Billionaire Oracle CEO Larry Ellison doesn't expect the U.S. economy to significantly improve until halfway through the next decade – a gloomy scenario he dubbed an L-shaped recovery.

"The American consumer is so deeply in debt, this is not going to come back, certainly for five years," he told a packed ballroom at a Churchill Club event in San Jose. "I believe we're going through some fundamental changes."

In a wide-ranging and humor-filled chat with former Motorola (MOT) CEO and Sun Microsystems (JAVA) executive Ed Zander on Monday night, Ellison riffed about the state of innovation in the technology industry, Oracle's (ORCL) acquisition of Sun, his sailing hobby, and the cloud computing trend. The event was a rare opportunity to hear Ellison talk off the cuff – he tends to be guarded with the press, and lately has done few interviews.

Ellison, 65, said that even after 32 years at the helm of Oracle, he doesn't see retiring anytime soon. He intends to develop Oracle into a technology powerhouse that provides not just software, but computing, storage and networking gear. The company recently started mapping out its five-year plan, and he intends to continue at the helm at least long enough to execute it. "We'll see how I feel after five years," he said.

Below, some more gems from Ellison.

On the value of Sun to Oracle:

"If, just for one dollar, if we could buy IBM (IBM), HP (HPQ), Sun or any of these tech companies, I'm not sure we wouldn't pick Sun."

(As Ellison later pointed out, Sun is losing $100 million a month, while IBM makes a couple billion dollars a month. I think we know which he would actually buy for a dollar.) Ellison said he has no intention of spinning out MySQL, and said he feels confident that European regulators will approve the deal.

On his frustrations with how cloud computing has become a trendy term:

"Cloud? Clouds are water vapor. My objection to cloud computing is the fact that cloud computing is not only the future of computing, it is the present and the entire past. Google's (GOOG) now cloud computing. Everybody's cloud computing. … All it is, is a computer attached to a network. What are you talking about? What do you think Google runs on? It's databases and operating systems and memory and processors! What are you talking about?"

On Microsoft's (MSFT) relevance:

"They make a lot of money. I think they're clearly relevant. I divide the computer industry into two groups. And I know for a long time I was constantly picking a fight with Microsoft. Now Oracle's constantly picking a fight with IBM. Because you've got to pick your enemies very carefully, because you're destined to become most like those enemies you select."

"Microsoft, culturally now, is a very consumer-centric company. They've got the Xbox. They've got Zune. … I think they are obsessed with Apple (AAPL). They're obsessed with Google. … Under the new administration at Microsoft, I see all of their energies going into being successful in the consumer space."

On the Obama administration:

"I don't know anyone who's against universal healthcare coverage, but it's going to be very expensive."

"I voted for President Obama, and I'll kind of confess to that right now. And I am surprised at how much spending there is. I am surprised that there are so many huge spending programs."

On net neutrality:

"I think it's very dangerous for the government to engage in pricing for companies. So I'd be a little bit worried if the government came in and did all the pricing for Safeway, priced food, even though food's essential. I think net neutrality, or having lots and lots of government regulation about how the phone companies can price their network, which they built and they own, is very interesting. Now, it's great for Google. And it's really bad for the phone companies. In general I believe in free markets, and I think this is a case where government regulation is not necessary."

On Oracle's culture:

"We are the largest employer of MIT and Caltech engineers in the world. We are the largest employer of Stanford and Harvard, CMU mathematicians in the world. We are overwhelmingly dominated by engineering at Oracle. The idea that we are a sales and marketing company, which people will write about quite often, is ludicrous on the face of it. … The company is all about engineering. It's the only thing that works. "

She's CEO Larry Ellison's secretive but effective right hand, and one of the most powerful women in Silicon Valley. But who is she, really?

Catz is yin to Ellison's yang. Photo: Jay Mallin, Bloomberg News

After months of on-again-off-again negotiations to sell itself to IBM, Sun Microsystems this spring found a new, if unlikely, suitor. Oracle, the business-software giant, in many ways promised to be a better fit for Sun, the beleaguered maker of server computers.

A Silicon Valley neighbor whose CEO, Larry Ellison, is pals with Sun chairman Scott McNealy, Oracle (ORCL, Fortune 500) posed less of an antitrust risk because it wasn't already selling hardware like IBM (IBM, Fortune 500).

