The week in review: All together now

In an effort to expedite its case against Microsoft, the government announced that it would not seek to break up the software giant. The Justice Department also will not seek a rehearing on the tying claim, which alleges that Microsoft illegally integrated its Internet Explorer Web browser with Windows 95 and 98.

Even as the agency removed those issues from consideration, however, it opened the door for others, saying it wants the court "to investigate developments in the industry since the trial concluded," which could include the forthcoming Windows XP operating system. The announcement also could be part of settlement discussions or an effort to bring Microsoft to the negotiating table as a new judge gets set to resume hearings in the case.

Compaq to go the HP way
In one of the largest deals in technology history, Hewlett-Packard will acquire Compaq Computer in a stock swap initially worth about $25 billion. The deal, if successful, would merge two of the biggest names in computers, printers and computer servers, and would have total revenue only slightly less than that of IBM, the largest computer company.

HP Chief Executive Carly Fiorina will become the new company's chairman and CEO, while Compaq CEO Michael Capellas will become president of the new entity. The combined company will have operations in more than 160 countries, employ more than 145,000 workers, and have annual revenue of $87.4 billion.

By becoming a single company, HP and Compaq Computer hope to take on IBM and other companies involved in services, servers, software and storage. But with complex product lines offered by the two companies and their young services effort, that aspiration could be hard to achieve.

Shareholders, however, were giving it a lukewarm reception as shares of HP fell for three consecutive days after Wall Street first got word of the proposed deal. The merger was initially valued at $25 billion, but HP's stock has lost nearly one-quarter of its value since Aug. 31, placing the deal's value under $20 billion.

Unlike some mergers, which have "collars"-- share price thresholds where one of the companies can walk away from a deal--HP's deal with Compaq is at a fixed ratio, meaning the two companies--and their share prices--are joined at the hip.

Checking out
Changes are often difficult but frequently necessary in the fast-moving technology world.

Exodus Communications Chief Executive Ellen Hancock resigned from the Web hosting company and will be replaced by director William Krause. Hancock, a longtime Silicon Valley technology executive with stints at IBM, Apple Computer and National Semiconductor, presided over Exodus as it grew to become the industry's largest Web hosting company. But Hancock's tenure also saw Exodus' business hammered by the demise of numerous dot-coms, which sent the company's shares plummeting.

Krause, who has served on the Exodus board of directors since June 2000, will serve as chairman and CEO. Formerly chairman of 3Com until 1993, Krause is president of private investment firm LWK Ventures. He also has worked at Hewlett-Packard and Storm Technology.

Sony, which recently pulled the plug on its eVilla Internet appliance, plans to discontinue a device that helped identify songs playing on the radio. The consumer electronics giant plans to offer a $25 refund to those who purchased the key-chain attachment, which is basically a digital stopwatch that can connect to a PC.

High Speed Access has pulled out of its agreement to offer Internet service on AOL Time Warner's cable network, citing financial difficulties. The end of the deal will force the media giant to search for a new ISP partner to satisfy regulatory requirements imposed during review of America Online's acquisition of Time Warner.

The Federal Trade Commission is requiring AOL Time Warner to offer high-speed Internet access over its cable systems from at least three rival ISPs. With the collapse of the High Speed Access deal, AOL has agreements to work with just two: EarthLink and Juno Online Services.

In hand
Microsoft unveiled Pocket PC 2002 and demonstrated a number of new features that the company asserts will make the OS a more useful tool for corporate workers. However, new memory and processor requirements could spell the end of sub-$200 Pocket PC-based devices, making the gadgets less attractive to consumers.

The most significant new feature of the OS is its support for virtual private networking, which allows handheld users to securely access corporate data. Another feature allows IT managers to control a PC or server from the device, assuming their company has a wireless network.

HP looks to cast a deeper spell on the corporate handheld market with new devices that incorporate Pocket PC 2002. The two new handhelds--the Jornada 565 and 568--will be nearly identical except in memory capacity and price. The Jornada 565 will come with 32MB of memory and cost $599, while the Jornada 568 will come with 64MB of memory and cost $649.

With the advances in color handhelds, simple black-and-white models are falling buy the wayside--and getting cheaper, too. Palm this week quietly cut its m500 by $70, putting the list price at around $329. The black-and-white cousin of the color m505 has lagged greatly in sales compared with the color model, according to several analysts. Both models were introduced in the spring, with the m505 selling for $50 more, at $449.

Your handheld device may soon act as a billboard as well as a communication device and personal organizer. Despite many skeptics, wireless advertising is getting the attention of major companies such as Pepsico, Coca-Cola, Nike, Finlandia, Intel and Sun Microsystems, among others. Wireless marketing is typically done in two ways: delivering ads on cell phones' tiny screens and placing branding on the phone's case.

But although companies are starting to add wireless marketing to their advertising budgets, some analysts believe they may be selling to an empty room. The overall market is still relatively small. There are an estimated 3 million wireless Web users in the United States, compared with the hundreds of millions that routinely surf the Internet.

Also of note
Two well-known computer security experts pulled down their works from the Internet this week for fear of being prosecuted under 1998's Digital Millennium Copyright Act...Intel announced that chip sales are on track for the current third quarter, after an extremely rocky first half of the year, although the final results still hinge on what happens in September...The Web's once common "page not found" errors are themselves going missing, stripped from recent versions of Microsoft's Internet Explorer in favor of a search tool provided by--you guessed it--Microsoft...The forthcoming Windows XP will support a technology standard known as Wi-Fi, or 802.11b, a wireless protocol that allows people to connect their computers and laptops so they can share the same Net connection.

Want more? Check out all this week's News.com headlines.