(June 19, 2007 - 5 PM EST) - Yahoo has dumped its CEO Terry Semel--regarded lately as a main barrier to progress and thereby preventing the company from cutting Google-addressing partnerships and acquisition bids. Goodness knows Microsoft might be on the phone right now.

The surprise news hit right after the market closed in New York.

There has been much speculation that such a thing could happen in the last couple of weeks and many investors were disappointed that Semel wasn’t handed his head at the company’s stockholders meeting a few days ago particularly given his outlandish $71.7 million compensation package last year.

In response to the news Yahoo stock, in the tank for a couple of years now compared to Google’s 300% run-up, was up 4% in after-hours trading.

Yahoo co-founder Jerry Yang has stepped in as CEO, a role that is widely believed to be temporary and widely interpreted as a signal that Yahoo is ready to deal although Yang did say something about Yahoo being a “vibrant, independent company” in this for the “long haul” and that the Internet is still “young.” Ad chief Susan Decker, the company’s CFO until six months ago, has been named president.

Semel, who sounded close to tears a one point on the conference call, will remain as non-executive chairman. During the Q&A he attempted to run with Yang’s “independent” remark until Yang cut him off. Yang, who praised Semel to the skies, as did an almost teary Decker, said it was an “emotional time,” but he also called partnering “a key strategic principle.”

Semel, who admitted that it’s been a “difficult year,” claimed he has been telling the board for a while that he wanted to “take a step back” and has been discussing the succession plan with the board “for quite some time.”

In a prepared statement Semel, 64, said, “This is the time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its full potential – it is the right thing to do, and the right time is now,” a change in tune since the stockholders meeting.

Yahoo is still looking for a new CTO and Yang intends to address the company’s overall talent search. Google of course is like a giant vacuum cleaner when it comes to talent. Decker said that any management layer between her and Yahoo’s audience and publishers operations would be removed or left unfilled.  Decker claimed that the company’s new Panama advertising platform was showing double-digit improvement ahead of schedule and concluded that the “marketplace was more responsive to a change in algorithm than we thought.”

When Semel came in six years ago Yahoo was losing money. He is credited with turning it around, increasing revenues nearly nine-fold to $6.4 billion last year and realizing close to $1 billion in operating income. The company claims 500 million visitors.