The week in review: Security alert

Microsoft's recent spate of embarrassing security problems prompted Bill Gates to announce a shift in company focus. Some observers wonder if it isn't all just hype.

Steven Musil Night Editor / News
Steven Musil is the night news editor at CNET News. He's been hooked on tech since learning BASIC in the late '70s. When not cleaning up after his daughter and son, Steven can be found pedaling around the San Francisco Bay Area. Before joining CNET in 2000, Steven spent 10 years at various Bay Area newspapers.
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Steven Musil
5 min read
Microsoft's recent spate of software security breaches has prompted a new focus on security and privacy issues. But some observers wonder if the new strategy is marketing spin, or a real effort to correct the problems of the past.

"When we face a choice between adding features and resolving security issues, we need to choose security," Gates wrote in an e-mail sent to Microsoft employees. "Our products should emphasize security right out of the box."

The move comes on the heels of the software titan finally fixing a technical glitch in one of its servers that had caused confusion among Windows users. The error caused the company's automated updating system to fail frequently during a five-day period.

At the same time a security expert revealed that new privacy-enhancing controls in Microsoft's Internet Explorer 6.0 can be rendered useless by a long-known security flaw in Windows Media Player.

While security experts gave Gates' message high marks, they withheld judgment on whether Microsoft can deliver. The company's new focus is welcome, but some in the security community remain cautious. Microsoft--a company found to have abused its monopoly power--isn't exactly the poster child for trustworthiness, and some are wary of the new initiative.

State of the industry
Despite security issues, Microsoft did have something to be proud of this week. The software giant whizzed past analysts' sales projections to post record revenue but saw earnings hit by court battles.

Sales soared past expectations owing to stronger-than-expected demand for Windows XP licenses, the Xbox game console and MSN. But higher sales of lower-margin products and the hefty investment required to launch the Xbox game console negatively affected earnings. Sales of desktop applications, which historically accounted for more than 40 percent of profits, also continued to lose momentum.

Servers and services helped Compaq Computer turn a profit in the fourth quarter despite the hubbub surrounding its proposed sale to Hewlett-Packard. Compaq executives have said their company can thrive even if the HP deal collapses.

Apple Computer's quarterly earnings were in line with Wall Street estimates, though sales fell short of the company's own projections. Apple attributed the shortfall to weaker iMac sales, citing the product line's age and expectations that a successor was coming. The company also noted that some education customers delayed purchases amid concern over the general economy.

Chipmaker Intel closed a difficult 2001 by reporting revenue and earnings for the fourth quarter that were higher than expected, although the outlook for 2002 remains unclear. Despite the slowdown in sales, the market for processors began to pick up toward the end of the year, or at least to beat overly pessimistic estimates, resulting in sporadic shortages. Net income and revenue, for instance, climbed from the third quarter.

The news wasn't as good for all tech giants: IBM reported slower fourth-quarter sales than in the same period a year earlier, but the company still managed to top Wall Street expectations.

Executive swap
Yahoo's fourth-quarter earnings exceeded Wall Street expectations, but that didn't keep President and Chief Operating Officer Jeff Mallett from announcing that he would resign.

Mallett was at the center of Yahoo's fabled ascension from a Stanford trailer park to a fearless leader of the new media revolution. But when the Internet economy began to stagger, so did Mallett's run in the company.

After Yahoo's board of directors ousted CEO Tim Koogle in March 2001 and began searching outside the company for a replacement, the writing was on the wall. Since CEO Terry Semel started in May, the biggest question in the minds of many Yahoo executives and insiders was not whether Mallett would resign--but when.

Intel named Paul Otellini president and chief operating officer of the company, giving the general manager of the company's PC processor group the inside track to becoming the company's next CEO. With the promotion, Otellini, 51, will effectively run the day-to-day operations at Intel. CEO Craig Barrett, meanwhile, will concentrate more on strategic issues. The promotion takes effect immediately.

The promotion also makes Otellini the man to beat when it comes to succeeding Barrett. Barrett, 62, hits mandatory retirement age in less than three years and has no plans to retire early.

A more expensive Net
Online auctioneer eBay said that it is raising fees and will begin charging for its popular "Buy It Now" feature, which allows bidders to purchase an item immediately without going through the bidding process by paying a fixed price. eBay also will change the way it calculates fees on Dutch auctions, in which sellers offer multiple quantities of the same item in one auction.

America Online said that it plans to raise the monthly subscription fee for people accessing its features using a different Internet service provider. AOL in October 2001 increased the monthly fee for the service, called "Bring Your Own Access" (BYOA), by 50 percent to $14.95. But it allowed existing members to continue paying $9.95 a month. Now AOL is preparing to charge all BYOA members $14.95 a month for the service.

Millions of people use the Internet to shop for rock-bottom airfare, but in many cases the actual amount they pay is slightly higher than what they are quoted. But some sites are taking advantage of ambiguous federal regulations to post quoted fares excluding special fees.

While this typically results in a difference of just $5 to $10, critics say more fees are planned that could widen the discrepancy. In addition, though the travel sites disclose all costs before an actual purchase, critics say that displaying several prices might mislead customers.

Also of note
Microsoft plans to transform its new Xbox game console into a general home device that handles everything from e-mail to video recording, according to analysts...Flat-panel monitors--which are built around LCDs (liquid-crystal displays)--are selling at rates that remind tech product managers of PC sales in the mid-1990s...Online vandals are using a two-month-old security hole in Sun Microsystems' Solaris and other Unix operating systems to break into servers on the Internet...With hundreds of companies having closed shop in the last year, many former high-tech employees may not get a W-2 form this year and instead may find themselves having to rely on their own records to prepare their taxes...Kazaa has temporarily suspended downloads of its file-swapping software from its Web site, pending a decision by a Dutch court expected Jan. 31.

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