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Week in review: Hardware heartaches

Hardware problems for some of the industry's heaviest hitters shakes the stock market and leaves lingering questions about firms' financial futures.

Hardware problems for some of the industry's heaviest hitters shook the stock market this week and left lingering questions about firms' financial futures.

As first reported by CNET, Intel acknowledged a major problem involving Rambus memory technology that could delay for months computers that were scheduled to debut next week. The news, combined with a negative investment banker report, contributed to an 18 percent plunge in Rambus's stock.

The problem could force PC makers to throw away critical parts of new high-end computers or face the prospect of shipping potentially faulty machines. Although it is too early to determine the extent of the damage, one analyst estimated that hundreds of thousands of computers are affected.

Separately, Apple Computer, long on its road to financial recovery, announced that its fourth-quarter earnings would fall below estimates on a shortage of PowerPC G4 processors that power its popular Power Mac desktop and laptops.

Although the PC maker previously used both IBM and Motorola to supply it with processors, Motorola became its sole supplier with the introduction of Apple's G4 line. With the shortage, many analysts expressed concern that the company would not be able to meet its own target ship dates.

This concern is not new, as Apple has had a history of problems managing product supply, including its PowerBook notebooks. Yet Motorola claimed that the shortage stemmed from overwhelming demand and that the situation was actually an endorsement of the new chip technology.

All Net
In the increasingly cutthroat market for Internet service providers, it seems that there is survival and perhaps even safety in numbers.

Internet service providers EarthLink Networks and MindSpring Enterprises agreed to combine efforts, merging into a $3 billion company with about 2.8 million subscribers.

Small and mid-sized ISPs face growing pressure from larger players like America Online and other Internet firms. The growing acceptance of free ISPs has also drawn potential subscribers away from paid services.

The merger announcement was greeted with quick approval by most analysts, who said the two companies--now squarely ensconced in the market's No. 2 slot--are now better poised to take on the competition.

And there is plenty of it. Microsoft this week announced new moves to revitalize its MSN Internet effort. Plans include a new search and directory site, a new portal for small businesses called "bCentral," and a new distribution scheme to push the recently launched MSN Messenger service.

Yet in a surprise move, the software giant decided to raise its monthly fees for its MSN Internet service. Microsoft justified the increase, saying it was simply matching earlier price hikes by rival America Online. But while other ISPs continue to slash fees and even offer free service, many analysts questioned whether the hike would help MSN or hurt it.

Wireless world
Local phone firm Bell Atlantic inked a joint agreement with international wireless giant Vodafone AirTouch this week to create a powerhouse with coast-to-coast coverage and more subscribers than any other wireless company in the nation.

The deal aims to take on wireless leader AT&T and beat it at its own game. Bell Atlantic plans to offer "one rate" plans similar to AT&T's that cut long distance charges over wireless networks. The new plans could potentially undermine traditional long distance calling, already embroiled in its own price war.

Wireless phones are only just beginning to act as replacements for local phone calls and, to lesser extent, long distance service, analysts say. But as prices fall with more competition, this trend may pick up.

In an attempt to finally get into the wireless game, MCI WorldCom is reportedly in talks with Sprint for a possible acquisition. The deal, if announced, would marry the No. 2 long distance firm with its closest rival, which also manages an attractive nationwide wireless network. MCI WorldCom's last attempt at gaining wireless ground failed with its scrapped acquisition of Nextel Communications.

Auction away
Auctions seemed to be on everyone's mind this week, as traditional players and Internet newcomers made moves in the market.

Some of the tech industry's major firms, such as Microsoft Network, Excite@Home, and Lycos, challenged the position of the Net's leading auction site eBay by launching their own online auction network.

Despite the big names involved, analysts and others in the industry say eBay will be tough to topple because of its vast market lead. The online giant owns 70 percent of the consumer auction market and an even larger share of the person-to-person auction market.

A leader in the brick-and-mortar retail world, Wal-Mart is looking to charge its e-commerce efforts and possible auction interests in time for the holiday season.

CNET learned that Wal-Mart's Internet unit, Sam's Club, quietly posted an online ad for a manager to run an interactive auction site--a move that could indicate plans to greatly expand its presence on the Net.

Although Wal-Mart revolutionized the retail world with its marketing might, analysts are concerned its Internet performance may not be as stellar. The retail giant plans to test computer service centers in ten stores and has cut an exclusive deal with Book-A-Million to provide reading material to its online shoppers.

Rock out
In a development that could influence the direction of consumer electronics, Sony unveiled its new Walkman, a device that supports music downloaded from the Internet.

The new Walkman, which features Sony's "Memory Stick" technology, was introduced this week alongside other new portable music models. Smaller than a piece of chewing gum, the Memory Stick is a storage medium competing with memory flash cards for dominance in electronic devices, such as PCs and digital cameras. It is expected to arrive in U.S. stores in January and retail for about $400.

Yet not all music issues were in tune this week. Industry infighting threatens to undo efforts at reaching a consensus on how to secure music downloads online--an impasse that could stunt progress at a critical stage for the nascent business.

In response to the explosion of music on the Net--much of it available illegally--music companies and consumer electronic firms formed a group called the Secure Digital Music Initiative (SDMI). The consortium was charged with creating a specification for portable music devices, like Diamond Multimedia's Rio player.

But internal battles may hold up specifications, which means devices that go to market for the holiday season may not be standards-compliant. Industry observers have said that missing the holiday deadline could threaten SDMI's overall standards effort.

Also of note
The Net revealed its darker side as an executive at the helm of Walt Disney's Web sites was charged with soliciting sex from a minor over the Internet?Cheap PC maker Emachines got hit with a scathing analyst report about its upcoming IPO and lost a legal battle with Apple over its latest PC designs?Lawyers presented closing arguments in the government's case against Microsoft, leaving the monumental antitrust case in the hands of the presiding judge for a decision.