But Oracle's all-cash offer of $9.50 per share, or $5.6 billion minus Sun's cash and debt, bested IBM's per-share bid by a mere 40 cents. So on the afternoon of Saturday, April 18, during a Sun board meeting called to pick a winner, CEO Jonathan Schwartz did what chief executives must do in such situations. He phoned Oracle to ask for more money.

He didn't call Ellison, his titular counterpart. Instead, he dialed Safra Catz, Oracle's president. Schwartz proposed a higher price, which, in the dry language of a subsequent securities filing, "Ms. Catz stated would not be acceptable to Oracle." Tail between its collective legs, Sun's board of directors accepted Oracle's final offer that weekend, informed IBM it was out of the game, and on Monday morning announced the shocker of a deal. Read the rest of the story here.

Oracle CEO Larry Ellison says he wants to keep Sun's hardware business, but he might be bluffing. Photo: Oracle

Could the Sun still come out at HP?

It’s no secret that Larry Ellison wanted Sun Microsystems (JAVA) for its software, not its servers. Regulatory filings show that before the hard-charging Oracle (ORCL) CEO put together his successful $5.6 billion offer and outbid IBM (IBM) for Sun in April, another party was kicking the tires as well.

One of the worst kept secrets in Silicon Valley is, that someone was Hewlett-Packard (HPQ) CEO Mark Hurd.

Since then, though, Ellison has said that he intends to keep all of Sun for himself.

But maybe he doesn’t. A person with knowledge of the communication between Oracle and HP suggested to me recently that Oracle still might deal those hardware assets to HP. And you know what? It could be a fine idea for both of them.

Why would Ellison want to give up Sun’s hardware? Actually, he never wanted it in the first place. Oracle’s first offer to Sun was for just the software business, regulatory filings show. Oracle is a software company after all, and while it certainly has the wherewithal to transform itself into something else, it might not be worth the hassle – or the ding to its profit margins.

Ellison claims he plans to use Sun’s server business to build appliances that are custom-tuned to run Oracle applications – like a data center version of Apple’s strategy of marrying hardware and software. But what else is he supposed to say about hardware now that he’s stuck with it?

HP might actually want Sun’s hardware to boost its services business. HP became a services heavyweight when it bought outsourcing giant EDS last year, and a little-known fact is that at the time, EDS was Sun’s best customer. You can bet that EDS still buys plenty of Sun hardware – so by owning Sun technology, HP could probably goose the profit margins on many of its services deals.

More reasons a deal could happen: HP executives say the EDS integration process is going well, and they feel good about the health of the outsourcing business in general. Also, there are signs that the global economy is stabilizing, which should make HP’s brass in Palo Alto less queasy about parting with the cash.

There are also plenty of reasons the companies might not do a deal. The economy seems to be improving, but it’s still touch and go, and HP might not want to shell out for another fixer-upper. Or Oracle might genuinely want to keep the hardware business.

But don’t put too much stock in Ellison’s claim that he wants to own hardware. When it comes to mergers and acquisitions, you have to take Ellison’s proclamations with a grain of salt. As we saw when he maneuvered to buy PeopleSoft and BEA Systems, he’s willing to bluff to get what he wants.

In this case, Ellison might be bluffing to rid of something at a decent price.

Cisco CEO John Chambers needs to try new things to keep his company growing while corporate technology budgets shrink.

It is the buzz of the tech world: Cisco Systems may soon try selling servers, those heavy-duty computers that companies use to run critical back-office applications. The prospect of router giant Cisco's entering the already crowded $55-billion-a-year server market is intriguing (imagine if LeBron James decided to try his hand at football) but also has the potential to disappoint. (Remember Michael Jordan's ill-fated effort to play professional baseball?)

With his server gambit, Cisco (CSCO, Fortune 500) CEO John Chambers appears to be targeting a very specific niche: the trendy "virtualization" segment of the server business, which is expected to grow 43% this year to $2.7 billion worldwide, according to research from Gartner. Virtualization basically is a way to make servers more efficient. Using specialized software, one computer with a hard drive and a network connection can act like several smaller computers and hard drives on different networks. When everything goes right, more work gets done with less hardware and electricity. Multiply that effect in a data center with thousands of servers, and you can see why corporate customers like it, especially in times of cutting costs. Computer maker Dell (DELL, Fortune 500), for example, believes it can cut its information technology budget 10% this year without sacrificing productivity.

