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Week in review: Big Blue bids adieu to PCs

IBM tips the balance of power by essentially bowing out of the PC business, handing the reins to China's Lenovo.

IBM, the company that helped usher in the age of the personal computer nearly 25 years ago, stunned the tech world with the announcement that it would largely be bowing out of the business.

Big Blue plans to sell its PC division to China-based Lenovo Group and take a minority stake in the former rival in a deal valued at $1.75 billion. The two companies plan to form a complex joint venture that will make Lenovo the third-largest PC maker in the world, behind Dell and Hewlett-Packard.

Lenovo will be the preferred supplier of PCs to IBM and will be allowed to use the IBM brand for five years under an agreement that includes the "Think" brand. Big Blue has promised to support the PC maker with marketing and its IBM corporate sales force.

Sam Palmisano, chief executive of IBM, says he felt the company had simply grown apart from the PC industry. In a memo distributed to IBM employees and reviewed by CNET, Palmisano explained that Big Blue's strategy to concentrate on so-called on-demand computing had become incompatible with running a PC business.

"IBM is an innovation company," he wrote. "It's why we have invested billions of dollars in recent years to strengthen our capabilities in hardware, software, services and core technologies focused on transforming the enterprise."

Stephen Ward, general manager of IBM's Personal Systems Group, has been anointed future CEO of China's Lenovo. Ward took some time out to discuss the early aims of the "new Lenovo" and its role in the PC market in the United States, China and parts in-between.

Open season at OpenWorld
Michael Dell, whose namesake company is the top-ranking PC maker, is not a big fan of the acquisition. During a question-and-answer session at Oracle's OpenWorld conference, the Dell chairman said a deal between Lenovo and IBM would likely follow a pattern seen in many mergers where two very different organizations fail to mesh.

"We're not big fans of the idea of taking companies and smashing them together," Dell said. "When was the last time you saw a successful acquisition or merger in the computer industry? It hasn't happened in a long, long time...I don't see this one as being all that different."

Some of Dell's top executives also disparaged the "big iron" approach of building large, powerful servers--a dig at rivals IBM, Sun Microsystems and HP. Those competitors see expensive, refrigerator-size servers with dozens of processors as a good way to tackle high-end corporate computing tasks.

Dell prefers clusters of lower-end systems linked over a high-speed network. A crucial component in making server clusters useful is a database that can spread across them--a database such as Oracle 10g, which Dell touted during a keynote speech.

Dell's partnership with Oracle is aimed at luring customers away from Sun servers running the Unix operating system.

Indeed, few companies were off-limits to Dell, as the executive who oversees the partnership with Red Hat said the Linux seller needs to lower its prices, or risk losing customers to free versions of the open-source operating system.

"We believe Red Hat Enterprise Linux 3, for the small and medium-size business market, was out of the price range of these customers," said Judy Chavis, director of business development for Dell's enterprise product group.

Dell has the marketing muscle to make its opinions clear. Indeed, Red Hat's pricing was instrumental in Dell's decision to sign its October pact to sell Novell's SuSE Linux.

With so many things on his mind these days, coming up with fresh material for a keynote speech didn't appear to be on Oracle boss Larry Ellison's list of priorities. Ellison virtually recycled his speech from last year's conference, warning thousands of tech professionals gathered to hear him speak about the dangers of "data fragmentation."

He also promised that if the takeover attempt is successful, Oracle will finish building new versions of programs that PeopleSoft is now developing and eventually merge those products with Oracle's own.

"We're going to invest more in the product than either company could have done independently," Ellison said. "And we're going to give SAP a good run for their money in this business."

Oracle and HP also announced a partnership to try to reach more small and medium-size businesses. The companies will cooperate to unify their relationships with the resellers that reach smaller customers, to jointly develop and certify Oracle's software with HP's ProLiant servers, and to expand programs for reseller training, sales and marketing.

The wild, wild Web

McNealy showed a photo during an OpenWorld speech to illustrate how rapidly technology improves--but instead illustrated another computing phenomenon: how easy it is to fall for an Internet hoax.

During his keynote address, McNealy displayed a picture supposedly from the magazine Popular Mechanics showing how people in 1954 envisioned the home computer. His point was to show how far computing has advanced beyond what was expected. Alas, in reality, the photo he used is a doctored picture of a nuclear submarine control room mock-up, according to the myth-debunking site

But he may not be alone. A function built into all major browsers could be co-opted by attackers to fool Web site visitors into surrendering sensitive information.

The issue, which security firm Secunia labeled a flaw, could allow a malicious Web site to refer visitors to a legitimate site--such as a bank's Web site--and then control the content displayed in a pop-up windows. The issue affects Microsoft's Internet Explorer, the Mozilla Foundation's Mozilla and Firefox browsers, Opera's browser, the open-source Konqueror browser and Apple Computer's Safari, the firm stated in advisories on its site.

Meanwhile, the number of phishing attacks launched each month has increased nearly 10-fold this year. Tech security company MessageLabs, which has intercepted almost 20 million phishing e-mails throughout 2004, said in its annual report that the number of phishing attacks has soared from 337,050 in January to 4.5 million in November. The rate rose most sharply between June and July--from 264,254 to 2.5 million--which could be due to the widespread use of zombie networks.

DVD division
In an effort to ease the transition to higher-capacity disc technology, Toshiba and Memory-Tech have developed a dual-layer disc that supports DVD and HD DVD formats. The disc will be single-sided, with the upper layer storing up to 4.7GB of data in the DVD format and the lower layer holding 15GB of HD DVD data.

On the other side of the DVD fight, Disney said it will release movies on the Blu-ray format in North America and Japan when the discs become available. Manufacturers and disc makers said players and discs should start hitting the market in late 2005 or early 2006. On Friday, Thomson said its Technicolor business will manufacture both the HD DVD and Blu-ray discs.

The Disney announcement means consumers will be able to get movies from Buena Vista Home Entertainment on the Blu-ray Discs. Also part of the library of films are those from Walt Disney Home Entertainment, Hollywood Pictures Home Video, Touchstone Home Entertainment, Miramax Home Entertainment, Dimension Home Video and Disney DVD.

Meanwhile, a Hollywood-backed technology group is suing a high-end home theater system company, contending that its home DVD jukebox technology is illegal. The DVD Copy Control Association, the group that owns the copy-protection technology contained on DVDs, said a company called Kaleidescape is offering products that illegally make copies of DVDs.

Kaleidescape creates expensive consumer electronics networks that upload the full contents of as many as 500 DVDs to a home server and allow the owner to browse through the movies without later using the DVDs themselves. That's exactly what the copy-protection technology on DVDs, called Content Scramble System, was meant to prevent, the Hollywood-backed group said.

Special report: Japan's sun rises again
The Japanese economy is undergoing historic changes to realize a long-awaited recovery led by technology and other industries. As a result, stakes are particularly high this holiday shopping season as consumer electronics plays an important role in the turnaround effort.

A three-part CNET special report examines the challenges faced by tech companies, the changing face of the corporate culture, and the culture clash between techno-pop and ancient traditions.

Also of note
U.S. Supreme Court justices questioned whether states discriminate in favor of local wine suppliers by banning direct sales to consumers from out-of-state wineries in a pair of cases that could affect wine prices and choices...Microsoft is battling the vulnerability of weak passwords by adopting a new security measure for its internal networks: smart cards for every employee...Intel once said desktop buyers wouldn't really need 64-bit capabilities until later in the decade, but the company will make such capabilities a feature across its desktop lines next year...Companies that use free software downloads to target Web surfers with annoying ads are turning on each other to keep customers--and the cash they generate--for themselves.