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The week in review: It's official--U.S. calls for Microsoft breakup

To no one's surprise, the Justice Department calls for Microsoft's breakup to prevent the company from misusing its operating system software monopoly.

To no one's surprise, the Justice Department called for Microsoft's breakup to prevent the company from misusing its operating system software monopoly.

The dramatic step, formally proposed late Friday, envisions divorcing Windows from applications such as the Office suite as well as Microsoft's Internet businesses. Presiding Judge Thomas Penfield Jackson Jackson is not bound by the government's suggested remedy, but earlier this month ruled the software giant to have violated antitrust laws by using Windows to capture the market for Web browsers.

No surprise
Microsoft predictably criticized the proposal, saying consumers would be hurt by such a remedy. The company's shares declined for much of the week.

Some antitrust observers echoed Microsoft's position, noting that past breakups such as the 1984 AT&T split have sometimes taken years to reach consumers while often requiring additional government intervention. The software industry also tends to favor established products, making it possible consumers could wind up paying two monopolists rather than one.

Meanwhile, leading economists suggested in a friend-of-the-court brief that Microsoft should be split four ways, dividing the Windows business into three.

If it sticks, the government's proposal would certainly change the bottom line: Microsoft derives more than 40 percent of its revenue from Office applications. The company also has been regularly investing in broadband firms that might help Microsoft rent software via online connections.

Earlier this week, Justice Department officials briefed the White House, while a panel of federal judges consolidated 27 private antitrust suits against Microsoft into a single court in Baltimore. More than 130 such cases are pending.

Microsoft is to respond to the government's proposal by May 10.

New lease on life
General Motors has leased office space in a trendy San Francisco neighborhood to get its fledgling e-GM unit closer to Silicon Valley employees and ideas. The goal of the world's largest manufacturing company--perceived by many outsiders as a symbol of lumbering Rust Belt bureaucracy--is to become an e-commerce juggernaut.

Intel touted a product strategy that calls for manufacturing components and providing services to as many segments of the Internet as possible. A chief selling point will be chip integration. In other words, the company most responsible for raising consumer awareness of the PC's innards aims to be part of the "information appliances" and online services springing up to serve the fast-growing medium.

Separately, the company released a 700-MHz Pentium III and a 550-MHz Celeron for notebooks and said it will phase out its practice of stamping serial numbers on its processors, ending a public relations fiasco. Rival AMD said its forthcoming Duron, a Celeron competitor, will replace AMD's K6-2 line when it arrives in June.

In the next three or four weeks, Red Hat expects to sign several deals with "well-known" partners to spread its version of the Linux operating system into so-called gateway networking devices. The move, which would mark the company's first major expansion outside of its server stronghold, will pit Red Hat against Microsoft in competition to power the devices that will join home networks to the Internet.

Meanwhile, Microsoft promised its Universal Plug and Play software will be widely available by late next year. Facing competition from Sun Microsystems' Jini, a Microsoft-led working group that includes consumer electronics makers, device manufacturers and PC makers is to hammer out the technical and marketing details of allowing networked devices, appliances and home computers to communicate and share information.

AT&T's wireless stock offering, the largest IPO in Wall Street's history, was greeted cautiously by investors reacting to recent market tumbles. The debut also was tempered by AT&T's falling to a distant third place in terms of subscriptions and the company's comparatively weak profit margins.

Analysts boosted their recommendations on Compaq Computer's stock after the PC maker reported earnings in line with expectations. Although the figures were essentially flat from a year ago, executives stated that the Y2K slowdown, excess operational costs and other factors that hampered the company's growth in the past year are falling away.

Transmeta, which aims to take on Intel in the processor market, received $88 million from America Online, Gateway, Compaq, Sony and several major Taiwanese electronics manufacturers in a deal that could lead to an initial public offering later this year. The funding addresses concerns over the secretive newcomer's lack of customers, indicating the technology elite see a future for the company's chips.

Nortel will officially break its ties with the parent of Canada's dominant phone company. BCE's releasing its 40 percent of Nortel's outstanding shares on the open market could bring more stability to Nortel's stock performance and also rid the company of nagging conflict-of-interest concerns: Bell Canada is 20-percent owned by Nortel customer SBC Communications.

The little guys
Gateway allied with Verio to offer Internet hosting and services to small and medium-sized businesses. Although it has been one of the leaders in devising ways to tie new services to PC sales, Gateway is following rivals into the hosting market. Meanwhile, Verio's move counters Dell's entry, which made the PC maker a competitor with one of its customers.

The little guys seem to be leading the pack in the fast-growing Net services market. Sapient, Scient, Viant and Razorfish are among those which have recently reported strong earnings despite competition from IBM, Electronic Data Systems and other giants.

Lycos is sticking to its guns at a time when many other portals are repositioning themselves to deliver more targeted audiences to advertisers. The strategy bucks the conventional wisdom that only industry frontrunners such as Yahoo and AOL or companies that cater to niche users will survive in the search-engine business.

The record industry won a key victory in its legal battle against as a federal judge said the Internet company had violated industry copyrights in a summary judgment. The closely watched lawsuit will mark an important precedent in determining how far dot-coms can stretch existing copyright rules.

Also of note
Microsoft acquired a minority stake in ContentGuard, a unit of Xerox that plans to allow publishers and authors greater control over their digital material ? Sony agreed to license Psion's Symbian software for its next-generation wireless devices ? CheckFree Holdings will buy Bank of America's electronic billing and payment assets through a strategic agreement that will give the bank a 16 percent stake in the provider of financial electronic commerce services and products.