Microsoft, Cisco pledge to make products compatible

Microsoft Corp. and Cisco Systems Inc., after a year of trading barbs in the Internet phone software market, pledged Monday to make their products work together in the interest of customers.

Microsoft Chief Executive Steve Ballmer and Cisco CEO John Chambers said in New York that they would make their technologies compatible. The companies are working together on security technology, wireless phones, network management and consumer video services, the two executives said.

The accord unites the dominant companies in software and networking equipment. As recently as April, Chambers disparaged Microsoft’s Internet-phone software, calling it three years behind Cisco’s.

Customers say, “Tell me you are going to interoperate,” said Chambers. “Don’t make me throw away one relationship in favor of the other.”

Shares of Microsoft, based in Redmond, Wash., rose 1 cent to $28.26. San Jose-based Cisco fell 23 cents to $29.76.

“John initiated this,” said Ballmer. “He called and said, ‘Hey, look, have you noticed our customers are talking a lot about the need for our cooperation?’ ”

At the event, Ballmer played down the idea that Microsoft might buy Yahoo Inc., saying Yahoo would be “an expensive acquisition for anyone to do.”

Yahoo, the second-largest Internet search provider after Google Inc., trades at 46 times 2006 earnings and has a market value of $31.6 billion.

Microsoft already works with Yahoo and will look for more ways to collaborate, Ballmer said. Asked whether Microsoft was in active buyout talks with Yahoo, Ballmer said he wasn’t going to “say a darned thing.”

Even as Microsoft pledges to work with Cisco, it’s stepping up competition with the company. Microsoft is expected to announce today that Intel Corp., Texas Instruments Inc. and other makers of communication chips and equipment will support its Internet phone software.

The software, called RT Audio Codec, is used to compress digital speech into packets for transmission over the Internet. It will go into equipment that competes with Cisco gear.

A survey published this month by Wainhouse Research found that 48% of respondents were using or planned to use Microsoft’s communications software. That compared with 35% for Cisco. Duxbury, Mass.-based Wainhouse surveyed 160 for the study.

Microsoft also plans to announce a new feature for its software that monitors phone call quality, a spokesman said. The feature will be part of the Office Communications Server 2007 software, which is scheduled for release Oct. 16.