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The week in review: E-business on the brink

The already battered e-business sector takes a couple more hits, leaving many to wonder if it has gotten as bad as it is going to get.

The already battered e-business sector took a couple more jabs this week, leaving investors and analysts to wonder if it could get any worse.

Web portal Yahoo reported first-quarter earnings that slightly beat Wall Street's expectations but said it plans to lay off 12 percent of its 3,510 employees in an attempt to cut costs.

Separately, online convenience store Kozmo ceased operations, laid off 1,100 workers, and began liquidating its assets. The 3-year-old company stopped delivery service in all nine cities it operates. Kozmo said in December that investors promised a total of $30 million in private funding. But last month the company learned that an investor had backed out of a key $6 million commitment.

And even as Amazon.com inks a pact with Borders Group to take over the brick-and-mortar store's Internet operations, the online retailer may be looking to outsource more of its own business. In a research report, Thomas Weisel analyst Sara D'Eathe said Amazon recently put out a "request for a quote" (RFQ) to a large private outsourcing fulfillment, customer care and customer call center. She declined to name the company.

Such a move is an invitation for a company to provide outsourcing services to Amazon, D'Eathe said. She speculated that Amazon reaching out to outsourcing companies may imply that the e-tailer "does not believe it can be efficient at fulfillment itself."

Buggin'
A software bug is inadvertently shrinking hard-drive storage space on set-top boxes for UltimateTV, the new interactive TV service from Microsoft. The bug reduces how many hours of programming people can record onto the hard drive of UltimateTV set-top boxes. Microsoft has prepared a downloadable patch that it believes fixes the problem. Because it's a software bug, it affects all set-top boxes using the UltimateTV service.

Computer industry security experts believe they have discovered a vulnerability in certain high-speed modems manufactured by Alcatel, the French communications equipment giant. Though only theoretical so far, the problem makes the devices potentially vulnerable to malicious hacker attacks. The security problems could allow a hacker to bypass people's passwords and alter the devices, rendering the modems temporarily or permanently unusable, researchers said.

A bug in popular software used to transfer files between computers over the Internet could leave open a door to online vandals and network intruders. The vulnerability occurs in a function that allows people accessing a file server to search for particular words, even when they don't know the complete file name

Xerox warned employees not to install the test version of Windows XP after a hardware glitch on a machine running the new operating system led to network outages at the company. A bug caused three separate outages at California facilities, primarily at the company's El Segundo, Calif., location, between March 30 and April 4. The problem was not caused by the new operating system, but rather by an unnamed company's hardware when used with Windows XP.

In hand
Motorola has made the equivalent of a conference call, connecting cell phones with handheld computers to develop a new combination device, the Accompli 008. A press release on the device appeared prematurely on the Motorola Web site, revealing unannounced details for the U.S. version of the device. The Accompli 008 integrates features from cell phones and handheld computers into one device.

Microsoft introduced the first test version of "Talisker," its next-generation operating system aimed at a variety of handheld gadgets, Internet appliances, and factory automation equipment. Beta 1 of Talisker touts several improvements to its predecessor, Windows CE 3.0. Chief among those are beefed-up security, a more easily customized user interface, and a technology called Media Sense, which lets gadget owners know what types of network connections are available.

Faced with a glut of its handhelds, Palm is chopping the price of several of its older models. The company is cutting the price of its Palm Vx from $349 to $299 after having already trimmed the price last month with the announcement of two upcoming models, the m500 and m505. Palm is faced with the prospect of an additional $200 million in inventory piling up this quarter, based on current demand.

Song remains the same
A federal judge this week sharply criticized Napster's attempts to block trades of copyrighted music, calling the company's existing filters "disgraceful." Presented with evidence from record companies and publishers that thousands of works ostensibly included in the file-swapping service's filters were still available, U.S. District Judge Marilyn Hall Patel said that something needed to change. "You find a way to filter out (those songs) for which you can search," she told the file-swapping service, adding that if it can't block copyrighted songs, "maybe the system needs to be closed down."

Perhaps too late for Napster, but a study found that about one in three students would be willing to pay for an online music subscription service.

Hundreds of Web radio stations in the United States have gone silent, as radio broadcasters find themselves caught in a pair of disputes over online rights. Clear Channel Communications, Emmis Communications, and several other large broadcasting companies turned off many or all of their Web streams, citing ongoing negotiations with the record industry and advertisers. Online listeners at one station were given a terse apology instead of the expected live radio stream. The note cited "issues regarding demands for additional fees for the streaming of recorded music and radio commercials."

However, the standoff could be good news for companies that help stitch ads into streaming media broadcasts. Although the shutdown is a temporary setback for nascent Web radio stations, analysts said it could help ignite demand for so-called ad insertion technology, which can be used to get around disputed Internet advertising rules.

Coming and going
A consortium of chipmakers and national research labs showed off a prototype of a machine that will let the industry keep making faster chips for another decade. Extreme ultraviolet (EUV) lithography, showcased at a press conference at Lawrence Livermore National Laboratory on Wednesday, will allow chip manufacturers to "draw" circuits as small as 10 nanometers wide. That's 1/18th the size of the features on today's most advanced chips, or 1/18,000 the diameter of a human hair.

Intel will release a 1.7GHz Pentium 4 processor in a little more than two weeks into a market that is awash in price cuts and discounts. The 1.7GHz Pentium 4, which will officially debut April 23, will appear in PCs from Dell Computer, among others. Additionally, the Santa Clara, Calif.-based chipmaker will release an 850MHz version of its budget Celeron processor.

Software giant Microsoft is letting go of one of its most controversial employees: Clippy. The software help system, a long-despised feature of Microsoft's popular Office suite of business software, is the star of a new Web marketing campaign. The campaign and a companion Web site trumpet Microsoft's forthcoming Office XP software as so easy to use that Clippy is out of a job. Microsoft is asking customers to take part in an online poll so they can chime in on what Clippy's next job should be.

Also of note
From Minnesota to Tennessee, eager politicians and leaders of chambers of commerce are circling Silicon Valley executives, enticing them with offers of cheap electricity, land grants, and tax moratoriums if they ditch the Golden State...Sun Microsystems is implementing a new employee review process that, combined with cost-cutting measures, will likely lead to a reduction in the company's work force...Corporations will spend dramatically higher amounts on streaming video technology in the next four years--$2.8 billion in 2005, up from a relatively meager $140 million last year...Lou Dobbs is stepping down as chief executive of Space.com, a Web site featuring multimedia content on space, to return to CNN's "Moneyline News Hour."

View all this week's News.com headlines.