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Tech Industry

The week in review: Deals in jeopardy

Just as it looked as though Microsoft had resolved its antitrust troubles, a Justice Department deal may be derailed. A similar fate may await Hewlett-Packard and Compaq's planned merger.

Just as it looked as though Microsoft had put its antitrust troubles behind it, a Justice Department deal may be derailed. And a similar fate may await Hewlett-Packard and Compaq Computer's planned merger.

Several states refused to accept an agreement between the Justice Department and Microsoft, choosing instead to press further antitrust litigation against the software company. Nine of the 18 co-plaintiff states have now given their support to the proposal. But the refusal doesn't mean that those states will not come to terms with Microsoft at a later date.

One attorney general said the case's mediation process "produced some real progress," especially regarding its disclosure of technical information on servers. Other concerns remain about the dictates for Microsoft, including safeguards for PC makers and openness to third-party applications.

Legal and industry experts call the settlement a mixed victory--an agreement that theoretically opens the door to competing software companies but isn't likely to change Microsoft's profile as the most familiar and influential software company in the world.

Most experts agree that the settlement, if approved, would do little to undermine the company's vast market power--even as it restricts Microsoft's ability to abuse that power. With its enormous financial and technical resources untouched, and its ability to add new features into the Windows operating system unchanged, Microsoft will continue to dominate the market, they say.

Many industry observers are wondering whether the HP-Compaq deal will survive long enough to face antitrust scrutiny. The first rumblings of major opposition to the merger came from the descendants of HP co-founder William Hewlett. Three of William Hewlett's children and the family's trust--representing about 5 percent of HP's shares--said they will vote against the deal if it is brought to a shareholder vote.

That news was quickly followed by an announcement from David Packard, who said he would support the Hewlett family's decision. However, David Packard is not part of the David and Lucile Packard Foundation, which owns 10.3 percent of HP's shares and could vote either way.

Executive defection
Even without the outside distractions of keeping the Justice Department at bay and holding mergers together, running a company is a difficult task--perhaps too difficult sometimes.

Palm Chief Executive Carl Yankowski resigned after a brutal year in which the handheld computing leader went from being profitable and flush with cash to being plagued by a glut of products and significant losses. Company Chairman Eric Benhamou will serve as CEO until a permanent replacement is found.

Palm began the year still struggling to keep up with demand. However, delays and other problems with the launch of the m500 series, combined with weakening demand, led large quantities of Palm's products to pile up on the shelves of retailers and distributors.

One departure in particular may signal the loss of an entire unit. The head of DoubleClick's media unit resigned, raising new doubts about the future of a business that it pioneered and that helps fund hundreds of small Web publishers. Barry Salzman said he announced his resignation internally two weeks ago and plans to leave the company officially Dec. 1. Jeffrey Silverman, general manager for U.S. Media, was named his replacement.

The departure comes amid speculation that the company plans to exit its media business, which has been blamed for steep losses in recent quarters. Salzman would not comment on whether the company plans to drop out of media.

Sometimes executives leave because there's just less to do. After learning that she would be relieved of much of her responsibilities, Sue Parks, senior vice president of Gateway's U.S. Markets Group, said she plans to leave the company.

Parks, who was head of the unit that sold to businesses, schools and government agencies, learned that CEO Ted Waitt planned to redistribute some of her duties so executives and managers would have increased accountability and more control over various parts of the business. Parks decided to resign rather than take on less responsibility.

Threat to the Net
The terrorist attacks of Sept. 11 may not have touched the Internet, but the incidents have put the high-tech industry on notice, President Bush's special adviser on cyberspace security said.

In his first speech since Sept. 11, Richard Clarke stressed that the nuisance of online vandals and the occasional hacker should not be used as a yardstick to measure the threat of terrorism to cyberspace. "Think not about the costs that have already occurred as a measure of what could occur," he told security experts, privacy advocates and policy-makers at Microsoft's Trusted Computing conference.

"Our enemies are smart; they are not to be underestimated," he added.

A Capitol Hill lobbyist at the conference echoed that point, warning that if computer and Internet industries don't work together to promote better security online, lawmakers are likely to regulate the Web. Congress has become impatient with the perceived lack of progress by industry, said Michael O'Neill, adding that government-mandated security guidelines may be coming.

"Help yourselves," said O'Neill, who represents an encryption tech-industry group. "Fix security soon, or Washington will do it for you." Internet security affects more than consumers. Business and government data are also at risk, and that could lead to more pressure to legislate, O'Neill said, especially if terrorists use the Internet to conduct attacks.

Who is to blame for the state of security on the Internet? According to Scott Culp, Microsoft's manager for security response, hackers are. In a recent essay posted on Microsoft's security site, Culp decried what he called "information anarchy"--the practice of not only finding flaws in software, but also of publishing methods of taking advantage of those flaws. CNET News.com quizzed Culp on Microsoft's new push for limited vulnerability disclosure and what the high-tech industry has to do to better secure its systems and networks.

Happy holidays?
Thinking you'll find last-minute holiday travel deals online? Think again. Conventional wisdom dictates that the cash-strapped airlines will unload unused tickets at the last minute on the Internet. But travel industry veterans warn that restricted flight schedules, combined with surprisingly robust demand, will limit last-minute deals for Thanksgiving and Christmas. They're urging most domestic travelers to confirm seats now--or risk paying a fortune to go home for the holidays.

And it looks like there will be plenty of competition for those tickets. New research suggests that the Internet has expanded beyond the cybersavvy jet set. A recently released survey indicated that 21 million Americans "usually" make travel arrangements online--75 percent more than last year.

Despite the online travel sector's success, predictions are mixed on whether consumers will spend more online this holiday season. Surveys from research firms such as Jupiter Media Metrix and Nielsen/NetRatings predict gangbusters growth in online shopping again this holiday season. But the numbers don't jive with predictions from individual e-tailers such as Amazon.com and eBay. Analysts say the sketchy nature of predicting consumer confidence, as well as some lowballing by companies nervous about reaching Wall Street estimates, could be to blame.

Also of note
The sour economy, broadband price hikes, and a continuing dearth of online content are prompting some adopters to cancel their high-speed Internet connections...The handheld computer industry saw a 9.5 percent drop in shipments during the third quarter, as economic woes and weak consumer demand took their toll...Advanced Micro Devices said that starting in 2003, it will use another company's factories for the first time to help make its microprocessors...A prominent civil liberties group is jumping to the aid of MusicCity, a popular file-swapping company confronting a lawsuit from the Hollywood and record industry that could blaze new, influential legal ground...Engage has asked former customers of its defunct online advertising network to accept little more than half of what they are owed in back payments...As Amazon.com struggles with a vastly expanded retail strategy, it is losing ground in the business that the company was created for: selling books...Yahoo will introduce a transaction fee for its online auctions, a shift in the company's policy that it says many sellers have been clamoring for.

Want more? Check out all this week's News.com headlines.