Full story (CSCO) (IBM) (HP) (DELL) (VMW) (INTC) (AMD) (MSFT) (JAVA)

In a surprise announcement, Intel (INTC) said Wednesday that its gloomy fourth quarter forecast wasn't nearly gloomy enough. Instead of pulling in between $10.1 billion and $10.9 billion in sales, the chip giant expects closer to a dreadful $9 billion. The stock tumbled more than 7 percent after hours.

It's hard to articulate just how bad this news is.

When Intel CEO Paul Otellini gave Intel's now obsolete forecast a month ago, it was the fuzziest range the company had ever offered. The global economic crisis, he said, left things so uncertain that he couldn't be more specific than a ballpark estimate. The low end of Intel's old range – the $10.1 billion – would have seen sales during the normally bustling holiday quarter actually shrink compared to the ho-hum quarter before. That's pretty much unheard of.

Well, things just got much worse than that worst-case scenario.

Intel slashed its predicted profit margin by four points. Its prediction of revenue between $8.7 billion and $9.3 billion in the fourth quarter means chip buying has fallen off a cliff, as PC and server makers around the world – folks like Hewlett-Packard (HPQ), Dell (DELL), IBM (IBM) and Apple (AAPL) – scramble to adjust to dramatic slowdowns in business. Intel's warning also bodes ill for folks like Microsoft (MSFT), Cisco (CSCO), Advanced Micro Devices (AMD), Nvidia (NVDA) and Sun Microsystems (JAVA), whose products end up in the hands of many of the same customers.

Perhaps most depressing, things are bad enough that Intel rushed to report the news. Executives had already planned to take the unusual step of giving investors a business update the week after Thanksgiving. By canceling that update and offering this one, Intel is saying things are so obviously grim there's no point in sitting on the news to be sure things won't improve. Christmas isn't coming for the PC and server business this year. Instead of being the best quarter of 2008, Q4 will likely look like a mediocre quarter – from 2007.

The only thing scarier than these terrible numbers? The implications for next year. Sales typically drop from the fourth quarter to the first, as consumers slow down from their yuletide buying binge. But if things are already bad now, what's to say they won't be even worse in January?

All of this puts last week's relatively optimistic comments from Intel senior VP Sean Maloney in a new light. Sure, Intel has plenty of cash – enough to weather even a deep recession. But if the sales outlook continues to look this bad, it won't be long at all before Intel faces enormous pressure to cut costs and salvage earnings per share.

Actually, with numbers this bad from a tech bellwether, it might not be long before everyone in the industry is slashing costs. Merry Christmas.

Bryan Cantrill and Mike Shapiro, Distinguished Engineers at Sun, dreamed up a new type of storage product and convinced executives to let them build it in relative isolation. Image: Sun

Maybe there's something about unconventional office space that gets Silicon Valley's creative juices flowing.

Bill Hewlett and Dave Packard worked their magic in a garage. Apple's (AAPL) Macintosh development team flew a pirate flag over the Bandley 3 building. Now Sun Microsystems (JAVA) hopes a young team that toiled in an unmarked — and reportedly unkempt –  San Francisco loft can spark a turnaround in a tough economy, and build a new billion-dollar business.

The pizza-fueled group, led by engineering whizzes Mike Shapiro, Bryan Cantrill and Jeff Bonwick, spent about three years developing a new type of data storage box that uses flash technology, off-the-shelf parts and open-source software to help companies store and manage information more effectively. Don't doze off, now – data storage may sound boring, but it's also lucrative. With the explosion in online video, social networking, Web-based software and online commerce, it's about as close to a recession-proof business as you can find.

Just think: Every stock transaction, YouTube video, and Facebook friend request gets stored somewhere. That's why market research firm IDC has network storage pegged as a $4 billion business in the second quarter alone, up 22% over a year before. Tech heavyweights like Hewlett-Packard (HPQ) and Dell (DELL) have recently bought storage outfits to gain a competitive edge.

For Sun, a respected Silicon Valley data center supplier that never completely recovered from the dot-com bust, this growing pot of money is too big an opportunity to pass up. Investment firm Southeastern Asset Management has recently accumulated a fifth of Sun's shares, and has hinted that it might start hunting for suitors whether Sun's board likes it or not. A hit product could buy Sun some time – or even convince investors that it can do just fine on its own.

