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The week in review: Compaq CEO ousted

In a surprise move, Compaq's board ousts Eckhard Pfeiffer, one week after the world's largest PC maker warned that first-quarter earnings would fall well short of expectations.

In a surprise move, Compaq's board of directors ousted chief executive Eckhard Pfeiffer, one week after the world's largest PC maker warned that first-quarter earnings would be about half of Wall Street's expectations.

Prompted by chairman Benjamin Rosen, the shakeup also included the departure of chief financial officer Earl Mason, who left to become the CEO of a Chicago food company. Rosen and vice chairmen Frank Doyle and Robert Ted Enloe will jointly operate as Compaq's office of the chief executive until a new head is hired.

Ouster
Analysts immediately hailed the move, saying Compaq was ripe for a management overhaul because of baffling corporate behavior and too many earnings surprises.

Compaq had blamed its most recent earnings warning on weak demand in the corporate market, a rationale its rivals publicly questioned. More important, the company's focus seemed to be diluted by recent acquisitions of Tandem and Digital Equipment, which brought Compaq the Alpha chip, a services division, and also the AltaVista search engine.

Getting all of its parts to work together will be one of the first jobs in the revitalization of Compaq, chairman Ben Rosen said in an interview.

Meanwhile, Pfeiffer told CNN.fn that he partly blames Compaq's board both for some of the company's troubles and his dismissal. "There was a lot of behind-the-back discussion. I would have expected more openness, and also I would have expected that after the March board meeting I would have had a chance to present a recovery plan," Reuters reported.

Meeting revised expectations, Compaq duly reported first-quarter profits of $281 million, or 16 cents a share--while lacing its report with harsh statements about its earnings.

Takeover
In an equally unexpected move, AT&T bid $62 billion in cash, stock, and assumed debt for cable company MediaOne, hoping to overturn last month's $60 billion merger agreement between MediaOne and Comcast (an offer that has since decreased in value because of falling stock prices). Less than one year after being spun off from local phone giant US West, MediaOne thus finds itself in the middle of a bidding war that underscores the value of cable operators and their broadband networks.

Meanwhile, the offer demonstrates AT&T chairman C. Michael Armstrong's efforts to reshape the long distance giant. The bid comes a month after AT&T completed its $55 billion buyout of Tele-Communications Incorporated--a deal that will test the much-touted convergence of voice, video, and Internet services--and caps a frenzied year and a half of moving to become a broadband power.

Potential rivals have not stood still. BellSouth invested $3.5 billion investment in Qwest Communications, on the heels of SBC Communications' similar investment in Williams Communications, another newcomer stringing the country with high-speed fiber. The local phone companies aim to be prepared to enter into long distance data and voice traffic as soon as they get the green light from the federal government, which must certify their markets are open to competition.

It's been almost a year since Sprint unveiled its all-in-one high-speed Internet, voice, and data service, called ION (Integrated On-Demand Network), yet only seven large business customers are now using the service. This week, Sprint began a $30 million advertising campaign aimed at touting the benefits of its converged network to individuals and small businesses.

But as AT&T and MCI WorldCom continue moving aggressively, analysts are questioning whether the company can go it alone.

Time Warner's upcoming entertainment hub will offer original programming that rivals television. Entertaindom also may offer content provided by other television and movie studios, according to a Warner Bros. Online executive, further evidence of the so-called coopetition phenomenon that is common among Net companies--but unusual in the entertainment business.

Three months after Disney unveiled the Go Network, the jury is out on whether it makes sense for the entertainment giant to focus all its Web efforts on a new company and a new brand. Is Disney making the right decision by folding some of its most powerful sites--such as ABCNews.com and ESPN.com--under the management of Infoseek?

AOL everywhere
America Online won a place as one of five companies that that will be "testbed" competitors to Network Solutions in the lucrative business of registering ".com," ".net," and ".org" domain names. Critics say the deck is stacked in favor of the incumbent, which will receive a $9 per domain per year for each name its rivals enroll.

Separately, the world's largest ISP plans to offer services to small gadgets that connect to the Internet, eliminating the need for personal computers. Such products could help the online giant reach more computer-phobic customers and should advance its reach in Europe, according to analysts.

At the request of AOL's Netscape, open-source developer Mozilla.org dropped its effort to develop chat and messaging software only a few days after launching the project. Netscape sponsors Mozilla. AOL owns the two most widely used instant messaging clients on the Web--AOL Instant Messenger and the 30 million subscriber-strong ICQ.

