Google CEO Discounts Mergers, Sees More Apple Ties

Google is spinning off mounds of cash from operations, but Chief Executive Eric Schmidt appeared to rule out seeking big mergers or making other dramatic changes in how the company uses cash.

Speaking to investors at the Morgan Stanley Technology Conference, Schmidt also said discussion of mergers with with other major Internet players was premature as the Web advertising industry remains in its early stages of growth.

He signaled that Google , the world's dominant Web search provider, is
working more closely with Apple, the pace setter in the consumer
electronics world. The Google chief executive joined the board of directors of Apple last year.

Schmidt was asked by an investor to comment on rumors Google could be developing an Internet communications device to compete with Apple's highly anticipated iPhone, which blends phone, computer and Internet features in one device.

"I don't want to comment on rumors," he said, then added: "I will tell you that Google and Apple are doing more and more things together through the normal course of communications ... We have similar goals and similar competitors."

In announcing the iPhone in January, Apple Chairman and CEO Steve Jobs said its forthcoming iPhone device will feature Google Maps among its core Internet services.

Responding to a question about the potential for major mergers in the industry, including rival Yahoo , Schmidt said the Web advertising industry remains in the early stages of growth and is far from ripe for consolidation. "It would be early for the market to consolidate," Schmidt said.

Contrasting the consumer Internet services market to more mature technology markets such as business software, where Oracle has taken a lead in consolidating that segment, he said: "I don't think we are at that stage in the market.

"There are so many new areas ... where targeted advertising can be done. It does not strike me as the right time to be consolidating the whole market," he said, noting how the pace of innovation promises explosive change for years to come.

Morgan Stanley analyst Mary Meeker asked Schmidt whether Google would consider changing course on how it uses its cash. "It is highly unlikely," Schmidt said. "One of the problems in high-tech industries is that successful companies tend to generate cash pretty liberally (but) they don't have good places to put it."

He added that, while Google itself is generating a mounting pile of cash, "it is not obvious to me where it would go." Google invests heavily in data centers and network capacity to expand the range and depth of its Web services.

At the end of 2006, Google had $11.2 billion in cash and marketable securities on its balance sheet, up around 40 percent from the end of 2005, when the Silicon Valley company held $8.03 billion, according to corporate filings.

One investor asked when Schmidt expected to see the company diversify beyond Web search advertising revenue, from which it derived virtually all its $10.6 billion in revenue last year. Roughly 2% to 3% of Google's revenue comes from sales of its Web search appliance products inside organizations.

Schmidt said the newest meaningful contributor to revenue will be from the company selling subscriptions to business software delivered via the Web, its so-called "Google Apps" business. "The next really big one is actually an extension of Google Apps," Schmidt said in speaking of major revenue contributors.