Shapiro and Cantrill certainly had the brains to come up with something game-changing. The two college buddies, who had risen through Sun's ranks to become Distinguished Engineers, believed that by tapping software they have developed over the years, they could build a new breed of networked storage box that's faster, cheaper, and simpler to operate than the mainstream fare from companies like EMC (EMC) and Network Appliance (NTAP). They decided to bring the idea to top executives. "I honestly though we'd get laughed out of the room and just get told to go back and do our jobs," Shapiro said.

One day in the cafeteria the two cornered Greg Papadopoulos, Sun's chief technology officer, and made an unlikely pitch for resources to pursue their vision. They continued the conversation in his office — and to their surprise, he said yes on the spot. A project code-named Amber Road was born. "Some of our top engineers came and they said this is profoundly important, the time has come, and we want to go do it," Papadopoulos recalled. "I'd better have a good reason to say no."

Actually, he could have come up with several good reasons. Unlike high-fliers like Google (GOOG) and Apple, which have billions in cash and zero debt, Sun doesn't have money to burn on every engineer's pet project: Recently the company reported it had $2.6 billion in cash, $1.2 billion in debt, and enough potholes in its balance sheet that it has announced plans to lay off 350 employees in January. (That alone doesn't sound like much, but Sun has let go of 1,500 employees in recent months.) In the most recent quarter, sales slumped 7% to $3 billion. Sun stock also reflects the harsh reality: it's trading near $4 per share, where it was in early 1995. That's down 80% from a year ago.

If that weren't enough, the Amber Road team asked for its own office space, away from Sun's big-company atmosphere and product development protocols. Shapiro in particular felt that to design an easy-to-use storage system, the team would need to escape Sun's culture. "We build for engineers – lots of knobs and dials and gauges — and that's really anathema for ease of use," Papadopoulos admitted.

So he and systems group chief John Fowler agreed to the group's pleas for independence, under a few conditions. The space couldn't be as nice as Sun's official offices, and there would be no elaborate decorating budget; the team of about a dozen engineers painted it themselves, and found furniture at flea markets. "They love it, it's right across the street from the bus terminal," Papadopoulos said. "You just sort of slide pizzas under the door."

If it sounds like a startup, that's the idea. There's some history of this at Sun; legend has it that James Gosling left the company's offices to work on the Java programming language in rented space on University Avenue in Palo Alto — not far from where Facebook's headquarters is today. But the question is whether this infusion of outside-the-box thinking will be enough to make a difference for Sun's bottom line. "How fast it can grow to be a billion dollars plus, which is what it needs to be, is not clear," admitted Fowler, the systems group chief. But he's optimistic; customers who have seen the new storage product in action can't wait to get their hands on one, he says.

Analysts so far are skeptical. Sun will have to prove that its Sun Storage 7000 appliances are powerful enough to serve the needs of large customers, who tend to be comfortable with companies like EMC whose storage products have longer track records. But the fact that Sun has elegantly built flash-based solid-state storage technology into these boxes should help. IT managers are eyeing solid-state storage as a way to boost performance, and while all of the major storage companies are promising to include it in future systems, Sun is among the first to deliver.

"Can Sun get out there quickly enough and grab market share so they can grow their base before others arrive to the party?" asked Gene Ruth, analyst with Burton Group. "A year from now I suspect we're going to see all the majors out there with significant solid-state products. I always look at Sun as being a technically strong company. Whether they can execute is the question. I hope they do."

This may be one of Sun's last chances to prove it can get something going. For years, rumors have swirled around Silicon Valley that someone will swoop in and buy out the company. Granted, that seems mighty unlikely in this environment –- with scads of plucky startups for sale at bargain-bin prices, why buy a struggling giant? But if the stock stays this cheap, valuing the company at just $3 billion, it's a safe bet that antsy investors will make a move.

Despite the downturn, AMD is hopeful that it can sell its higher-performance server chips; and the early reviews are positive. Image: AMD

Sun Microsystems sells a lot of servers to the financial services industry, which has been hard-hit by the credit crunch. So when Sun CEO Jonathan Schwartz recently asked a banking executive how he was doing, he probably wasn't surprised at the response: "I'm curled up in the fetal position."

Investors can relate. Last week Sun (JAVA) warned that it would report a huge loss for the summer quarter, news that sent shares skidding 17%. But despite the doom and gloom, Sun expects to keep getting server orders from banks and other customers. After all, with all those Wall Street traders dumping stocks, somebody's still got to process the transactions. And that's part of the reason why Advanced Micro Devices (AMD) is optimistic that its new server chip, code-named Shanghai, will do well despite the downturn.

