Yahoo!'s Panama Pain

Yahoo! (YHOO Quote) CEO Terry Semel signaled that he intends to stay the course even as his handling of a big technical setback drew slings and arrows from Wall Street.

In an interview with TheStreet.com after Tuesday evening's earnings debacle, Semel says he's not concerned that a much-anticipated search engine upgrade will face further delays. The comments came ahead of Wednesday's open, which saw Yahoo! shares plunge 18% to a two-year low.

The selloff was spurred in part by the latest round of soft numbers out of Sunnyvale, Calif., and in part by the company's handling of the news of its technical problems.

The search engine improvements, nicknamed Project Panama, are now slated to begin rolling out in the fourth quarter instead of the third. Wall Street had hoped Project Panama would help Yahoo! close the gap with rival Google (GOOG Quote) in the lucrative and fast-growing search advertising market. But analysts were frustrated Tuesday by what they called Yahoo!'s failure to explain why the project was delayed.

"We feel very good about the revised time frame," says Semel in an interview Tuesday. "I'd rather give our guys the extra little elbow room to make sure that everything is perfect and that everything is in sync."

Semel adds that he has no plans to change the team running Project Panama, saying "they are doing a brilliant job."

Semel might be hard-pressed to find investors who agree with that point of view right now. At Wednesday's levels, Yahoo! stock is down 32% this year.

"A lot of people were looking for this launch to be a nice catalyst going into the third-quarter results," says Scott Kessler, an analyst with Standard & Poor's who cut his rating on Yahoo! to hold from buy, in an interview.