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The week in review: Tech in turmoil

High-tech companies stagger through the Nasdaq index's biggest-ever one-week decline, overwhelmed by investors' furious retreat from last month's record territory.

    High-tech companies staggered through the Nasdaq index's biggest-ever one-week decline, overwhelmed by investors' breathtaking retreat from last month's record territory.

    The threat of Internet companies running out of cash, Microsoft's continued antitrust troubles, and even news of rising consumer prices dealt the tech-laden market continued blows, slightly heavier than those suffered by the rival Dow Jones industrial average. Whether the rout will lead to a broad economic downturn is unclear, but dot-coms certainly face a changed business environment.

    Dramatic downturn
    On Friday alone, the Nasdaq fell nearly 10 percent, its largest one-day decline. At 3,321.29, the market was off more than a third from its March 10 peak of 5,132.52.

    Compensation experts say the tumble casts a shadow over the liberal use of stock options, favored by cash-strapped high-tech firms and start-ups as a means of luring job candidates. Tech companies may have to scale back generous grants in favor of larger salaries and annual cash bonuses that aren't directly tied to the company's stock price.

    Indeed, more-established companies such as IBM are trying to lure back employees who earlier left for start-ups.

    Meanwhile, investors are becoming more selective in looking at start-up business plans. Management teams are coming under pressure to reach profitability, or least to generate cash flow.

    Will the tight labor market also come to feel the consequences of the decline? As tech employers struggle to find suitable employees, fewer people are getting fired, executives quietly acknowledge.

    Collison course
    Canada's Research in Motion unveiled a cross between its email pager and more-common handheld devices. The launch moves the company into direct competition with Palm Computing. For its part, the leading handheld maker has already begun offering wireless services. Separately, RIM's fourth-quarter earnings topped estimates, but its shares fell as analysts reduced their revenue estimates.

    IBM expects to begin shipping a new line of personal computers by mid-May. The NetVista models, which incorporate flat-panel displays, will be the first test of Big Blue's plan to get its PC business back on track. IBM has done well selling notebooks and servers, but inefficient manufacturing and distribution and dull designs have hindered its desktop business.

    Hewlett-Packard later this month will release a new line of notebooks in an attempt to bolster its position in the corporate market. Notebooks have troubled HP, long ranked as a top seller of desktops and servers. Strategic reorganization, slimming the product line and focusing on price has recently boosted market share and may set the stage for bigger gains.

    Compaq ranked as the top seller of Linux servers in 1999's fourth quarter, beating out Linux specialty shops as well as established computer makers in a market that grew 166 percent over the past year. Linux-based systems accounted for only 6 percent of the total entry-level server market--computers costing less than $100,000--but logged the fastest growth.

    Stealth broadband
    Sony and big TV broadcasters announced new investments and affirmed their commitment to creating high-speed Net services at this week's annual National Association of Broadcasters convention. While telephone and cable companies fight for Web surfers' high-speed Internet dollars, the media industry--intent on delivering its content using its own means--is quietly building a new set of niche networks (including video, music or online games) that could lead to a future in which Web surfers are no longer tethered to their personal computers.

    A host of wireless Internet start-ups aim to capitalize on the federally mandated ability to pinpoint subscribers by sending location-specific information such as maps, restaurant reviews, or targeted ads directly to mobile phones, pagers or handheld computers. Some may find such services handy, and some an annoyance or worse.

    Consolidation
    S3 agreed to sell its graphics technology unit to a joint venture owned primarily by Via Technologies for $323 million. The business will work with Via to produce chipsets with integrated graphics capabilities. The expected move furthers consolidation in a market where profits have declined and research and design complexity has increased.

    On the strength of its Athlon processor and sales of flash memory, AMD reported record revenues and earnings for the first quarter--doubling analysts' estimates-- and said the second quarter could be even better. Sun Microsystems also topped expectations on the strength of server sales, while Gateway matched Wall Street, turning in strong consumer sales and services numbers.

    Shares of J.D. Edwards plummeted after the business software maker said its chief executive resigned. Doug Massingill had been tapped to shift the company's focus to the Internet. Founder C. Edward McVaney was reappointed to the post.

    In the courts
    Heavy-metal band Metallica sued the Napster MP3-trading software company and a trio of universities, charging that together they were responsible for massive violations of the band's copyrights. The suit amplifies the legal questions swirling around Napster and its various clones, which in just a few months have created broad new channels for online music piracy.

    Meanwhile, Napster's lawyers are trying to use the Digital Millennium Copyright Act to derail a separate copyright lawsuit. A decision on a defense motion to throw out the suit under the DMCA's so-called safe harbor provisions could weaken the hard-fought act. The case at once underscores serious problems in the music industry's digital media strategies, which have been largely driven by fears of intellectual property theft, and the fact that even relatively recent laws have not kept up with the rapidpace of technological advances.

    A trade group survey found that pirated software accounted for more than 90 percent of software auctions at such leading sites as eBay, Yahoo, Amazon.com and Excite@Home. The study comes two weeks after Sega, Nintendo and Electronic Arts sued Yahoo over the alleged sale of pirated goods on its auction and store sites.

    Also of note
    A German court found America Online liable for allowing people to swap pirated music files on its service, a ruling that could boost the entertainment industry's battle to clamp down on the Net music black market--at least in Europe ... MicroAge filed for Chapter 11 bankruptcy protection to aid in its reorganization from distributing computer products to providing business-to-business services ... Cable Net access company Excite@Home signed a deal with Rhythms NetConnections, a wholesale DSL provider, giving it access to more than 15 million homes ... Windows Me, Microsoft's next consumer operating system, tightly bundles Internet Explorer, Windows Media Player and links to MSN Internet sites notwithstanding legal problems generated by the practice ? Sony is banning the real-world auctions of virtual-world characters and goods from its popular online game EverQuest to prevent cheating and animosity growing among players.