The week in review: Shortages and their discontents

LCD screens and particularly flash memory are in tight supply, restricting the availablity of handheld computers, mobile phones and other devices. Even PCs have not been exempt. The imbalance may take some time to resolve, as semiconductor fabrication plants cost billions of dollars and require years to bring online.

Sooner or later
Several leading companies have been hit hard. Palm Computing acknowledged some of its hot-selling products are scarce, while Nintendo said a new Game Boy would be delayed to the end of the year.

Palm's troubles may be due to strategic missteps, however, particularly as color-screen models are readily available.

For its part, Intel announced its intention to invest some $2 billion in the development and production of flash memory, prized because it retains its contents when a device is turned off. Wireless devices are gobbling up most of its flash chips, the company said.

The manufacturing giant also revealed it will spend another $2 billion on a new plant for high-end copper processors. But the demand for chipmaking equipment too continues to outpace supply, and Intel chief executive Craig Barrett declared the shortage of processors which power high-end PCs and servers will likely persist for another year.

Even though Intel this week released a 933-MHz Pentium III, Gateway said it will double the number of chips it buys from Advanced Micro Devices. The PC maker holds Intel accountable for its poor fourth-quarter sales.

Cash and carry
Napster collected $15 million in funding while hiring a new chief executive from venture capitalist Hummer Winblad. Partner Hank Barry's experience in the record industry could alleviate legal problems facing the fast-growing but controversial MP3 swapping service. Separately, a study showed declining CD sales at stores located near universities, seemingly confirming the record industry's predictions of collegiate piracy.

Yahoo is quietly testing software for playing and managing digital media files, intendeding to compete head-to-head with RealNetworks and Microsoft. Early in the week, Real unveiled a product that packages many of its online media delivery services into one offering, in an attempt to maintain its narrowing lead in the streaming media business.

NorthPoint Communications has been struggling with new order management software, delaying DSL installations for some Internet service provider partners. The huge demand for high-speed Internet connections has made keeping up with orders and installations a difficult task. Elsewhere, Bell Atlantic chief executive Ivan Seidenberg described his company's DSL rollout as "average."

Cisco packaged three recent acquisitions in launching a group that will sell Internet-based communications software to service providers and e-commerce Web sites. Hoping to complement equipment sales, Cisco and its rivals have been pushing to develop products that accommodate the integration of voice, video and data across a single network.

Tellme Networks and AT&T agreed to collaborate in developing voice access capabilities for Web sites, while rival Quack.com struck a similar deal with Lycos that will allow people to reach the portal's information over an ordinary phone. The two pacts seem to validate a market that has been long on venture capital and industry buzz but short on proven consumer demand. The voice portal business is based on the notion that consumers will want to access the kind of information they can find on the Web at times when no good Web connection is available.

Hot tin roof
Acting on a "stage two emergency" issued by California, a high-tech trade group called on its 175 members to conserve energy during the San Francisco Bay Area's first major heat wave of the year. The warning, which affected nearly one in four of the region's employees, underlined industry concerns about the huge amounts of energy needed to fuel the Internet economy. Larger tech firms that rely on continuous connectivity can lose millions of dollars per minute when the power dies.

The vast majority of business-to-business marketplaces will vanish within two years as failures and consolidation sweep through the sector, according to a trade-conference panel. Right on cue, Vignette agreed to acquire OnDisplay in a stock swap between the Internet commerce software and infrastructure companies valued at $1.7 billion, and e-commerce software maker WebMethods bought Active Software in a stock deal valued at $1.3 billion.

Disney-controlled Toysmart.com closed its doors, becoming the latest e-tailer to suffer from increased competition and a slumping market. Red Rocket, owned by media giant Viacom, ceased operations two weeks ago, citing difficulties in sustaining its educational toys business.

Precipitous
Microsoft and the government once more wrangled over the proposed breakup of the software giant, but Judge Thomas Penfield Jackson showed interest in a three-way split. The remedy would sunder Microsoft into an operating system company, an applications company that would control Microsoft Office and other software, and a third company that would take possession of Microsoft's Internet properties, including MSN. Jackson surprisingly said there would be no more hearings and is expected to issue a ruling soon.

U.S. antitrust regulators agreed to approve AT&T's merger with MediaOne under a complicated set of rules that force the companies to sell Road Runner. Under the terms of the deal, AT&T can move much of what is valuable about MediaOne's interest in Road Runner-- customers and technological assets--into the portfolio of AT&T-controlled Excite@Home. That will likely swell the rival cable modem company's subscriber ranks by hundreds of thousands, as well as give it a broad new swath of territory to mine for new customers.

Two Linux retailers agreed to join forces, hoping to become the first publicly traded Linux company to achieve profitability. LinuxMall had been on track for an IPO while the Linux Store is already publicly traded on Nasdaq's over-the-counter bulletin board system.

Advanced Micro Devices will sell 90 percent of its communications division to an investment firm, following through on its promise to bow out of the segment. The division designs and manufactures integrated circuits used in analog and broadband modems, along with products marketed to telephone and DSL providers. Last October, AMD said it would sell both that unit and its network products division, but decided to retain the latter.

Also of note
PC retail prices have started to stabilize, a sign that falling PC and portable prices are a thing of the past, but consumer choice is here to stay ... IBM unveiled servers powered by chips that use an advanced manufacturing process which could improve performance 20 to 30 percent over existing technology, and won a copper-chip contract with Compaq Computer ... A University of Kentucky supercomputer is powered by AMD technology designed to improve PC games' 3D graphics ... Standard & Poor's moved to shore up its service for providing stock quotes and news amid accusations the product is wide open to network attacks ... Biztravel said it will pay customers up to $200 if they have problems with flights booked through their service, and promptly crashed.