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Week in review: Behind the earnings

It wasn't just numbers that made big news this week, it was their impetus and impact. Also: Tech wheels of justice.

It wasn't just quarterly earnings numbers that made big news this week, it was the stories of what led to profit rises and falls, and what the trends mean for the future.

Intel's quarterly revenue and profit, for example, dropped amid a bruising battle with Advanced Micro Devices, but the pain wasn't as severe as expected.

The still-dominant chipmaker's net income fell for the second quarter--but it was still enough to beat Wall Street's profitability predictions.

The numbers reflect the company's loss in market share to longtime rival AMD, whose Opteron processor family has found its way into machines from the top four server makers. Intel, whose quad-core server, desktop processors and Montecito server will arrive this year, also has a glut of inventory.

The earnings also explain the need for a recent 1,000-manager layoff and set in motion a major executive reorganization first reported by CNET News.com on Wednesday.

AMD, for its part, came in with second-quarter results below the company's targets as it bore the brunt of the price war. Revenue from desktop processors was lower than expected due to deep price cuts by Intel, AMD executives said on a conference call. Earnings also came in lower than expected.

In a related move that could tighten the squeeze on Intel, AMD and IBM are expected to form an alliance that will lead to mainstream IBM servers based on the Opteron processor.

On the software front, Microsoft reported earnings were just ahead of analysts' expectations as the company announced a plan to . The software giant said it has already completed the $30 billion stock buyback announced two years ago.

Meanwhile, Apple Computer's revenue fell a little short of expectations, but profitability was far higher than expected and Mac sales increased at a healthy clip.

Analysts had been worried that Apple's iPod growth had trailed off in the middle of a long stretch without a significant redesign or new feature. Apple sold 8.1 million iPods during the quarter, and a Piper Jaffray research report earlier Wednesday said anything over 8 million would be a "slight positive."

Mac sales, during what was considered a poor quarter for the PC market, were up 12 percent compared with last year. Apple said 75 percent of all Macs sold during the period used Intel's chips.

The Mac news got CNET News.com readers talking, as one suggested that Apple branch out and release an operating system compatible with any x86-compatible PC. "They could ask more money for the PC version, since they wouldn't be selling their PC, but think of the profits they could potentially make, we are talking about billions of more in sales," the reader said. "There are millions of people fed up with not the PC, but Windows, that's what they need to do."

Another reader, of course, responded, "How do you expect Apple to continue the same level of quality when they get split a million ways trying to support everyone's computers? The fact that Microsoft does this is one of the reasons for Windows having some of the problems it does. Linux also struggles with support for many hardware devices."

Turning to the Web, Google this week unveiled a Web search site designed to help the blind. The company also posted earnings that beat analyst expectations, as revenue from advertising continued to rise on market share increases.

And Yahoo, which struck a deal this week , posted second-quarter net income that met analyst expectations but was lower than a year earlier on higher stock compensation expenses. Revenue was just shy of analyst estimates.

Tech wheels of justice
In the nation's capital, Attorney General Alberto Gonzales on Tuesday resumed his defense of the Bush administration's warrantless wiretapping program, while admitting that the president prevented a review of the program earlier this year by Department of Justice lawyers.

Gonzales reiterated the president's recent pledge to submit the National Security Agency program to review by a secret court as long as Congress passes a new law that satisfies the White House's demands. That law has been the subject of much criticism and debate.

That issue also got readers talking, mostly about politics, although one tried to bring the focus back to technology. "But what surprises me more is how the technology-inclined audience throws its technical understanding out the window when these articles are printed. Despite all the security warnings, articles on spyware, key loggers, rootkits, etc., they think their information on the Net is private," the reader wrote. "I hate to burst your bubble, but the Internet is a public network."

Also in Washington, a federal judge postponed a key ruling in a lawsuit against Google brought by Agence France-Presse that alleges Google's popular news search feature violates copyright laws.

Meanwhile, on the other side of the continent, in a case with far-reaching implications for Silicon Valley, former top executives of Brocade Communications Systems are facing civil and criminal charges relating to allegations of stock-option backdating.

Federal officials announced the charges against Gregory Reyes, Brocade's chief executive until 2005, and Stephanie Jensen, the company's vice president of human resources from 1999 to 2004.

Also, a federal judge rejected both the U.S. government's and AT&T's requests to dismiss a class action suit accusing the telephone giant of assisting the National Security Agency in a sweeping, allegedly illegal, terrorist surveillance program.

U.S. District Judge Vaughn Walker in San Francisco disagreed with the government's assertion that the case should be thrown out because its subject matter and evidence involved "state secrets."

The judge also dealt a blow to AT&T's request to dismiss the case on three separate grounds. Heading south, a journalist and well-known helicopter pilot in Los Angeles has filed suit against video-sharing site YouTube, claiming that it encouraged users to violate copyright law.

Robert Tur says the video he shot of the beating of trucker Reginald Denny during the 1992 Los Angeles riots was posted at YouTube without his permission and viewed more than 1,000 times. Tur says in his lawsuit, filed Friday in U.S. District Court, that YouTube is profiting from his work while hurting his ability to license his video.

Across the globe, British police have arrested a U.K. citizen on charges that he operated Islamic fundamentalist Web sites that preached "violent jihad."

The vista from Redmond
Microsoft, which released a slightly updated test version of Windows Vista this week, has vowed to play fair by setting itself rules for development of the new browser and all future versions of Windows to bolster competition and customer choice.

The move comes as the expiration date approaches on antitrust provisions imposed on Microsoft by a U.S. federal court. The company also recently was hit by a massive antitrust-related fine by the European Union.

That news came on the heels of a report from security rival Symantec that draws attention once again to Microsoft's goal of improved security and the hurdles the software giant faces in getting there.

On the subject of security, Microsoft is readying a fix for a zero-day flaw in PowerPoint that has been exploited in targeted cyberattacks.

Microsoft also this week announced an alliance with networking specialist Nortel Networks, which will in many cases put it in direct competition with networking-gear provider Cisco Systems, as the companies pursue the markets for Internet Protocol telephony and other IP services.

Cisco, the No. 1 networking gear company, has a long track record in communications services, as does No. 3 Nortel. Nortel's partnership with Microsoft, whose software is ubiquitous, could offer significant strategic advantages as the companies pitch their products to business customers.

Redmond is also teaming up with XenSource, a smaller commercial software maker, to ensure its Viridian virtualization technology works with Xen, Viridian's open-source virtualization counterpart. This represents another Microsoft effort to improve how well Windows and Linux interoperate, a reflection of the software giant's slow realization that open-source software is not going away.

Microsoft announced its purchase of Winternals Software, a small maker of Windows utility programs, in a deal that Microsoft hopes will add key technical talent to its operating system development team.

And taking a page out of a science-fiction novel, Microsoft's research labs have come up with a way for people to navigate computer images using their hands to change their visual point of view. However, borrowing in equal measure from its business handbook, Microsoft is not going to develop the technology itself, but is instead licensing the technology, known as TouchLight, to a start-up.

Also of note
The World Cup head butt was used as Trojan bait...A Google executive challenged a Net pioneer on his ideas for a so-called Semantic Web...Retail stores will sell software for running Windows and Mac OS side by side on an Intel Mac...Adobe Systems released the first Windows beta version of Lightroom...Rootkits are getting better at hiding...the Internet phone service industry still has quality issues to address...Best Buy eyes early August for Core 2 Duo PCs...Yahoo sells Jessica Simpson single sans DRM...A worm lurks behind MySpace profiles...Next year fuel cells could take a significant step forward.