Over dinner Monday night at Zibibbo in Palo Alto, Sun Executive Vice President John Fowler predicted that he wouldn't have trouble selling new servers equipped with the updated Opteron processor from fellow underdog AMD. Sun's tests of Shanghai have gone swimmingly, he said, it has already begun shipping, and should appear in products in a few weeks. The new chip is designed to plug into the same equipment that used its predecessor, code-named Barcelona. Since Shanghai won't suck more power than Barcelona and it will be priced to sell, it should be a no-brainer for customers who need to buy now. (Fowler's pro-Shanghai feelings are echoed by several analysts, who say other server makers plan to build it into their products.)

Of course, we've all heard enough of these promises to take them with a grain of salt. After all, last year Barcelona was supposed to be a big hit — but when AMD released the chip later than expected and it ran at slower speeds, enthusiasm dimmed considerably, and some customers defected to Intel (INTC).

The message from AMD and friends continues to be that Barcelona's mistakes cannot – will not – happen again. Sitting across the table from Fowler as he predicted smooth sailing for Shanghai was AMD's Randy Allen, a senior VP who leads the processor business. Allen told me he realizes that AMD needs a trouble-free Shanghai launch, not only to put the ghosts of Barcelona to rest, but also to reassure customers like Sun about designing future products around AMD chips. (AMD's next major chip overhaul that would require such redesigns is due in 2010.)

So what should investors make of all this?

It certainly does appear that things are looking up for AMD. In just the past couple of weeks, the company has reported gains in the graphics business and announced a huge cash infusion from Middle East investors that should allow it to spin off the manufacturing of its chips and keep those operations from dragging so much on earnings. It also restructured its executive lineup recently, installing new CEO Dirk Meyer and bringing in new engineering executives to make sure its chip blueprints work as advertised. After the Barcelona fiasco of 2007, it was clear that 2008 would be a rebuilding year. So far, AMD seems to have made good use of its time.

But the real test will come in 2009. That's when those rebuilding efforts need to translate into sustained profitability and market share gains. In the first quarter, AMD should have a version of Shanghai for desktop computers. In 2009 AMD has also promised a laptop chip that will offer both low power and graphics performance for a price that blows Intel out of the water.

And if all that's on track, we can also reasonably expect to hear more about AMD's plans for ultra-portable devices. Allen confirmed to me that his team is working on a chip that will compete with Intel's tiny, low-power Atom processor — but with a key difference: Intel plans for Atom to eventually make its way into GPS devices and smartphones, while AMD will aim its chips at the low-cost mini-laptops and simple desktops that industry insiders are calling "netbooks" and "nettops."

The biggest driver of profitability for AMD, though, must be servers — and that means these Shanghai promises have to pan out in a tough economy. To gauge whether that's happening, it's a good idea to watch customers like Sun. If their server customers keep buying? Good sign. If more executives wind up in the fetal position? Bad. (NVDA) (MSFT) (D

HP CEO Mark Hurd is taking a risk by bidding for troubled services player EDS. Image: HP

Hewlett-Packard CEO Mark Hurd has built a world-class reputation as a cost-cutting turnaround artist, and he's risking it all with a smart bid for technology services giant Electronic Data Systems.

HP (HPQ) announced Tuesday that it would pay $13.9 billion in cash for Texas-based EDS (EDS), which manages technology projects for a range of large clients. If HP does it right, buying EDS is the business equivalent of a triple-play. In one fell swoop HP is more than doubling the revenue of its services arm, mounting a more serious threat to IBM (IBM), and shutting down a distribution channel for other competitors.

Strategically, the deal makes sense. Hurd is in the midst of expanding HP beyond its base providing lower-margin hardware like PCs and printers. Instead, he wants HP to grow more profitable businesses such as "services," – industry parlance for helping customers to buy and manage technology gear. (In a Super Bowl commercial eight years ago, EDS memorably compared this tech management challenge to herding cats.)

Still, Hurd's play for EDS is a gamble. It will raise questions on Wall Street about the efficiency expert's ability to close a mega-deal. Hurd and his team will also face the daunting task of deciding whom to keep among EDS's 140,000 employees, how to get the troubled company into shape (it's trading far below its $22 billion annual revenues), and how to manage the acquisition without losing ground to rivals. So far, investors are taking a wait-and-see approach. After news of the deal talks broke Monday, HP's stock dropped just 5 percent to close at $46.83, a relatively small hit given the size of the deal. EDS stock rose 28 percent to $24.13 per share on Monday.

