s deadline for Take-Two investors to accept the deal ends on Friday at midnight eastern time. EA has no immediate plans to raise its all-cash offer, which Take-Two’s management has rejected as too low. Take-Two’s chairman, Strauss Zelnick has stated that the company will not entertain buyout offers until April 30, the day after the release of Grand Theft Auto IV, which is expected to be one of the biggest hit games this year. “The EA proposal failed to value Take-Two’s extensive portfolio of top-selling brands and our extraordinary creative and human assets,” Zelnick said on last month’s earning call.

Analysts have watched the drama unfold with earnest. “I have been covering M&As for 20 years, and this is by far the weirdest thing I’ve ever seen,” says Michael Pachter, a gaming analyst with Wedbush Morgan Securities. “The timing is odd. The way the events have proceeded has been odd. The fact that so many shareholders have bailed is odd. It’s unusual how belligerent the two managements have become. Take-Two thinks it’s worth more after Grand Theft Auto comes out. EA thinks the company is worth less before it comes out. They’re both wrong. The company is worth the same. So the thinking is a bit odd too.”

Along with a possible change in investor sentiment, EA also faces anti-trust concerns. On Thursday morning, EA received its second request from the Federal Trade Commission to file more details of its proposed deal. Both EA, with its Madden Football series, and Take-Two, with its 2K Sports franchise, offer competing sports video game titles. “Worst case, a combined co. would be forced to divest certain assets/franchises, but we see even that as unlikely,” writes UBS analyst Ben Schachter in a report.

Though much uncertainty remains, many analysts believe an acquisition is at hand. “The news does little to change our view that ERTS will be able to buy TTWO in the $26-$28 range,” Schachter wrote. “We still see ERTS as the best acquirer of TTWO in terms of potential synergies and the most likely to win it, w/price remaining the only issue.”

By Scott Moritz

IBM (IBM) sounded a rally cry for tech as the big IT shop blew past its first quarter targets.

Big Blue roundly beat the Street’s adjusted profit expectations by 20 cents with a $1.65 bottom line for the first quarter. Sales of $24.5 billion also soared passed analysts’ estimates, which called for revenue of $23.7 billion in the quarter ended last month.

The news follows Intel’s (INTC) solid first quarter performance Tuesday and highlights some of the favorable trends still at work in the sector, especially among the bigger players.

The strong performance by IBM will help assure economy watchers and investors that the gloom hanging over the market may be lifting in some segments of the tech world.

While IBM didn’t give an immediate forecast, CEO Sam Palmisano gave an upbeat appraisal in a press release Wednesday, saying “We feel good about the rest of the year.”

The sunny outlook will likely spur a sense of optimism on Wall Street where sentiments ran high Wednesday after JPMorgan Chase (JPM) reported solid results. The Dow Jones index was up 2% and the tech-laden Nasdaq rose nearly 3% Wednesday.

By Michal Lev-Ram

Online auctioneer eBay reported first-quarter earnings that beat analysts’ estimates Wednesday, citing strong growth in classified listings, expansion at PayPal and Skype and the company’s global business.

The San Jose, Calif.-based company said revenues rose 24% to $2.19 billion, up from $1.8 billion in the same period last year, and beating Wall Street’s expectations of $2.08 billion.

eBay’s (EBAY) net income came in at $460 million, or 34 cents a share, in the first quarter, up 22% from a year ago. Excluding certain one-time charges, profits rose to $562 million, or 42 cents a share, above analysts’ consensus estimates of 39 cents per share.

“This was a very strong financial quarter for the company,” said new eBay chief executive John Donahoe, who took over in March after longtime CEO Meg Whitman stepped down. “The results reflect the strength provided by our diverse portfolio of businesses.”

Shares of eBay were largely unchanged after-hours. The stock finished the day up nearly 2% in regular trading on the Nasdaq.

“It was a case of they beat the numbers but it was anticipated,” said Piper Jaffray analyst Aaron Kessler.

Last January, eBay’s stock took a hit after its guidance fell below Wall Street’s estimates. And in February, eBay outraged some sellers when it reduced listing fees but increased the amount of money it takes out of each sale.

On a call with investors following Wednesday’s earnings release, eBay CEO Donahoe said he’s already seeing some positive momentum as a result of the restructured fee model.

“It’s only been about six weeks since the changes we announced have gone into place, but in both the U.S. and the U.K. we’re encouraged by the results we’re seeing,” said Donahoe.

According to the company, the number of listings on the site in the first quarter grew 10% from the prior year.

But the growth rate of the company’s gross merchandise volume, or the total dollar amount for items sold, is down, coming in at $16.04 billion — an increase of 12% over the first quarter of 2007 but down from the 14% growth seen in last year’s first quarter.

“Sustained GMV [gross merchandise volume] growth acceleration in eBay’s core U.S., UK and German markets is key, we believe, to the company’s fundamentals and stock price,” Citigroup analyst Mark Mahaney said in a written report.

The growth rate of active eBay users is also down, coming in at 1% compared to 10% in the year-ago quarter. And according to a recent Nielsen Online report, Web traffic to eBay decreased three percent year-over-year.

New CEO Donahoe told investors that 2008 would be a year of “bold changes” for eBay. His three top priorities are making the company’s sites easier and safer to use, improving pricing and incentives and growing PayPal, an eBay subsidiary.

But, as the company’s CFO Bob Swan conceded, there’s still a lot of work to be done.

“For the remainder of 2008 we’ll continue to focus on the strategies we’ve put into motion,” Swan said in a written release.

For the second quarter, the company says it expects revenues in the range of $2.1 billion to $2.15 billion, roughly in line with current estimates of $2.11 billion. Profits, excluding charges, are expected to come in at 39 cents to 41 cents per share, also in line with analysts’ forecasts of 40 cents per share.