Apple Computer will make the server version of its new QuickTime streaming software available to open source developers. The strategy is intended to expand QuickTime's brand recognition, win share in the low-cost servers market, and make inroads among nascent digital TV technologies. Underlining its goals, Apple modified its open source license agreement in response to criticism from the open source community.

RealNetworks is fending off an open-source development threat from a band of university students. The Free Expression Project is revving up with the goal of creating alternatives.

Exposed
As small businesses rush to sell on the Internet, many shop owners lacking technical expertise--and the Web developers and hosting services that create their sites--have unwittingly exposed customer information, including names, addresses, and full credit-card numbers. At least 100 small sites have exposed this information.

A new generation of e-commerce start-ups is moving beyond commodity retail goods toward the home market. Brick-and-mortar companies with established delivery mechanisms will likely have an appreciable edge over start-up Net outfits. Shipping bulky items like appliances, consumer electronics equipment, and furniture can be costly and difficult, and present higher barriers to entry into the online retail market.

Big Blue
IBM reported a surprisingly large 42 percent growth in net income, as part of first-quarter 1999 earnings per share of $1.55, 14 cents better than expectations. Net income totaled $1.5 billion compared with $1 billion in the first quarter of last year, while revenues grew 15 percent to $20.3 billion. Earnings per share, net income, and revenue results were all first-quarter records. The company's stock climbed.

As part of that success, and despite chief executive Lou Gerstner's notorious comment that "the PC is dead," IBM is using its PC business as an entr?e for its profitable services businesses. In the first quarter, revenue in personal computer systems jumped over 48 percent to $3.5 billion, but sales resulted in a pretax loss of $89 million, the sign of its aggressive attempt to gain share.

HP says it will beat IBM out the Linux support gate, offering technical support by May 3. In the process the computing giant will start to put financial pressure on the companies that helped launch the Linux revolution. One of those start-ups, Red Hat, will announce its new Linux package Monday, a version of the Linux OS that should be faster, more manageable, and probably more expensive. Red Hat also signed a new chief financial officer.

Sun Microsystems will consolidate its three software-related divisions into one or two because of upheavals caused by the AOL-Netscape merger and the related AOL-Sun tie-up, according to Ed Zander, Sun's chief operating officer and newly appointed president. The Sun-Netscape Alliance, which calls for Sun to resell Netscape server software, has drawn hundreds of employees from divisions dealing with consumer and embedded technology, the Solaris operating system, and Java.

Intel an ISP?
Intel rolled out an ambitious plan under which the chip giant will begin to provide data hosting, Internet connectivity, application delivery, and Web consulting services to customers--essentially the higher-end consulting services that many Internet service providers now market. The idea of Intel "bit factories" consisting of thousands of servers all over the world represents another element in the company's goal of becoming a communications powerhouse.

A growing number of companies are outsourcing IT training programs to help keep up with Internet commerce and new Web-based business. The market, which includes tools, content, and services, grew to $16.5 billion in 1998 and is expected to reach $22.9 billion in 2001, according to a research firm.

Lucent Technologies is offloading a sales and services unit in an effort to reach more small-to-midsized businesses. The unit will be sold to a group of private investors and will become the firm's largest indirect sales channel. Excluding charges, second-quarter profits more than doubled to $442 million or 16 cents a share, beating Wall Street expectations, as revenues increased 33 percent.

Also of note
Gateway's better-than-expected first-quarter earnings of $99.6 million, or 62 cents per share, topped last year's figures by 31 percent ? First-quarter profit at AirTouch rose to $211 million, or 35 cents a share, 83 percent better than year-ago net income ? Deutsche Telekom and Telecom Italia unveiled a record $81.4 billion merger, but hurdles appear to remain ? Lucent Technologies teamed up with e.Digital and Texas Instruments to develop a handheld Internet music device that will compete with MP3 systems ? Apple's insistence on bundling all colors of its popular iMacs in packages of eight has cost the company shelf space at office supply giant Best Buy ? Sen. Chris Dodd (D-Connecticut), vice chairman of the Senate Special Committee on the Year 2000 Technology Problem, spurned revisions to a Y2K bill sponsored by Commerce, Science, and Transportation chair John McCain (R-Arizona) and Ron Wyden (D-Oregon) ? A government body responsible for accounting guidelines voted to eliminate the "pooling of interest" method of accounting for acquisitions, meaning buyouts of high-tech companies, especially Internet ventures, will likely become a lot more costly ? Financially struggling PointCast is no longer considering an investment offer from company founder Chris Hassett.