In a humorous Super Bowl commercial years ago, EDS compared the technology services business to herding cats. If an acquisition goes through, HP could have a similarly tough task integrating EDS.

Hurd has plenty of reason to believe HP can do the deal smoothly. Under the leadership of Chief Strategy Officer Shane Robison, HP has recently snatched up prizes like Mercury Interactive and Opsware. And even though those two companies were bigger than HP's existing software business, it managed to successfully integrate them. HP has also worked on getting into tip-top shape operationally, tightening up its IT systems and its performance management policies. That should make a large acquisition easier to digest.

Perhaps more important, the EDS acquisition would mark a homecoming of sorts for HP Services head John W. McCain, who would likely lead the combined EDS/HP Services. [UPDATE: HP has said EDS will remain a standalone organization, based in Plano and led by Ronald Rittenmeyer.] Earlier in his career, McCain spent 16 years at EDS and rose to the ranks of president of e.Solutions. As a veteran of EDS culture and practices, he's sure to have opinions about how HP could get the most value from the company. McCain might also know how to position EDS's workforce to sell more HP equipment and less from competitors such as Dell (DELL), Xerox (XRX) and Sun Microsystems (JAVA), without alienating the customer base.

The EDS buyout is expected to close later this year and is subject to EDS shareholder and regulatory approval.

HP has now postponed its official earnings announcement until next Tuesday, May 20, after the close of trading. The company released a preliminary earnings statement today for its second fiscal quarter saying that sales came in at $28.3 billion and non-GAAP profits at 87 cents per share,  both beating Wall Street's average estimates. The company also raised its revenue and profit guidance higher for the year. HP now says revenue will be between $114.2 billion and $114.4 billion, at least $200 million higher than the previous range. Non-GAAP diluted earnings per share will be $3.54 to $3.58, just above the previous range.

Adobe has tipped its hand, and it now seems clear that it needs Apple's iPhone more than Apple (AAPL) needs Adobe's Flash. But it's not at all clear that Adobe (ADBE) will get the foothold on the device it seems to want so badly.

Two weeks ago Adobe turned the other cheek when Steve Jobs' publicly slighted Flash and Flash Lite, describing the first as "too slow to be useful" on the iPhone and the second as "not capable of being used with the Web." See here.

Nonetheless on Tuesday, during Adobe's quarterly conference call, CEO Shantanu Narayen announced that his company has begun development of a version of Flash specifically for the iPhone — surprising even his PR staff.

"We believe Flash is synonymous with the Internet experience, and we are committed to bringing Flash to the iPhone," he said. "We have evaluated (the software developer tools) and we think we can develop an iPhone Flash player ourselves." (link)

Presumably Adobe intends this version to fit what Jobs described as "missing product in the middle" between Flash and Flash Lite.

But there are other ways to deliver rich-media applications to the iPhone. Sun Microsystems (JAVA) has announced that it is developing a version of Java for the iPhone, for example, and Apple has some home-grown solutions of its own. (See Kontra's Runtime Wars (1) and (2) for a summary of Apple's options.)

And it's not clear that even this new version of Adobe Flash will thrive in the iPhone ecosystem unless Apple decides to allow it.

Daniel Eran Dilger at Roughly Drafted Magazine has already expressed his skepticism, arguing that it's no more in Apple's interest to become dependent on Adobe than it would be to become dependent on, say, Microsoft (see here).

Daring Fireball's John Gruber is even more dismissive. "Adobe Smoking Same Dope as Sun," was the headline of his post on the subject. He points out that the iPhone SDK explicitly states that no "interpreted code" can be downloaded and used in an application except those that are run by Apple's published program interfaces (APIs).

"Without approval from Apple (including APIs beyond those in the current third-party SDK)," Gruber writes, "they can distribute it in the same alternate universe as Sun’s supposedly-in-the-works Java port." (link)

UPDATE: Gruber is right about that, as Adobe acknowledged in the clarifying statement it issued on Wednesday:

Adobe has evaluated the iPhone SDK and can now start to develop a way to bring Flash Player to the iPhone. However, to bring the full capabilities of Flash to the iPhone Web-browsing experience we do need to work with Apple beyond and above what is available through the SDK and the current license around it. (link)