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Microsoft and Adobe talk acquisition and Apple

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Adobe Systems stock soared during Thursday's trading in apparent excitement that its chief executive had held talks with Microsoft chief Steve Ballmer.

Shares in Adobe were halted by trading-system circuit breakers after surging 17 per cent, according to Bloomberg.

Wall St was excited to learn that Adobe's Shantanu Narayen and Microsoft's Steve Ballmer had convened a secret, hour-long meeting reported by the New York Times.

Topics on the table were Apple's control of the mobile phone market and how the pair could team up to battle Apple. A possible acquisition of Adobe by Microsoft was also discussed.

Adobe was reported to have not denied the meet while Microsoft was reported to have refused to comment on what it called rumors and speculation.

Apple's CEO Steve Jobs has been waging a jihad against Flash, preventing its installation on iPhones and iPads. The iPhone now holds a quarter of the US smartphone market.

Microsoft is about to bring Windows Phone 7 to the smartphone market, and Adobe said earlier this year that it's working on a version of its Flash Player 10 to Internet Explorer Mobile for Microsoft's operating system — despite the fact Windows Phone 7 will use Microsoft's Flash-competitor Silverlight for rich graphics and visual display.

The companies could be looking for ways to maximize this partnership.

Options include playing up putting Flash on Microsoft's planned slates. Microsoft could rally its OEM partners to bang the drum for Flash on slates to drown out the iPad and create the impression that Apple is an isolated option and that its users are locked on a black-and-white media island.

A symbolic option is Microsoft joining Adobe's sparsely manned Open Screen Project to put Flash interfaces on all manner of different-sized devices. Microsoft has been cribbing Adobe's OSP message with its own "three screens and a cloud" mantra.

Also, Microsoft and Adobe could work to improve the level of integration between Visual Studio and Adobe's creative tools while de-emphasizing its own Blend option.

Microsoft is pitching Blend as the graphics suite to Visual Studio's coding tools for Silverlight and Windows Phone 7 apps and content. Blend, though, has a minuscule market share, while the vast majority of the creatives Microsoft wants to have building graphics for Silverlight, the web, and on mobile, remain Adobe diehards.

Improved round-tripping of code between Visual Studio and Adobe, and easier deployment of apps, would be two quick ways to speed and simplify development for those sticking with Adobe's tools.

As for acquisition, there's long been talk of a Microsoft purchase of Adobe, but it's been felt that there are too many anticompetitive hurdles blocking that deal — a least on the PC, where Windows remains the number-one operating system. Flash runs on more than 90 per cent of PCs, while its application and creative tools compete with Visual Studio and Blend.

It's not unusual for the top brass of major tech companies to hold such get-togethers, especially when it comes to Microsoft. Such meetings can move mountains.

In the early 2000s Sun's then-CEO Scott McNealy reckoned he'd pick up the phone and spoke to Ballmer to settle the companies' long-standing legal feud and solve technology differences. Bill Gates went on to visit Sun HQ to discuss a framework of technology interoperability with Sun chief technology officer Greg Papadopoulos.

The result was a 10-year deal signed in the spring of 2004 that saw Sun settle, for $1.6bn, its prosecution of Microsoft for improper use of Java. The companies also agreed to work on interoperability between Java and .NET and provide support for Windows on Sun's x64 systems.

Microsoft initiated talks with SAP on a possible merger in 2004. Discussions were broken off because of the complexity of the transaction and integration. ®

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